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Xtreme Sports Has $100,000 of 8% Noncumulative, Nonparticipating, Preference Shares

Question 124
Multiple Choice

Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preference shares outstanding. Xtreme Sports also has $500,000 of ordinary shares outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as follows: A) $8,000 preference; $22,000 ordinary. B) $16,000 preference; $14,000 ordinary. C) $7,500 preference; $22,500 ordinary. D) $15,000 preference; $15,000 ordinary. E) $0 preference; $30,000 ordinary.

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Q 125
A company has 1,000 $50 par value, 4.5% cumulative and nonparticipating preference shares and 10,000 $10 par value ordinary shares outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preference shareholders in the second year before any dividend is paid to ordinary shareholders is: A) $1,000. B) $1,250. C) $2,250. D) $3,500. E) $4,500.
Q 126
A preference share on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as: A) Participating preference share. B) Callable preference share. C) Cumulative preference share. D) Convertible preference share. E) Noncumulative preference share.
Q 127
Preference shares means that: A) Preference shareholders are allocated their dividends before dividends are allocated to ordinary shareholders. B) Preference shareholders are guaranteed dividends. C) Dividends are paid quarterly. D) Preference shareholders prefer dividends more than ordinary shareholders. E) Dividends must be declared on preference shares every year.
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