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  • Introduction To Financial Accounting - Horngren 10-34, 9edition.

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    Preferred shareholders receive dividends before common shareholders. If dividends are not paid in a given year to preferred shareholders with cumulative shares, they accumulate and must be paid out before common shareholders receive dividends. The document provides an example company that has net losses in the first two years, so no dividends are paid. In year 3 when there are profits, accumulated preferred dividends are paid out first before any to common shareholders.

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    Introduction to financial accounting – horngren 10-34, 9edition.

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    Preferred shareholders receive dividends before common shareholders. If dividends are not paid in a given year to preferred shareholders with cumulative shares, they accumulate and must be paid out before common shareholders receive dividends. The document provides an example company that has net losses in the first two years, so no dividends are paid. In year 3 when there are profits, accumulated preferred dividends are paid out first before any to common shareholders.

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    1K Ansichten2 Seiten

    Introduction To Financial Accounting - Horngren 10-34, 9edition.

    Hochgeladen von

    ashish_kumar_8811
    Preferred shareholders receive dividends before common shareholders. If dividends are not paid in a given year to preferred shareholders with cumulative shares, they accumulate and must be paid out before common shareholders receive dividends. The document provides an example company that has net losses in the first two years, so no dividends are paid. In year 3 when there are profits, accumulated preferred dividends are paid out first before any to common shareholders.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als DOC, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 2

    Introduction to financial accounting horngren 10-34. Solution. Preferred shareholders receive dividends before common shareholders.

    . And with cumulative preferred shares, preferred shareholders must be paid any dividends in arrears before common shareholders receive dividends. $5 annual dividend per share x 1,000,000 shares outstanding = $5,000,000 due preferred shareholders each year. Year 1 There is a net loss of $5,000,000. Since this is the first year of operations, there is a negative balance in retained earnings of $5,000,000. No dividends can be declared and preferred dividends are $5,000,000 in arrears. Year 2 There is a net loss of $4,000,000. There is now a negative balance of $9,000,000 in retained earnings. No dividends can be declared and preferred dividends are now $10,000,000 in arrears. Year 3 There is net income of $15,000,000. Retained earnings now has a positive balance of $6,000,000. Since preferred dividends are $10,000,000 in arrears and are owed $5,000,000 for this year, preferred shareholders will receive the $6,000,000, leaving preferred dividends $9,000,000 in arrears. Common shareholders will receive zero dividends. Year 4 Net income of $20,000,000. Preferred shareholders will receive $9,000,000 in arrears + $5,000,000 due = $14,000,000 total dividends. Common shareholders will receive the remaining $6,000,000. Year 5 Net income $13,000,000. Since there are now no preferred dividends in arrears, preferred shareholders will receive $5,000,000 and common shareholders will receive the remaining $8,000,000. If preferred dividends are not cumulative Year 1 Same as above, no dividends can be declared. But there will be no preferred dividends in arrears. Year 2 Same as above, no dividends can be declared. Year 3

    Now that retained earnings has a balance of $6,000,000, preferred shareholders will receive $5,000,000 and common shareholders will receive the remaining $1,000,000. Year 4 Net income $20,000,000. Preferred shareholders will receive $5,000,000 and common shareholders will receive the remaining $15,000,000. Year 5 Net income $13,000,000. Preferred shareholders will receive $5,000,000 and common shareholders will receive the remaining $8,000,000.

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