Dividends in Arrears on Cumulative Preferred Stock

question 16

Multiple Choice

Dividends in arrears on cumulative preferred stock

• A) are shown in stockholders' equity of the balance sheet.
• B) must be paid before common stockholders can receive a dividend.
• C) should be recorded as a current liability until they are paid.
• D) enable the preferred stockholders to share equally in corporate earnings with the common stockholders.

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Definitions:

Speculative Investment

An investment with a high degree of risk, where the investor anticipates significant returns in exchange for the risk of losing most or all of the invested amount.

GAAP Accounting

Generally Accepted Accounting Principles, a set of rules and standards for financial reporting and accounting practices in the United States.

Unrealized Gain

The hypothetical profit on an investment that has not yet been sold, and thus, not yet converted into actual cash.

Hedged Item

An asset, liability, or planned transaction exposed to price risks that are offset by using a hedging instrument.