The cumulative feature of preferred stock
A) Limits the amount of cumulative dividends to the par value of the preferred stock.
B) Requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
C) Means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
D) Enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

Question

Quizplus · Accepted Answer

The cumulative feature of preferred stock means that if dividends are not paid in any year, they must be made up in a later year before any dividends are distributed to common shareholders. So, option B is correct. Option A is incorrect because it suggests that the cumulative dividends are limited to the par value of the preferred stock, which is not true. Option C is incorrect because it mentions the conversion of preferred stock into common stock, which is not related to the cumulative feature of preferred stock. Option D is also incorrect because it suggests that a shareholder can receive the stock in place of the cash dividends, which is not related to the cumulative feature of preferred stock.

The Cumulative Feature of Preferred Stock