Colson Inc.declared a $160,000 cash dividend.It currently has 6,000 shares of 7%, $100 par value cumulative preference share outstanding.It is one year in arrears on its preference stock.How much cash will Colson distribute to the ordinary shareholders?

Question

Quizplus · Accepted Answer

Colson Inc. needs to pay the cumulative preference shareholders for two years (one year in arrears and the current year). The annual dividend for preference shares is 7% of $100 par value, which is $7 per share. For 6,000 shares, this amounts to $42,000 per year. Therefore, for two years, it is $84,000. The remaining cash for ordinary shareholders is $160,000 - $84,000 = $76,000.