Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

Is a company legally required to pay preferred dividends each year?

No, preferred dividends are only paid if the company has common shareholders.

No, a company is not legally required to pay preferred dividends unless it declares them.

Yes, preferred dividends are mandatory and must be paid before any other expenses.

Yes, a company must pay preferred dividends every year regardless of profitability.

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Verified step by step guidance

Understand the concept of preferred dividends: Preferred dividends are payments made to preferred shareholders, who have priority over common shareholders in receiving dividends. However, these dividends are not guaranteed unless declared by the company.

Recognize the legal obligation: A company is not legally required to pay preferred dividends every year. Payment depends on whether the company declares dividends and has sufficient profitability or retained earnings to distribute them.

Distinguish between cumulative and non-cumulative preferred shares: If the preferred shares are cumulative, unpaid dividends accumulate and must be paid before any dividends are distributed to common shareholders. Non-cumulative preferred shares do not have this feature, and unpaid dividends do not carry forward.

Consider the company's financial position: Preferred dividends are typically paid only if the company has sufficient funds and declares them. If the company is not profitable or chooses not to declare dividends, preferred shareholders may not receive payments for that year.

Clarify the priority of payments: If dividends are declared, preferred shareholders are paid first before any dividends are distributed to common shareholders. This priority does not imply a legal obligation to pay preferred dividends annually.