Retained Earnings Mrs. Paz Castro

NON-CUMULATIVE PREFERENCE SHARES

□

Entitle the holders only to the payment of current dividends, if and when dividends are declared, to the extent of the preference rate, before the ordinary shareholders are paid. If there is no dividend declaration for that year, then the dividend for that year is forfeited.
CUMULATIVE PREFERENCE SHARES
□

Entitle the holder to payment not only of current dividends but also of back dividends or dividends in arrears, if and when dividends are declared, before the ordinary shareholders are paid.
□ NON-PARTICIPATING PREFERENCE SHARES

Entitle the holders only to the extent of the stipulated preference dividend.
□ PARTICIPATING PREFERENCE SHARES

Entitle the holders to participate with the holders of ordinary shares pro-rata in the remainder after the ordinary shareholders have received their initial share based on the preference rate.

Ex.: Book Publishers, Inc. has the following selected accounts in its shareholders’ equity:


12% Preference Shares, P100 par, authorized 4,000 shares, 2,000 shares issued and outstanding P200,000 Ordinary Shares, P100 par, authorized
6,000 shares, 3,000 shares issued and
outstanding Retained Earnings
300,000
260,000
The board failed to declare dividends for the past two years. The current year’s results of operations gave the board reasons to declare cash dividends of P200,000.

Case 1. non-cumulative and non- participating preference shares


dividend distribution per class of share by its

	Preferenc e	Ordinar y	Total
Outstanding Share Capital	P200,000	P300,000	P500,000
Current Preference Dividends	P 24,000		P 24,000
Remainder to Ordinary	.	P176,000	176,000

Total

• Dividends per share is obtaiPne2d4,0b0y0 diPv1id7i6n,0g00thePt2o0t0a,0l 00

Dividends pceorrsrheasrpeonding outstanding sPha1r2e.s0.0
P 58.67

• In the absence of an agreement, preference shares are assumed to be non-cumulative and non- participating. This is in accordance with the provision that each share shall be equal in all respects to every other share except as otherwise provided by the articles of incorporation and stated in the certificate of stock (Section 6, paragraph 5, Corporation Code).


Case 2. non-cumulative and participating preference shares

	Preferenc e	Ordinar y	Total
Outstanding Share Capital	P200,000	P300,000	P500,000
Current Preference Dividends	P 24,000		P 24,000

Preference Ordinary Total	56,000 . P 80,000	84,000 P120,000	. P200,000
 Case 3. cumulative and non-participating DividendpsrpeerfSehraerence shares P 40,00 P 40.00
	Preferenc	Ordinar	Total
	e	y
Outstanding Share Capital	P200,000	P300,000	P500,000
Preference Dividends in Arrears	P 48,000		P 48,000
Current Preference Dividends	24,000		24,000
Remainder to Ordinary	.	P128,000	128,000

Remainder for Participation
140,000