Looper, Inc. has 25,000 shares of 6%, ₤100 par value, noncumulative preference shares and 50,000 ordinary shares with a ₤1 par value outstanding at December 31, 2014. There were no dividends declared in 2013. The board of directors declares and pays a ₤350,000 dividend in 2014. What is the amount of dividends received by the common shareholders in 2014?

Question

Quizplus · Accepted Answer

Since the preference shares are noncumulative, they do not have any claim to past undeclared dividends. Therefore, the entire ₤350,000 dividend goes to the common shareholders. The preference shareholders are entitled to receive a dividend of ₤1.50 per share (6% of ₤100 par value), which amounts to ₤37,500 (25,000 shares x ₤1.50). The remaining ₤312,500 is distributed among the 50,000 ordinary shares, resulting in a dividend of ₤6.25 per share (₤312,500 ÷ 50,000 shares). Total dividends received by the common shareholders is ₤6.25 x 50,000 = ₤312,500. Therefore, the dividends received by common shareholders in 2014 is ₤200,000 (₤312,500 - ₤112,500 (dividend due to preference shares)).