Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 30

For the following questions, circle the best response.

Similarities between preferred stock and long-term debt (bonds) include all of the following except

a. each has a fixed claim to annual income (dividends and interest, respectively).

b. each has a fixed claim on assets (liquidating value and principal amount, respectively).

c. each allows the corporation a tax deduction (dividends and interest, respectively).

d. each may be callable and/or convertible.

e. All of the above are similarities between preferred stock and long-term debt (bonds).

Step 1 of 6

(a)

Both preferred stock and long-term debt (bond) have a fixed claim to annual income. Preferred stock requires regular dividend payments to shareholders, and bonds require regular interest payments to bondholders.