Dividends in arrears occur when the company doesn’t pay dividends to A. cumulative preferred stockholders. B. noncumulative preferred stockholders. C. participating preferred stockholders. D. nonparticipating common stockholders.
1 year ago
1 year ago
Dividends in arrears occur when a company fails to pay dividends to cumulative preferred stockholders. To understand this, it's necessary to know the characteristics of these different types of stockholders:
A. Cumulative preferred stockholders: These stockholders are entitled to receive any unpaid dividends from previous years, in addition to their regular dividends. If the company doesn't pay the dividends in a given year, the unpaid dividends accumulate as arrears.
B. Noncumulative preferred stockholders: These stockholders do not have a right to receive unpaid dividends from previous years. If the company fails to pay dividends in a particular year, there are no accumulated arrears.
C. Participating preferred stockholders: These stockholders have the right to receive their regular dividends, as well as an additional share of profits if the company achieves specific financial targets or exceeds a certain level of profitability.
D. Nonparticipating common stockholders: Common stockholders do not have specific rights to regular dividends but may receive a share of the profits if the company declares and pays dividends.
Therefore, the correct answer is A. cumulative preferred stockholders.