Which one of the following is a true statement?
A)Dividends on preferred shares are tax-deductible to individual investors but not to corporate investors.
B)Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred share.
C)Preferred shareholders have voting power.
D)Investors can sue managers for nonpayment of preferred dividends.

Question

Quizplus · Accepted Answer

This is a fundamental feature of cumulative preferred shares. If the preferred dividends are not paid, they continue to accumulate and must be paid before common dividends can be distributed. The other options are false statements. Preferred dividends are not tax-deductible to individual or corporate investors, preferred shareholders generally do not have voting rights, and investors cannot usually sue managers for nonpayment of preferred dividends.

Which One of the Following Is a True Statement