Question

Torino Company has 2,500 shares of $50 par value, 5.0% cumulative and nonparticipating preferred stock and 25,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $6,000 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

$6,500

Step-by-step explanation:

The computation of the cash dividend that must be paid to preferred stockholders in the second year is shown below:

But before that first we have to compute annual dividend paid for preference shareholder which is

= 2,500 shares × $50 per share × 5.0%

= $6,250

Since the total cash dividend is $6,000 and the preference dividend is $6,250 so $250 is in arrears

Therefore the second year preference dividend is

= $6,250 + $250

= $6,500