Answer these questions about Fresh Start Corp.’s dividends:

1. How much in dividends must Fresh Start declare each year before the common shareholders receive cash dividends for the year?

2. Suppose Fresh Start declares cash dividends of $20,000 for 2020. How much of the dividends go to preferred shareholders? How much goes to common shareholders?

3. Are Fresh Start’s preferred shares cumulative or noncumulative? How can you tell?

4. Suppose Fresh Start did not pay the preferred dividend in 2018 and 2019. In 2020, Fresh Start declares cash dividends of $40,000. How much of the dividends go to preferred shareholders? How much goes to common shareholders?

                                                   FRESH START CORP.
                                                   Balance Sheet (Partial)
                                                   December 31, 2020

Shareholders’ Equity
Contributed capital
Preferred shares, $5.00, 10,000 shares authorized,
1,000 shares issued and outstanding ............................................... $100,000
Common shares, 100,000 shares authorized,
30,000 shares issued and outstanding ............................................... 150,000
Total contributed capital ....................................................................... 250,000
Retained earnings ................................................................................... 661,000
Total shareholders’ equity ................................................................... $911,000