Teed's Manufacturing Corporation has the following shareholders’ equity at December 1, 2010:
Shareholders’ Equity
Share capital
$2 preferred shares, no par value, cumulative,
20,000 shares authorized, 16,000 shares issued………………………360,000
Common shares, no par value, unlimited number
of shares authorized, 60,000 shares issued……………………………600,000
Total share capital……………………………………………………..960,000
Retained earnings……………………………………………………... 687,500
Total shareholders’ equity…………………………………………….. $1,647,500
The company was formed in January 2008 and there has been no change in share capital since that time. It is now December 1, 2010, and after a very strong year, the company has just declared a $160,000 cash dividend to shareholders of record as at February 10, 2011. The dividend payment date is February 28, 2011. Teed’s has always used business earnings for further expansion and has never paid a dividend before.
Jan Kielly owns 500 shares of Teed’s Manufacturing common stock and is curious to know how much of a dividend she will receive. She is confused about the difference between preferred and common stock and wonders why the preferred shareholders would purchase shares in a company without having the right to vote. Finally, she is confused about the differences between the declaration date, date of record, and payment date. She wants to know when she will actually receive her dividend.
Required:
a. Determine how much of the dividend will be paid to the preferred shareholders and how much to the common shareholders.
b. Prepare a memo addressing Jan’s questions.