Torino Company has 2,300 shares of $20 par value, 7.5% cumulative and nonparticipating preferred stock and 23,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $3,000 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:

The correct answer is $3,900.

Explanation:

According to the scenario, computation of the given data are as follows:

Dividend per preferred stock = $20 × 7.5% = $1.5

Total dividend payable = 2,300 × $1.5 = $3,450

Dividend paid = $3,000

So, outstanding balance = $450

Now, dividend payable in 2nd year = 2,300 × $1.5 = $3,450

Outstanding balance from 1st year = $450

So, total payable = $3,900

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explanation:

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