Paul Bunyan is the owner of noncumulative 8 percent preferred stock in the Broad
ID: 2753459 • Letter: P
Question
Paul Bunyan is the owner of noncumulative 8 percent preferred stock in the Broadview Corporation, which had no earnings or profits in 2013. In 2014, the corporation had large profits and a surplus from which it might properly have declared dividends. The directors refused to do so, however, instead using the surplus to purchase goods necessary for the corporation’s expanding business. The corporation earned a small profit in 2015. The directors at the end of 2015 declared a 10 percent dividend on the common stock and an 8 percent dividend on the preferred stock without paying preferred dividends for 2014.
Is Bunyan entitled to dividends for 2013? For 2014? Explain
Is Bunyan entitled to a dividend of 10 percent rather than 8 percent in 2015? Explain
Would your answer be different if the stock was cumulative? Explain
Would your answer be different if the stock was participating? Explain
Explanation / Answer
(1) Is Bunyan entitled to dividends for 2013 and For 2014 :
For 2013 :- Bunyan has non cumulative preferrence shares,Due to no profit was earned by Broadview corporation , Bunyan is not entitled to get dividend ,because there is no profit. Dividend is a part of profit , whch is to be paid by companies to investors if company earns profit
For 2014 :- In non cumulative preferrence shares,holder are not entitled to get dividend if company refused to pay it whether company earns profit or not ,
(2) Is Bunyan entitled to a dividend of 10 percent rather than 8 percent in 2015
No, non cumulative preferrence share dividend is not accumulative , but they get preference over other holder like commonstockholder and cumulative preference shareholder when dividend is being distributed.