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 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 $110,000 in dividends at the end of the current year, what portion of that amount is distributed to the common shareholders?

Question

Quizplus · Accepted Answer

First, calculate the dividends for preferred shareholders, including arrears and current year dividends. Preferred dividends per share are $6, and there are 3,000 shares, so annual preferred dividends are $18,000. With two years of dividends in arrears, that's $36,000, plus $18,000 for the current year, totaling $54,000. The preferred shares also participate up to an additional $2 per share, which is $6,000 ($2 * 3,000 shares) for the current year only, making the total preferred dividends $60,000. Subtracting this from the total declared dividends of $110,000 leaves $50,000 for the common shareholders.

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