S10-13. (Learning Objective 4: Dividing cash dividends between preference and ordinary shares) Access Garde, Inc., has 200,000 shares of $1.60 preference shares outstanding in addition to its ordinary shares. The $1.60 designation means that the preference shareholders receive an annual cash dividend of $1.60 per share. In 20X6, Access Garde declares an annual dividend of $450,000. The allocation to preference and ordinary shareholders is:

Answer these questions about Access Garde’s cash dividends.
1. How much in dividends must Access Garde declare each year before the ordinary shareholders receive any cash dividends for the year?
2. Suppose Access Garde, Inc., declares cash dividends of $350,000 for 20X6. How much of the dividends goes to preference? How much goes to ordinary?
3. Is Access Garde’s preference shares cumulative or non-cumulative? How can you tell?
4. Access Garde, Inc., passed the preference dividend in 20X5 and 20X6. Then in 20X7, Access Garde declared cash dividends of $1,400,000. How much of the dividends goes to preference? How much goes to ordinary?

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Preference dividend, (200,000 shares x $1.60 per share)........... $320,000 Ordinary dividend (remainder: $500,000-$370,000). Total dividend............. 130,000 $450,000