Edison Power and Light has an outstanding issue of cumulative preferred stock with an annual fixed dividend of $2.00 per share. It has not paid the preferred dividend for the last 3 years, but intends to pay a dividend on the common stock in the coming year. Before Edison can pay a dividend on the common stock
A) preferred shareholders may cast all their votes for a single director.
B) preferred shareholders must receive dividends totaling $8.00 per share.
C) preferred shareholders must receive $2.00 per share.
D) will not necessarily receive any dividend.

Question

Quizplus · Accepted Answer

Preferred shareholders must receive dividends totaling $8.00 per share because the dividends are cumulative and have not been paid for the last 3 years. This means they are entitled to the $2.00 annual dividend for each of those years plus the current year's dividend before any dividend can be paid on the common stock.

Edison Power and Light Has an Outstanding Issue of Cumulative