Orleans Company was incorporated on 1 January 2013. Orleans issued 4 000 shares of ordinary shares and 500 shares of preference shares on that date. The preference shares are cumulative, $100 par, with an 8% dividend rate. Orleans has not paid any dividends yet. In 2016, Orleans had its first profitable year, and on 1 November 2016, Orleans declared a total dividend of $28 000. What is the total amount that will be paid out to preference shareholders?

Question

Quizplus · Accepted Answer

The preference shareholders are entitled to cumulative dividends. For 500 shares at $100 par with an 8% dividend rate, the annual dividend is $4,000. Since no dividends were paid from 2013 to 2015, the total unpaid dividends for those years is $12,000 ($4,000 x 3 years). Adding the 2016 dividend of $4,000, the total amount to be paid to preference shareholders is $16,000.

Orleans Company Was Incorporated on 1 January 2013