Paul Bunyan is the owner of noncumulative 8 percent preferred stock in the Broadview Corporation, which had no earnings or profits in 2015. In 2016, 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 2017. The directors at the end of 2017 declared a 10 percent dividend on the common stock and an 8 percent dividend on the preferred stock without paying preferred dividends for 2016. a. Is Bunyan entitled to dividends for 2015? For 2016? Explain. b. Is Bunyan entitled to a dividend of 10 percent rather than 8 percent in 2017? Explain.
Paul Bunyan is the owner of noncumulative 8 percent preferred stock in the Broadview Corporation, which had no earnings or profits in 2015. In 2016, 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 2017. The directors at the end of 2017 declared a 10 percent dividend on the common stock and an 8 percent dividend on the preferred stock without paying preferred dividends for 2016. a. Is Bunyan entitled to dividends for 2015? For 2016? Explain. b. Is Bunyan entitled to a dividend of 10 percent rather than 8 percent in 2017? Explain.
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