Question
Amazin, Inc., had reported net income of $3,400,000 for the year 2017 and plans to pay the entire amount out in dividends. It had reported
Amazin, Inc., had reported net income of $3,400,000 for the year 2017 and plans to pay the entire amount out in dividends. It had reported 425,000 common shares and 400,000 cumulative preferred shares outstanding as at December 31, 2016 with contributed capitals of $11,000,000 and $4,000,000 respectively. The cumulative preferred shares were entitled to a minimum dividend of $1.10 per share and could also participate in excess dividends declared after the common shares received a minimum dividend of $2.90 per share. Participation in the excess dividends is based on the relative total capital contributed by each group. However, dividends were last declared in 2013 for common shareholders and in 2014 for preferred shareholders respectively. There were no equity transactions during 2017.
Required: Prepare a well formatted schedule showing the following:
a] The total amounts payable to each group of shareholders.
b] If the total dividends declared exceed the net income for the year, would this dividend be considered legal? Support your answer with appropriate reasons.
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