The shareholders’ equity of Henry Byce Ltd. at the end of 2020 and 2019 appeared as follows:

Byce began operations in 2018. The 50,000 preferred shares issued have been outstanding since 2018. During 2020, Byce declared and paid a total of $275,000 in cash dividends.

Required

a. Assume the preferred shares were not in arrears at December 31, 2019. How was the $275,000 in cash dividends distributed between the two types of shares in 2020?

b. Assume the preferred share dividends were in arrears since 2018; that is, the dividends were not paid in 2018 and 2019. How was the $275,000 in cash dividends distributed between the two classes of shares?

c. Provide journal entries to account for the changes to the shareholders’ equity of Henry Byce Ltd. in 2020 assuming the scenario from part (a).

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2019 2020 Share capital, preferred shares, 10% cumulative, 1,000,000 shares authorized, 50,000 shares issued Share capital, 5,000,000 common shares authorized, 2,500,000 common shares issued and outstanding (2019–1,000,000 shares issued and outstanding) Retained earnings Total shareholders' equity $ 875,000 $ 875,000 7,250,000 3,500,000 4,675,000 3,000,000 $7,375,000 $12,800,000