Flatfish Limited reported the following items in shareholders’ equity on December 31, 2016:
Share capital: Preferred shares, $5 cumulative dividend, 150,000 shares issued and outstanding.................... $15,000,000
Share capital: Common shares, 750,000 issued and outstanding. 30,000,000
Retained earnings.................. 25,000,000
a. No dividends were declared in 2014 or 2015; however, in 2016 cash dividends of $5 million were declared. Calculate how much would be paid to each class of shares.
b. Assuming that the number of common shares remained constant throughout 2016, what was the cash dividend per share distributed to the common shareholders?
c. Early in 2017, when its common shares were selling at $59 per share, the company declared and distributed a 10% stock dividend. Describe the impact that this declaration will have on the shareholders’ equity accounts.
d. Explain why a company would choose to issue a stock dividend rather than a cash dividend.