Multiple Choice
Which one of the following is true about dividend growth patterns?
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12. Stockholders' Equity
Dividends and Dividend Preferences
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which category of stockholder receives dividends first?
A
Treasury stockholders
B
Preferred stockholders
C
Common stockholders
D
Bondholders
Verified step by step guidance1
Understand the concept of stockholder categories: In a corporation, stockholders are divided into different categories, such as preferred stockholders, common stockholders, and treasury stockholders. Bondholders are not stockholders; they are creditors of the company.
Learn the priority of dividend distribution: Preferred stockholders have a higher claim on dividends compared to common stockholders. This means they receive dividends first before any distribution to common stockholders.
Recognize the role of treasury stock: Treasury stock refers to shares that the company has repurchased and holds in its own treasury. These shares do not receive dividends.
Clarify the distinction between bondholders and stockholders: Bondholders are creditors who receive interest payments, not dividends. They are not part of the stockholder categories.
Conclude that preferred stockholders are the category of stockholders who receive dividends first, as they have priority over common stockholders in dividend distribution.
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