Question

When a corporation has both common stock and preferred stock outstanding:

Multiple Choice

A. preferred stockholders receive the same dividend per share as common stockholders.
B. dividends on preferred stock are paid only if the company has current earnings.
C. dividends on preferred stock are paid only if dividends are to be paid on the common stock.
D. dividends on preferred stock must be paid before dividends on common stock can be paid.

Answer 1

D. dividends on preferred stock must be paid before dividends on common stock can be paid.

Step-by-step explanation:

While distributing the dividend to the shareholders we give the first preference to the preference shareholder then the remaining dividend is distributed to the equity shareholders.

As the distribution of dividend is not compulsory but whenever the company earns a profit during a particular year it will distribute the dividend according to their investment amount

Hence, d option is right