Question

Match each description 1 through 6 with the characteristic of preferred stock that it best describes by writing the letter of that characteristic in the blank next to each description.

A. Callable
B. Convertible
C. Cumulative
D. Noncumulative
E. Nonparticipating
F. Participating
_____ 1. Holders of the stock are entitled to receive current and all past dividends before common stockholders receive any dividends.
_____ 2. The issuing corporation can retire the stock by paying a prespecified price.
_____ 3. Holders of the stock can receive dividends exceeding the stated rate under certain conditions.
_____ 4. Holders of the stock are not entitled to receive dividends in excess of the stated rate.
_____ 5. Holders of this stock can exchange it for shares of common stock.
_____ 6. Holders of the stock lose any dividends that are not declared in the current year.

Answer 1

Answer and Explanation:

The classification is as follows

a. In the callable, the corporation who issued could retired the stock by payoff the mentioned price

b. In the convertible, the stockholders could able to exchange for the common stock shares

c. In the cumulative, the stockholders should received the current as well as the past dividends prior to the common stockholders

d. In the non-cumulative, the stockholders should lose the dividend that not declared in the present year

e. In the non-participating, the stockholders should not received any dividend that more than the stated rate

f. In the participating, the stockholder should received any dividend that more than the stated rate