If you own 100 preferred shares that is cumulative and is currently 1 year in arrears, what total amount would you be owed if the company has sufficient funds to pay all dividends.The preferred share has a $4 dividend.
A)$400
B)$800
C)$4
D)$8
E)$12

Question

Quizplus · Accepted Answer

If the preferred shares are cumulative, it means that if the company cannot pay dividends in a particular year, the dividends owed accumulate and must be paid in full before any dividends can be paid to common shareholders.

Thus, if the preferred shares are currently 1 year in arrears and the company has sufficient funds to pay all dividends, each preferred share would be owed $4 for the current year's dividend plus $4 for the previous year's dividend, for a total of $8 per share.

With 100 preferred shares, the total amount owed would be 100 x $8 = $800. Therefore, the best choice is B.

If You Own 100 Preferred Shares That Is Cumulative and Is