Which of the following is the reason that preferred dividends declared during the period are deducted from net income in calculating return on common stockholders' equity?
A)Preferred dividends reduce the amount of income available for distribution to common stockholders.
B)Preferred dividends are not paid from net income.
C)Preferred dividends are not a part of stockholders' equity.
D)Preferred dividends are not paid until all common stockholders have received their dividends, so preferred dividends are not relevant in the formula and so must be taken out of the equation.

Question

Quizplus · Accepted Answer

Preferred dividends are paid to preferred stockholders before any dividends are paid to common stockholders. Thus, they reduce the amount of income available for distribution to common stockholders and should be deducted from net income when calculating return on common stockholders' equity.

Which of the Following Is the Reason That Preferred Dividends