Question

Torino Company has 2,800 shares of $50 par value, 6.5% cumulative and nonparticipating preferred stock and 28,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $8,000 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:

The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is  $10,200.

Explanation:

In order to calculate the cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is , we have to make the following calculations.

First, we have to calculate the Annual preferred dividend = (2800*50*6.5%) = $9,100

Hence, First year preferred dividend = $9,100-$8,000 = $1,100

Finally, if we make $1,100+$9,100 = $10,200 and so this will be the cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders.