Question

Torino Company has 1,500 shares of $10 par value, 7.0% cumulative and nonparticipating preferred stock and 15,000 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:________.

a. $1,600.
b. $550.
c. $1,050.
d. $2,100.
e. $500.

Answer 1

a. $1,600.

Step-by-step explanation:

The computation of the amount of the dividend that should be paid to the preference shareholder in the second year is shown below:

Annual dividend is

= 1,500 shares × 7% × $10

= $1,050

Now the dividend that should be paid to the next year

= $1,050 + $1,050 - $500

= $1,600

Hence, the mount of the dividend that should be paid to the preference shareholder in the second year is $1,600