When a holder of preference shares has the right to receive all previously omitted dividends before ordinary shareholders receive any dividends, the preferred share is known as:
A) participating preferred.
B) cumulative preferred.
C) compensating preferred.
D) ex post rights preferred.

Question

Quizplus · Accepted Answer

When a holder of preference shares has the right to receive all previously omitted dividends before ordinary shareholders receive any dividends, such shares are known as cumulative preferred shares. This means that if the company was unable to pay dividends in a particular year, those dividends would accumulate and have to be paid before any dividends can be paid to ordinary shareholders.

When a Holder of Preference Shares Has the Right to Receive