Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 6%, $100 par value cumulative preference share outstanding. It is one year in arrears on its preference stock. How much cash will Colson distribute to the ordinary shareholders?

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Quizplus · Accepted Answer

Colson Inc. needs to pay the preference shareholders for two years (one year in arrears and the current year). The annual dividend for preference shares is 6% of $100 par value, which is $6 per share. For 6,000 shares, this amounts to $36,000 per year. Therefore, for two years, the total preference dividend is $72,000. The remaining cash dividend for ordinary shareholders is $160,000 - $72,000 = $88,000.