At December 31, 2016, the records of Hoffman Company reflected the following balances in the shareholders’ equity accounts: Common shares: par $12 per share; 55,000 shares outstanding Preferred shares: 9 percent; par $10 per share; 8,250 shares outstanding Retained earnings: $227,500 On January 1, 2017, the board of directors was considering the distribution of a $72,500 cash dividend. No dividends were paid during 2015 and 2016. Required: Determine the total and per-share amounts that would be paid to the common shareholders and to the preferred shareholders under two independent assumptions: 1-a. The preferred shares are non-cumulative. (Round your per share amount to 2 decimal places.) 1-b. The preferred shares are cumulative. (Round your per share amount to 2 decimal places.) 2. Why were the dividends per common share less for the second assumption? multiple choice The total dividend amount and dividends per share of common shares were less under the second assumption because the dividends in arrears on the preferred shares had to be fulfilled before dividends could be paid for the current year. The total dividend amount and dividends per share of common shares were less under the second assumption because the dividend rate for preferred shareholders was increased. 3. What factors would cause a more favourable dividend for the common shareholders? (Select all that apply.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
At December 31, 2016, the records of Hoffman Company reflected the following balances in the shareholders’ equity accounts:
Common shares: par $12 per share; 55,000 shares outstanding
On January 1, 2017, the board of directors was considering the distribution of a $72,500 cash dividend. No dividends were paid during 2015 and 2016.
Required:
Determine the total and per-share amounts that would be paid to the common shareholders and to the preferred shareholders under two independent assumptions:
1-a. The preferred shares are non-cumulative. (Round your per share amount to 2 decimal places.)
1-b. The preferred shares are cumulative. (Round your per share amount to 2 decimal places.)
2. Why were the dividends per common share less for the second assumption?
multiple choice
-
The total dividend amount and dividends per share of common shares were less under the second assumption because the dividends in arrears on the preferred shares had to be fulfilled before dividends could be paid for the current year.
-
The total dividend amount and dividends per share of common shares were less under the second assumption because the
dividend rate for preferred shareholders was increased.
3. What factors would cause a more favourable dividend for the common shareholders? (Select all that apply.)
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