Anders, Inc has 5,000 shares of 5%, €100 par value, cumulative preference shares and 20,000 ordinary shares with a $1 par value outstanding at December 31, 2011.There were no dividends declared in 2009.The board of directors declares and pays a €45,000 dividend in 2010 and in 2011.What is the amount of dividends received by the ordinary shareholders in 2011?

Question

Quizplus · Accepted Answer

The preference shares are cumulative, so dividends in arrears from 2009 must be paid first. The annual preference dividend is 5% of €100 par value, which is €5 per share. For 5,000 shares, this is €25,000 per year. In 2010, €25,000 covers the 2009 arrears, leaving €20,000 for ordinary shareholders. In 2011, €25,000 covers the preference dividend, leaving €20,000 for ordinary shareholders.

Anders, Inc Has 5,000 Shares of 5%, €100 Par Value