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Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating preferred stock and...

Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating preferred stock and 100,000 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:

$2,000

$4,000

$0

$1,000

$3,000

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Answer #1

Answer : $ 3000

Annual Preferred Dividend = 10,000*5*4%= 2,000

Cash Dividend Paid in First Year = $1,000

Arrears to Preferred Stock = $2,000-$1,000 =$ 1,000

Cash Dividend Must be Paid in Second year Before Common stock Holders

= Annual Dividend + Arrears = $2000+$1000 = $3000 (Answer)

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