Outstanding shares of the Colt Corporation included 20,000 ordinary shares with a $5 par and 5,000 shares of 4%, $10 par noncumulative preference shares. In 2013, Colt declared and paid dividends of $2,000. In 2014, Colt declared and paid dividends of $6,000. How much of the 2014 dividend was distributed to preference shareholders?

Question

Quizplus · Accepted Answer

The preference shareholders are entitled to a 4% dividend on their $10 par shares, which amounts to $2,000 (4% of $10,000) each year. Since the preference shares are noncumulative, they do not receive any unpaid dividends from previous years. Therefore, in 2014, they receive $2,000.

Outstanding Shares of the Colt Corporation Included 20,000 Ordinary Shares