McNamara Limited’s ledger shows the following balances on December 31, 2012:
Preferred shares outstanding: 25,000 shares ...........$ 625,000
Common shares outstanding: 40,000 shares ...........3,000,000
Retained earnings ..................... 890,000
Instructions
Assuming that the directors decide to declare total dividends in the amount of $445,000, determine how much each class of shares should receive under each of the conditions that follow. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.50 per share.
(a). The preferred shares are cumulative and fully participating.
(b). The preferred shares are non-cumulative and non-participating.
(c). The preferred shares are non-cumulative and are participating in distributions in excess of a 10% dividend rate on the common shares.