Jacquet Wholesale Merchandise Inc. had 40,000 shares of 6%, CHF20 par value preference shares and 30,000 shares of CHF25 Par value ordinary shares outstanding throughout 2014. Assuming that total dividends declared in 2014 were $184,000 and that the preference shares are cumulative with two years' dividends in arrears on December 31, 2014, the preference shareholders should receive total 2014 dividends totaling

Question

Quizplus · Accepted Answer

First, we need to calculate how much of the total dividends declared in 2014 should be allocated to the preference shares.

The preference shares have a par value of CHF20 and a dividend rate of 6%, so the annual dividend per preference share is CHF1.20 (CHF20 x 0.06).

There are 40,000 preference shares outstanding, so the total annual dividend payable on the preference shares is CHF48,000 (CHF1.20 x 40,000).

However, the preference shares are cumulative and have two years' dividends in arrears as of December 31, 2014. This means that the preference shareholders are entitled to receive the current year's dividend as well as the two years' worth of dividends that have not been paid yet.

Therefore, the total amount of dividends payable to the preference shareholders in 2014 is CHF144,000 (CHF48,000 x 3).

The remaining CHF40,000 of dividends declared in 2014 would be allocated to the ordinary shareholders.