Question

Match each description 1 through 4 with the characteristic of preferred stock that it best describes in the dropdown next to each description.

Description Characteristics
1. Holders of the stock are entitled to receive current and all past dividends before common stookholders receive any dividends
2. Holders of the stock can receive dividends exceeding the stated rate under certain conditions
3. Holders of the stook are not entitled to receive dividends in excess of the stated rate.
4. Holders of the stook lose any dividends that are not declared in the current year

Answer 1

1. Holders of the stock are entitled to receive current and all past dividends before common stockholders receive any dividends - Cumulative Shares

Holders of Cumulative Shares will always receive the dividends owed to them because even if they do not get it in a particular period, the dividends will accrue until the company is able to pay them.

2. Holders of the stock can receive dividends exceeding the stated rate under certain conditions - Participating Shares

Participating Shareholders are eligible to receive an extra dividend provided that there is surplus profit after all the other dividends have been paid off.

3. Holders of the stock are not entitled to receive dividends in excess of the stated rate. - Non- Participating Shares

Even if there are surplus profits after all other dividends have been paid off, these holders are not entitled to that profit.

4. Holders of the stock lose any dividends that are not declared in the current year - Non- Cumulative Shares

If their dividend is not declared in a certain period, they will forfeit that dividend for the period.