SIE Exam Question 216: Answer and Explanation

Question: 216

Corporation PIX is behind on paying out a dividend on its 6 percent cumulative preferred stock. It has not paid a dividend for the past two years as well as the current year. What is the amount per share the owners of these shares should be paid to be current, and which of the following should be paid their dividend first: owners of cumulative preferred shares or common shareholders?

• A. $12 per share, cumulative preferred shareholders
• B. $18 per share, common stock shareholders
• C. $180 per share, cumulative preferred shareholders
• D. $18 per share, cumulative preferred shareholders

Correct Answer: D

Explanation:

Cumulative preferred shareholders always have priority over common stock shareholders in terms of dividend payment. They must receive both the missed dividend amounts as well as the current year's before PIX can pay any dividend to its common shareholders.