Question

Torino Company has 1,200 shares of $10 par value, 5.5% cumulative and nonparticipating preferred stock and 12,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $500 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

Answer 1

Answer:

$820

Explanation:

Dividend on Preferred Shares = 1,200 * 10 *5.5% = 660

Dividend in arrears for first year ($660 - $500)  = $160

Dividend for second year                                     = $660

Dividend to be paid to preferred shareholder = $820  

before common shareholders