Tomasco, Inc., began operations in January 2006 and had the following reported net income or loss for each of its five years of operations:
2006 ....... $ 150,000 loss
2007 ....... 130,000 loss
2008 ....... 120,000 loss
2009 ....... 250,000 income
2010 ....... 1,000,000 income
At December 31, 2010, the Tomasco capital accounts were as follows:
Common stock, par value $10 per share; authorized
100,000 shares; issued and outstanding 50,000 shares ......... $ 500,000
4% nonparticipating noncumulative preferred stock, par value,
$100 per share; authorized, issued, and outstanding 1,000 shares .... 100,000
8% fully participating cumulative preferred stock, par value,
$100 per share; authorized, issued, and outstanding 10,000 shares ..... 1,000,000Tomasco has never paid a cash or stock dividend. There has been no change in the capital accounts since Tomasco began operations. The appropriate state law permits dividends only from retained earnings.
Required:
Prepare a work sheet showing the maximum amount available for cash dividends on December 31, 2010 and how it would be distributable to the holders of the common shares and each of the preferred shares. Show supporting computations in good form.