Question

Torino Company has 2,700 shares of $10 par value, 6.0% cumulative and nonparticipating preferred stock and 27,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 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: $2240

Step-by-step explanation:

Preferred shareholders have priority over the income of a company as they're paid dividends before the common shareholders. The common stockholders are the ones that are paid last after the preferred shareholders and creditors have all been paid.

The dividend on the preferred shares will be calculated as:

= 2700 × 10 × 6%

= 2700 × 10 × 0.06

= 1620

Tge dividend in arrears fir the first year will be calculated as:

= 1620 - 1000

= 620

Dividend for the second year will be:

= 1620

Dividend that'll be paid to preferred shareholders will be:

= $620 + $1620

= $2240