Question

Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are​ ________.

a. convertible
b. participating
c. nonparticipating
d. cumulative

Answer 1

The answer is "d. cumulative".

Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are "cumulative".

Cumulative preferred stock refers to a type of preferred stock with an arrangement that stipulates that if any profit installments have been missed previously, the profits owed must be paid out to combined favored investors first. This is before different classes of favored stock investors and basic investors can get profit installments.