At December 31, 2016, the records of Hoffman Company reflected the following balances in the shareholders equity

Question:

At December 31, 2016, the records of Hoffman Company reflected the following balances in the shareholders’ equity accounts:

Common shares: par $12 per share; 40,000 shares outstanding
Preferred shares: 8 percent; par $10 per share; 6,000 shares outstanding
Retained earnings: $220,000

On January 1, 2017, the board of directors was considering the distribution of a $62,000 cash dividend. No dividends were paid during 2015 and 2016.

Required:

1. Determine the total and per-share amounts that would be paid to the common shareholders and to the preferred shareholders under two independent assumptions:

a. The preferred shares are non-cumulative.

b. The preferred shares are cumulative.

2. Briefly explain why the dividends per common share were less for the second assumption.

3. What factors would cause a more favourable dividend for the common shareholders?

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