Question

On 31 December 20X5, Watercress Properties Ltd. reported the following in shareholders' equity: $2,932,500 Preferred shares, no-par value; $1.00 dividend, authorized, unlimited shares; issued, 86,250 shares Common shares, no-par value; authorized, unlimited shares; issued, 345,000 shares Retained earnings 7,590,000 6,100,000 Dividends of $450,000 are declared in 20X6. Consider the following three cases: Case A Case B Preferred Dividends Last Cumulative? Paid in Preferred Participating? No 20X2 No 20x3 Yes, after common receive $0.50 per share; participation based on relative dividends Yes 20X5 at base level Yes No Case C Required: Calculate dividends to be paid to preferred and common shares in each case. (Do not round intermediate calculations.) Preferred Dividend Common Dividend Total Case A Case B Case C

Answer 1

	Preferred Dividend	Common dividend	Total
Case A	86250	363,750	450,000
Case B	258750	191,250	450,000
Case C	150,000	300,000	450,000

Workings:

Case A: Preferred dividend = 86250 *1 = $86250

Common dividend = 450,000 - 86250 = 363,750

Case B: Preferred dividend = (86250*2)+86250 = 258750

Common dividend = 450,000 - 258,750 = 191,250

Case C: Preferred dividend = 86250 + 191,250 *1/3 = 150,000

Common dividend = 345000*0.5 + 191,250 * 2/3 = 300,000

Participating ratio : Preferred ratio = 86250/ 258750 = 1/3 ; Common stock = 172500 / 258750 = 2/3