Question

A “cumulative” provision on preferred stock (PS)

Group of answer choices

provides that the current year dividend on PS must be paid before any dividends can be paid to common stock holders, but makes no such promise with regard to arrearages from prior years.

gives the issuer of PS the right to issue (sell) additional PS at a known price within a specified time period.

provides that the current year dividend on PS, as well as any arrearages from prior years, must be paid before any interest can be paid on the company’s debt.

provides that the current year dividend on PS, as well as any arrearages from prior years, must be paid before any dividends can be paid to common stock holders.

Answer 1

Answer :-

A cumulative provision on preferred stock :-

Provides that the current year dividend on PS , as well as arrearages from prior years, must be paid before any dividends can be paid to common stock holders.

Explanation :-

Cumulative preferred stock means that the unpaid dividend of previous year on preferred stock accumulates and are paid to preferred stockholders with the current dividend without any dividend to be paid on common stock.

It means , if in any year , the dividend is not paid on cumulative preferred stock , then the unpaid dividends or dividend in arrears get accumulated and will be paid to the preferred stockholders with the current year dividend before any dividend payment to common stock holders.