If a preferred stock is of the cumulative type
A) dividends must be paid on an equal basis with common, so long as earnings permit.
B) dividends cannot be passed if they are earned.
C) the cumulative voting rule applies in the exercise of the voting privilege.
D) unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders.

Question

Quizplus · Accepted Answer

If a preferred stock is of the cumulative type, unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders. This means that if a company is unable to pay a dividend in a given period, the dividend will accrue and must be paid in the future, before any dividends can be paid to common stockholders. This feature provides greater security for preferred stockholders, as they are guaranteed to receive their dividends eventually.

If a Preferred Stock Is of the Cumulative Type