Snowy Ltd was incorporated on 1 January 2018. On that date, Snowy Ltd issued:
$$\begin{array} { | l | l | l | }
\hline 5 \% / 1 \text { Preference shares } & 8000 \text { shares } & \$ 1 \text { per share } \
\hline \text { Ordinary shares } & 5000 \text { shares } & \$ 5 \text { per share } \
\hline
\end{array}$$
During December 2020, Snowy Ltd declared a total dividend of $6000. This was the first dividend declared by Snowy Ltd, that is, no dividends were declared or paid during the first two years of operations. The preference shares are cumulative and non-participating. After payment of the dividend to preference shareholders, the dividend amount available to pay to ordinary shareholders is:

Question

Snowy Ltd was incorporated on 1 January 2018. On that date, Snowy Ltd issued:
$$\begin{array} { | l | l | l | } 
\hline 5 \% / 1 \text { Preference shares } & 8000 \text { shares } & \$ 1 \text { per share } \
\hline \text { Ordinary shares } & 5000 \text { shares } & \$ 5 \text { per share } \
\hline
\end{array}$$
During December 2020, Snowy Ltd declared a total dividend of $6000. This was the first dividend declared by Snowy Ltd, that is, no dividends were declared or paid during the first two years of operations. The preference shares are cumulative and non-participating. After payment of the dividend to preference shareholders, the dividend amount available to pay to ordinary shareholders is:

Quizplus · Accepted Answer

The preference shares are cumulative, meaning any unpaid dividends from previous years accumulate and must be paid out before any dividends can be paid to ordinary shareholders. The preference shares have a 5% dividend rate on $1 per share for 8000 shares, totaling $400 per year. Over three years (2018, 2019, 2020), this accumulates to $1,200 ($400 x 3). The total dividend declared is $6,000. After paying $1,200 to preference shareholders, $4,800 ($6,000 - $1,200) remains available for ordinary shareholders.

Snowy Ltd Was Incorporated on 1 January 2018 During December 2020, Snowy Ltd Declared a Total Dividend of Date