Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is:
A)Callable.
B)Convertible.
C)Participating.
D)Cumulative.

Question

Quizplus · Accepted Answer

Preferred dividends are subtracted from earnings when computing earnings per share if the preferred stock is cumulative, meaning that any missed dividends must be paid before common stockholders receive any dividends. This is because the missed dividends accumulate and become a liability for the company. Callable stock can be redeemed by the issuing company, but this does not affect the calculation of earnings per share. Convertible stock can be converted into common stock, but this does not affect the calculation of preferred dividends or earnings per share. Participating stock allows the preferred shareholders to receive additional dividends beyond their contractually obligated amount, but this does not affect the calculation of earnings per share.

Preferred Dividends Are Subtracted from Earnings When Computing Earnings Per