Not Paying the Dividends on a Cumulative Preferred Issue May

question 14

Multiple Choice

Not paying the dividends on a cumulative preferred issue may result in:

• A) preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid.
• B) additional voting rights are granted to common stockholders if dividends are in arrears.
• C) full payment of dividends to common shareholders.
• D) both preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid; and additional voting rights are granted to common stockholders if dividends are in arrears.
• E) both voting rights are granted to preferred stockholders if preferred dividends are in arrears; and no payment of dividends to common shareholders.

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Definitions:

Accounts Payable

Liabilities of a business that represent money owed to suppliers or creditors for goods and services received.

Accounts Payable Subsidiary Ledger

A detailed record used to track amounts owed to suppliers or creditors separate from the general ledger.

General Ledger

A comprehensive ledger that contains all the financial accounts of a business, recording every transaction that occurs.

Accounts Receivable Subsidiary Ledger

A detailed ledger that tracks individual transactions with customers, supporting the summary balances shown in the main accounts receivable account.