Ability to Pay Preferred Dividends Nort Corporation reported the following information in its financial statements:

a. What was the times preferred dividends earned ratio for each of the 2 years? Has the change between years been favorable or unfavorable?

b. Is this ratio of greater importance to creditors or common shareholders? Explain.

c. If this ratio had fallen to .75 in 2001, would Nort still be able to pay dividends? Why might it choose to not do so?

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Net income Preferred dividends paid Balance sheet totals, December 31 Total assets Total liabilities Preferred stock outstanding ($10 par value) Common stock outstanding ($5 par value) Retained earnings 2001 2000 $ 95,000 $ 64,000 14,000 11,200 900,000 819,000 300,000 300,000 200,000 160,000 100,000 100,000 300,000 259,000