If preferred stock is cumulative and no dividends are declared, the company subtracts the current year preferred dividend in computing earnings per share.

Question

Quizplus · Accepted Answer

This is true because cumulative preferred stock requires the company to pay any missed dividends in the future. Therefore, the unpaid dividends are subtracted from earnings per share to accurately reflect the impact on shareholders.

If Preferred Stock Is Cumulative and No Dividends Are Declared