Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive:

Question

Quizplus · Accepted Answer

Cumulative preferred stockholders have a right to receive any dividends in arrears before common stockholders can receive any dividends. This means that if the company has not paid a dividend to the preferred stockholders in a previous year, they must receive that dividend before any dividend can be paid to the common stockholders. Cumulative preferred stockholders are entitled to all dividends in arrears plus the current year's dividend before any payment can be made to the common stockholders. Therefore, the correct option is B.

Before a Company Can Pay Dividends to the Common Stockholders