The cumulative feature of preferred shares
A) limits the amount of cumulative dividends to the par value of the preferred shares.
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 shares until they are equal to the stated value of common shares, at which time they can be converted into common shares.
D) enables a preferred shareholder to accumulate dividends until they equal the stated value of the shares and receive the shares in place of the cash dividends.

Question

Quizplus · Accepted Answer

The cumulative feature of preferred shares means that any dividends not paid in one year accumulate and must be paid out in a later year before any dividends can be distributed to common shareholders. This helps to ensure that preferred shareholders receive their entitled dividends even if the company experiences some financial difficulties in a particular year.

The Cumulative Feature of Preferred Shares