Which one of the following statements is correct?
A) Common stock dividends cannot be paid if preferred stock dividends are in arrears.
B) Preferred stock dividends cannot be paid if common stock dividends are in arrears.
C) Common and preferred dividends must be paid simultaneously.
D) No dividends on the common stock can be paid without specific shareholder approval.

Question

Quizplus · Accepted Answer

This is the principle of cumulative preferred stock, which means that if preferred stock dividends are in arrears, they must be paid before common stock dividends can be paid. Common stock dividends are not guaranteed and can only be paid out of a company's available profits, while preferred stock dividends are usually fixed and must be paid before common stock dividends.

Which One of the Following Statements Is Correct