Dividends Otter Tail, Inc, began operations in January 2012 and had the following reported net income or loss for each of its 5 years operations:
2012 ... $150,000 loss
2013 ... 130,000 loss
2014 ... 120,000 loss
2015 ... 250,000 income
2016 ... 1,000,000 income
At December 31, 2016, Otter Tail’s capital stock was comprised of the following:
Common stock, $10 par ..................$ 500,000
Preferred stock, 4% noncumulative and nonparticipating, $100 .... 100,000
Preferred stock, 8% cumulative and fully participating, $100 par ..3,000,000
Otter Tail has never paid a cash or stock dividend. There has been no change in the capital accounts since Otter Tail began operations. The appropriate state law permits dividends only from retained earnings.
Required:
Prepare a worksheet showing the maximum amount available for cash dividends on December 31, 2016, and how it would be distributable to the holders of the common shares and each of the preferred shares. Show supporting computations in good form.