Question

Outstanding stock of the Sheridan Corporation included 35000 shares of $5 par common stock and 10500 shares of 5%, $10 par non-cumulative preferred stock. In 2019, Sheridan declared and paid dividends of $5250. In 2020, Sheridan declared and paid dividends of $17500. How much of the 2020 dividend was distributed to preferred shareholders?

Answer 1

Dividend to preferred shareholders= $5250

Step-by-step explanation:

Non-cumulative preferred shareholders are those shareholders who are paid a fixed return on par value of their shareholding (i.e number of shares) which take priority over ordinary shares but holders of preferred shares don't have voting rights and therefore can't participate in the business affairs the way ordinary shareholders can.

The non-cumulative aspect of preferred shares means that if Sheridan corporation fails to pay preferred shareholders dividend in a year due to whatsoever reason, Sheridan won't be liable to pay them the previous years' dividend, they only get the current years' dividend.

First we compute total par value of preferred shares and apply the percentage of return to shareholders. The amount of dividend to be distributed to preferred shareholders is calculated as follows;

Dividend to preferred shareholders= (10500* $10) * 5%

Dividend to preferred shareholders= $5250