Reference no: EM131389548
Almega Corporation, organized under the laws of State S, has outstanding twenty thousand shares of $100 par value nonvoting preferred stock calling for noncumulative dividends of $5 per year; ten thousand shares of voting preferred stock of $50 par value, calling for cumulative dividends of $2.50 per year; and ten thousand shares of no par common stock. State S has adopted the earned surplus test for all distributions.
As of the end of 2005, the corporation had no earned surplus. In 2006, the corporation had net earnings of $170,000; in 2007, $135,000; in 2008, $60,000; in 2009, $210,000; and in 2010, $120,000. The board of directors passed over all dividends during the four years from 2006 to 2009, as the company needed working capital for expansion purposes.
In 2010, however, the directors declared a dividend of $5 per share on the noncumulative preferred shares, a dividend of $12.50 per share on the cumulative preferred shares, and a dividend of $30 per share on the common stock. The board submitted its declaration to the voting shareholders, and they ratified it.
Before the dividends were paid, Payne, the record holder of five hundred shares of the noncumulative preferred stock, brought an appropriate action to restrain any payment to the cumulative preferred or common shareholders until the company paid a full dividend for the period from 2006 to 2010. Decision?
What is the maximum lawful dividend that may be paid to the owner of each share of common stock?
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