Since its organization in January of 2016, Mars Corp. began with the issuance of 15,000 shares of $5 par, cumulative, 8% preferred stock and 15,000 shares of common stock shares, which are still outstanding. It declared its first dividend of $40,000 at the end of 2018. This means that
A) all of the $40,000 dividends available are paid to the preferred shareholders.
B) all of the $40,000 dividends available are paid to the common shareholders.
C) an equal dollar amount is paid to each class of shareholder.
D) 3 years' worth of dividends will be paid to preferred shareholders prior to paying anything to common shareholders.

Question

Quizplus · Accepted Answer

Preferred shareholders are entitled to cumulative dividends, meaning they must receive dividends for all previous years before common shareholders receive any. Since no dividends were paid in 2016 and 2017, preferred shareholders are owed 3 years' worth of dividends before common shareholders can receive any.

Since Its Organization in January of 2016, Mars Corp