Which of the Following Statements Is True When Dividends Are

question 98

Multiple Choice

Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?

• A) The shareholders must be allowed to convert their shares to common stock.
• B) The unpaid dividends are accrued as a liability.
• C) The unpaid dividends are reported in a note to the financial statements.
• D) The unpaid dividends accrue interest until paid.

---

Definitions:

Contingent Liability

A potential financial obligation that may arise depending on the outcome of a future event.

Do Not Disclose

A directive or policy to keep certain information confidential and not share it with unauthorized individuals or parties.

Social Security Tax

A payroll tax that funds the Social Security program, which provides benefits for retirees, disabled persons, and survivors.

Medicare Tax

A federal tax deducted from employees' wages and matched by employers to fund the Medicare program, providing health insurance for individuals over 65.