Question

Torino Company has 1,300 shares of $50 par value, 6.0% cumulative and nonparticipating preferred stock and 13,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $3,500 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: Multiple Choice $400 $4,300 $3,500 $3,900 $7,800

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Answer #1

Amount of dividend that was payable during first yr of operations = 6%*1300*50 = $3900

Dividend paid = $3500

Since the preferred shares are cumulative in nature, amount of dividend payable to preferred share holders during 2nd yr = $(3900+400) = $4300

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