Question

How to get the dividends per share in letters c and d? please answer letter E.

Problem No. 6 At December 31, 2020, the equity accounts of Sample Corporation were as follows: 10% Preference share capital (P100 par, 50,000 shares) P5,000,000 Ordinary share capital (P10 par, 1,500,000 shares) 15,000,000 Retained earnings 5,000,000 Sample Corporation has never paid cash or share dividend. The capital accounts have not changed since Sample Corporation began operations on January 1, 2016. If the maximum amount available for cash dividend is declared on December 31, 2020? Requirements: Determine the amount of dividends to be paid to preference shareholders and ordinary shareholders, respectively, under each of the following independent situations: a. The preference shares are non-cumulative and non-participating b. The preference shares are cumulative and non-participating c. The preference shares are non-cumulative and fully participating. d. The preference shares are cumulative and fully participating, e. The preference shares cumulative and participating up to 15%.

Answer 1

c) Preference shares are non cumulative & Fully participating :

non cumulative means any unpaid dividend in any previous year is lapsed.

participating means carry a right to participate along-with equity shares in divindend paid to equity share holders

So total available funds for paymnet of dividend is P5000000 :

from the above funds first we need to pay dividend to preference shares @10% on P5000000 .i.e P500000

Balance of funds after paying 10% preference dividend is P4500000.i.e P5000000-P500000

So the above balance funds to be equally distributing between Equity share holders & preference share holders

.i.e P2250000 to equity share holders & P2250000 to preference share holders

So Total dividend paid to preference share holders is P2750000 & Total dividend paid to equity share holders is P2250000

d)preference shares are cumulative & fully participating

Cumulative means right to get any unpaid dividend in any previous year (from the date of capital inception )

from 01.01.2016 to 31.12.2019 is 4 years

First Unpaid preference dividend for above 4 years need to pay .i.e per year is P500000 so for 4 years is P2000000

Next pay current year(01.01.2020 to 31.12.2020) preference dividend .i.e P500000

Balance of funds after paying preference dividend is P2500000.i.e P5000000-P2000000-P500000

So the above balance funds to be equally distributing between Equity share holders & preference share holders

.i.e P1250000 to equity share holders & P1250000 to preference share holders

So Total dividend paid to preference share holders is P3750000 & Total dividend paid to equity share holders is P1250000

e)preference shares are cumulative & 15% participating

Cumulative means right to get any unpaid dividend in any previous year (from the date of capital inception )

from 01.01.2016 to 31.12.2019 is 4 years

First Unpaid preference dividend for above 4 years need to pay .i.e per year is P500000 so for 4 years is P2000000

Next pay current year(01.01.2020 to 31.12.2020) preference dividend .i.e P500000

Balance of funds after paying preference dividend is P2500000.i.e P5000000-P2000000-P500000

So the above balance funds to distributing between Equity share holders & 15% preference share holders

.i.e P2500000*100/115 = P2173913  to equity share holders & P2500000*15/115=P326087 to preference share holders

So Total dividend paid to preference share holders is P2826087 & Total dividend paid to equity share holders is P2173913