dividends are paid at the end of the year
dividends is legally binding on the corporation
unpaid dividends will be paid in the future
unpaid dividends are never repaid
Answer is Right!
Answer is Wrong!
The correct answer is: C. unpaid dividends will be paid in the future.
A cumulative preferred stock issue means that if the company does not pay dividends in one year, the unpaid dividends must be paid before any dividends are paid to common stockholders in future years.
A non-cumulative preferred stock issue does not have this requirement. If the company does not pay dividends in one year, the unpaid dividends are simply lost.
Here is a more detailed explanation of each option:
- Option A is incorrect. Dividends on preferred stock are not always paid at the end of the year. They can be paid at any time, as long as they are paid at least once per year.
- Option B is incorrect. Dividends on preferred stock are not legally binding on the corporation. The company can choose not to pay dividends, even if they are cumulative. However, if they do not pay dividends, they will have to pay the unpaid dividends in the future.
- Option C is the correct answer. Cumulative preferred stock means that unpaid dividends must be paid in the future.
- Option D is incorrect. Unpaid dividends on cumulative preferred stock must be paid in the future.