The cumulative feature of preferred stock
A) limits the amount of cumulative dividends to the par value of the preferred stock.
B) requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
C) means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
D) enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

Question

Quizplus · Accepted Answer

The cumulative feature of preferred stock means that if a company is unable to pay the preferred dividends in any given year, those dividends must be made up in later years before any dividends can be distributed to common shareholders. Therefore, choice B is the correct option. The other choices are incorrect because they do not accurately describe the cumulative feature of preferred stock.

The Cumulative Feature of Preferred Stock