If a Preferred Stock Is of the Cumulative Type

question 16

Multiple Choice

If a preferred stock is of the cumulative type

• A) dividends must be paid on an equal basis with common, so long as earnings permit.
• B) dividends cannot be passed if they are earned.
• C) the cumulative voting rule applies in the exercise of the voting privilege.
• D) unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders.

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Definitions:

Variable Costs

Costs that vary directly with the level of production or output, such as materials and labor.

Productive Capacity

The maximum output a system can produce in a specific period under normal working conditions.

Milling Machine

A machine tool used to machine solid materials by removing material in the form of chips using a rotating cutting tool.

Direct Labor Hours

The amount of time workers spend directly manufacturing a product or providing a service, used to allocate labor costs in production.