The Atkinson Data Services Corporation was founded on January 1, 20X1. Preferred stock, no par, cumulative $4 annual dividend per share
Issued and outstanding, 1,000,000 shares ........ $ 50,000,000
Capital stock, no par, 6,000,000 shares ......... 90,000,000
Total stockholders’ equity .............. $140,000,000
The corporation’s subsequent net incomes (losses) were as follows:
20X1 ............$ (5,000,000)
20X2 ............ (4,000,000)
20X3 ............ 16,000,000
20X4 ............ 20,000,000
20X5 ............ 14,000,000
Assume the board of directors declared dividends to the maximum extent permissible by law. The state prohibits dividend declarations that cause negative retained earnings.
1. Tabulate the annual dividend declarations on preferred and common shares. There is no treasury stock.
2. How would the total distribution to common shareholders change if the preferred stock were not cumulative?