The Order in Which Dividends Are Allocated to Common and Preferred

question 74

Multiple Choice

The order in which dividends are allocated to common and preferred shares depends upon the provisions in the respective stock contracts.Choose the correct statement regarding this allocation.

• A)When noncumulative preferred shares are fully participating, the rate of dividends allocated to preferred shares is the ratio of total par of preferred shares outstanding to total par of both classes of shares outstanding.
• B)When 8% cumulative preferred shares are participating to a total of 12%, any arrear dividends are ignored in the allocation since they pertain to a previous year.
• C)When noncumulative preferred shares are not participating, the rate of dividends to common shares are limited to the ratio of total par of common shares outstanding to total par of both classes of shares outstanding.
• D)When 8% noncumulative preferred shares are participating to a total of 12%, the preferred shares must receive all arrear dividends and 12% of total preferred shares par outstanding prior to common shares receiving any dividends.

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