Question

Lab 9 Saved Не 1 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 10 points 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. Skipped евоой Required: Determine the total and per-share amounts that would be paid to the common shareholders and to the preferred shareholders under two independent assumptions: Print References 1-a. The preferred shares are non-cumulative. (Round your per share amount to 2 decimal places.) Total Per Share Paid to preferred shareholders Paid to common shareholders 1-b. The preferred shares are cumulative. (Round your per share amount to 2 decimal places.) Total Per Share Paid to preferred shareholders Paid to common shareholders

Answer 1

1-a. Preference share are non- Cumulative

In case preference shares are non-cumulative. Dividend @8% will be paid only for the year ending 2016.

Total Dividend for Preference share = (Face Value of all the outstanding preference shares * Dividend Percentage)

Total outstanding preference shares = 6,000 Shares

Face Value of 1 share = $10

Face Value of all outstanding preference shares = 6000*$10 = $60,000

Dividend Percentage = 8%

Total Dividend for Preference share = ($60,000 * 8%) = $4,800

Dividend Per Share = (Total Dividend distributed to Preference shares / Outstanding Preference Shares)

Dividend per Share = ($4,800/6,000) = $0.8/Share

Dividend Left for Distribution to Common Shareholders = $62,000 - $4,800 = $57,200

Dividend per share = (Total Dividend distributed to Common shareholder / Outstanding common Shareholder)

Dividend per share = ($57,200/40,000) = $1.43/ Share

Preference Share are non- Cumulative
Paid to	Total Dividend Paid	Outstanding Shares	Dividend Per share
Paid to Preferred Shareholder	$4,800	6,000	$0.8
Paid to Common Shareholders	$57,200	40,000	$1.43

1-b. Preference share are Cumulative

In case preference shares are cumulative. Dividend @8% will be paid on for the year 2016

& 2015. After which residual dividend will be distributed to common shareholders.

Total Dividend for Preference share = (Face Value of all the outstanding preference shares * Dividend Percentage * Period for which dividend has not been paid)

Total outstanding preference shares = 6,000 Shares

Face Value of 1 share = $10

Face Value of all outstanding preference shares = 6000*$10 = $60,000

Dividend Percentage = 8%

Period for which dividend has not been paid = 2 years

Total Dividend for Preference share = ($60,000 * 8% * 2) = $9,600

Dividend Per Share = (Total Dividend distributed to Preference shares / Outstanding Preference Shares)

Dividend per Share = ($9,600/6000) = $1.6/Share

Dividend Left for Distribution to Common Shareholders = $62,000 - $9,600 = $52,400

Dividend per share = (Total Dividend distributed to Common shareholder / Outstanding common Shareholder)

Dividend per share = ($52,400/40000) = $1.31/ Share

Preference Share are Cumulative
Paid to	Total Dividend Paid	Outstanding Shares	Dividend Per share
Paid to Preferred Shareholder	$9,600	6,000	$1.6
Paid to Common Shareholders	$52,400	40,000	$1.31

2. The Total dividend amount and dividends per share of common shares were less under second assumption because dividend in arrears on the preferred shares had to be fulfilled before dividend could be paid for current year.

3. Following factors will cause a more favourable dividend for the common shareholding - :

1. The preferred dividends were not in arrears.
2. The total dividend distribution was increased.
3. The preferred Dividends were not cumulative