The owners' equity section of a firm's balance sheet reflects the following at the end of th current year: $6 Preferred shares, 3,000 shares outstanding = $300,000 Common shares, 100,000 shares outstanding = $500,000
(Matching dividend, if applicable, $.30)
The preferred shares participate up to a maximum of $8 ($2 additional participation).There were two years of dividends in arrears on the preferred shares at the beginning of the current year.If the firm declares $90,000 in dividends at the end of the current year, what portion of that amount is distributed to the preferred shareholders?

Question

Quizplus · Accepted Answer

The preferred shareholders are entitled to a dividend of $6 per share, plus an additional $2 per share if the common shareholders receive a dividend. The common shareholders are entitled to a dividend of $0.30 per share. Therefore, the preferred shareholders are entitled to a total dividend of $6 + $2 = $8 per share. Since there are 3,000 preferred shares outstanding, the total dividend paid to the preferred shareholders is $8 * 3,000 = $24,000. The remaining $90,000 - $24,000 = $66,000 is distributed to the common shareholders.

The Owners' Equity Section of a Firm's Balance Sheet Reflects