Question

When all outstanding preferred shares are purchased and retired by the issuing corporation for less than the original issue price, accounting for the retirement increases

A) the amount of dividends available to common shareholders.
B) Accumulated Other Comprehensive Income.
C) reported income for the period.
D) the contributed capital of the common shareholders.

Answer 1

The purchase and retirement of preferred shares below their original issue price by an issuing corporation increases the dividends available to common shareholders.

Step-by-step explanation:

When all outstanding preferred shares are purchased and retired by the issuing corporation for less than the original issue price, accounting for the retirement increases the amount of dividends available to common shareholders. This is because the funds that could have been distributed as dividends on the preferred shares are now available to be paid out to common shareholders instead. Furthermore, as preferred shareholders generally have a priority claim on dividends over common shareholders, retiring these shares can also potentially enhance the dividend yield of common stock.