If a preferred stock is of the cumulative type,
A) dividends must be paid on an equal basis with common stock, so long as earnings permit.
B) dividends cannot be passed if they are earned.
C) dividends must be paid, and if not a liability is created.
D) unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders.

Question

Quizplus · Accepted Answer

Cumulative preferred stock means that if dividends are not paid in any period, they accumulate and must be paid out before any dividends can be distributed to common stockholders in the future. This does not create a liability but rather a prioritization of payment.

If a Preferred Stock Is of the Cumulative Type