Abc corp. has outstanding a 10% noncumulative $100 par preferred stock. two years ago, abc omitted its preferred dividend. last year, it paid a dividend of $5 per share. in order to pay a dividend to common shareholders, each preferred share must be paid a dividend of

face value of the share x return

100 face value  x 10% needed to make the business to continue operations.

Explanation:

To be able to pay the common stock the company must fill complete the payment on prefereed stocks.

In this case each stock is granted a 10% dividends.

the par value of the preferred stock is 100 so the interest payment will be:

$100 x 10% = $10

each preferred stock much receive this amount before considering the declaration of dividends to common stock. As the same implies, this shares are preferred. So picked over the common stock.

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