Question

Daly Corporation has the following shares outstanding, without any changes for the years 2017, 2018, and 2019. 50,000 preferred shares, 4%: $ 500,000 200,000 common shares: 1,000,000 $1,500,000 (Note: when preferred dividends are expressed as a percentage, it is a percent of the per unit cost of the preferred share. For example, a 5%, $10 preferred share would pay a dividend of $10 x 0.05 = $0.50 per share). There is enough information for you to calculate the per unit cost of the preferred shares. Dividends are declared as follows: 2017: $ 15,000 2018: $ 50,000 2019: $ 72,000 Calculate the amount of dividends (in total) to be allocated to preferred shareholders and to common shareholders for each of the three years under each of the three years under each of the independent situations below: a) The preferred shares are non-cumulative and non-participating. b) The preferred shares are cumulative and non-participating. c) The preferred shares are cumulative and fully participating after common shares are paid $0.40 per share; participation based on relative dividends at base level. For each answer noted below, start with the amount in preferred shares first, then common shares (i.e. answer 1 should be for part a) 2017 preferred shares, answer 2 should be for part a) 2017 common shares, answer 3 should be for part a) 2018 preferred shares, answer 4 should be for part a) 2018 common shares (and so on...)

Answer 1

a	Preference shares are non-cumulative and non-participating
	Year	Dividend Declared	Dividend to Preference Shareholder	Dividend to Common Shareholder
	2017	15,000.00	15,000.00	-
	2018	50,000.00	20,000.00	30,000.00
	2019	72,000.00	20,000.00	52,000.00

The amount of dividend payable to preferred stock is 20,000 (500,000*4%). In 2017 the amount is short by 5,000 however since it is non-cumulative hence in 2018 the remaining 5,000 dividend of 2017 is not payable

b	Preference shares are cumulative and non-participating
	Year	Dividend Declared	Dividend to Preference Shareholder	Dividend to Common Shareholder
	2017	15,000.00	15,000.00	-
	2018	50,000.00	25,000.00	25,000.00
	2019	72,000.00	20,000.00	52,000.00

The amount of dividend payable to preferred stock is 20,000 (500,000*4%). In 2017 the amount is short by 5,000 however since it is cumulative hence in 2018 the remaining 5,000 dividend of 2017 is first payable and then 20,000 of 2018 hence total dividend of 25,000

c	Preference shares are cumulative and fully participating
	Year	Dividend Declared	Dividend to Preference Shareholder (Fixed Dividend)	Dividend to Preference Shareholder (Participating Dividend)	Dividend to Common Shareholder
	2017	15,000.00	15,000.00		-
	2018	50,000.00	25,000.00	8,333.33	16,666.67
	2019	72,000.00	20,000.00	17,333.33	34,666.67

In case of participating dividend the preference shareholder dividend is paid first and thereafter whatever is balance dividend it will be divided in the ratio of 1:2 (preference share to Common share) as per their capital base.