2. A Company has 20,000 shares outstanding of $100 par value preferred stock with a 6 percent annual dividend rate. This company also has five million shares of $1 par value common stock outstanding. No dividends at all were paid in either Year One or Year Two. Near the end of Year Three, a cash dividend of $400,000 is scheduled to be distributed. If the preferred stock dividend is cumulative, how is this dividend allocated?

Preferred$ 60,000, Common$340,000

Preferred$120,000, Common$180,000

Preferred$240,000, Common$160,000

Preferred$360,000, Common$ 40,000

Which choice is correct? Explain in details your choice.