Question

Before a company can pay dividends to the common shareholders, the owners of cumulative preferred shares...

Before a company can pay dividends to the common shareholders, the owners of cumulative preferred shares must receive

Select one:

a. dividends in arrears, but not the current year's dividends

b. the current year's dividend, but not dividends in arrears

c. all dividends in arrears plus the current year's dividend

d. neither the current year's dividends nor dividends in arrears

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Answer #1

Option c

All dividend in arrears plus current year's dividend.

Being a cumulative preference share holder, he is having right to receive dividend in the future years if it is unpaid in the current year which is called as arrears of dividend which are to be cleared first and then with that particular fiscal year's dividend and finally to the common shareholders.

Cumulation means if in any year dividend is not declared and paid, sich unpaid dividend will be accumulated in the further years for payment.

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