Stock whose dividends accumulate if not paid is which of the following?

Stock whose dividends accumulate if not paid is which of the following?

• A. Common stock
• B. Debt securities
• C. Cumulative preferred stock
• D. Non-voting stock

Answer: (C)

The concept being tested is dividends in arrears, a feature of cumulative preferred stock. Cumulative preferred stock guarantees that if a dividend is missed, the unpaid amount accumulates and must be paid later before any dividends can be paid to common shareholders. This protection for preferred holders is what makes the stock “cumulative.” Common stock dividends aren’t guaranteed and don’t accumulate if skipped, so they don’t have this feature. Debt securities involve interest payments rather than dividends and don’t accrue dividends in the same way. Non-voting stock describes voting rights, not the accumulation of dividends, so it doesn’t identify this characteristic either.

The concept being tested is dividends in arrears, a feature of cumulative preferred stock. Cumulative preferred stock guarantees that if a dividend is missed, the unpaid amount accumulates and must be paid later before any dividends can be paid to common shareholders. This protection for preferred holders is what makes the stock “cumulative.”

Common stock dividends aren’t guaranteed and don’t accumulate if skipped, so they don’t have this feature. Debt securities involve interest payments rather than dividends and don’t accrue dividends in the same way. Non-voting stock describes voting rights, not the accumulation of dividends, so it doesn’t identify this characteristic either.