Question

Dragonfly Corp. had the following shares outstanding and retained earnings as of December 31, 2014:
Preferred shares, 5%, 10,000 shares outstanding ...... $200,000
Common shares, with 80,000 shares outstanding ...... $720,000
Retained earnings ................... $125,000
No dividends have been paid since 2012. The board is considering a cash dividend to both the preferred and the common shareholders.
Requirements
1. Assume that the total amount of dividends is $30,000:
a. What is the amount of dividends distributed to preferred shareholders and common shareholders if the preferred shares are noncumulative?
b. What is the amount of dividends distributed to preferred shareholders and common shareholders if the preferred shares are cumulative?
2. Assume that instead of a cash dividend, the company gave the common shareholders a 15% stock dividend when the common shares were trading at $10 each. Prepare the shareholders’ equity section of the balance sheet before and after the dividend. Describe what has happened to the total and each account.


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  • CreatedJuly 08, 2015
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