Question

Preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders. This is known as:

a) Nonparticipating
b) Cuμlative
c) Non-cuμlative
d) Participating

Answer 1

Preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders, known as cumulative preferred stock.

Step-by-step explanation:

Preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders. This is known as cumulative preferred stock.

For example, let's say a company has issued cumulative preferred stock and common stock, and the company does not pay any dividends for a certain period. In the next period, when the company decides to pay dividends, the cumulative preferred stockholders will receive their unpaid dividends from the previous period(s) before any dividend is paid to the common stockholders.

This feature makes cumulative preferred stock advantageous to investors as it ensures that they will eventually receive their dividends, even if the company temporarily suspends dividend payments.