The Order in Which Dividends Are Allocated to Common and Preferred

question 9

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 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.
• C) 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.
• 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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Flexible Budget

A financial plan that is modified based on fluctuations in volume or levels of activity.

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The total number of individual portions or servings of food provided or sold, typically used in the context of catering or hospitality.

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Voluntary gifts or contributions of money or goods to organizations or individuals, often for charitable purposes.

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The difference between a company's actual revenue and its expected or budgeted revenue during a specific period.