Manner, Inc. has 5,000 shares of 6%, ₤100 par value, noncumulative preference shares and 20,000 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 ₤55,000 dividend in 2014. What is the amount of dividends received by the ordinary shareholders in 2014?

Question

Quizplus · Accepted Answer

The preferred shareholders have a fixed 6% dividend on their ₤100 par value shares, which would equal ₤6 per share. Therefore, the total amount of dividends owed to the preferred shareholders is:

5,000 shares x ₤6 per share = ₤30,000

Since the preferred shares are noncumulative, the preferred shareholders will only receive their ₤30,000 dividend and the remaining ₤25,000 will be distributed to the ordinary shareholders.

The ordinary shareholders have 20,000 shares with a ₤1 par value, so their total dividend per share would be:

₤25,000 ÷ 20,000 shares = ₤1.25 per share

Therefore, the amount of dividends received by the ordinary shareholders in 2014 is:

₤1.25 per share x 20,000 shares = ₤25,000

So, the correct answer is D, ₤25,000.