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

Preferred Stock

Financial Accounting

12. Stockholders' Equity

Preferred Stock

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Multiple Choice

Which of the following is a characteristic of preferred stock?

It typically pays a fixed dividend before any dividends are paid to common shareholders.

It grants voting rights in corporate elections.

It must be repaid at maturity like a bond.

It guarantees a share in company profits above the fixed dividend.

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Verified step by step guidance

Understand the concept of preferred stock: Preferred stock is a type of equity security that typically provides shareholders with a fixed dividend and priority over common shareholders in receiving dividends and assets during liquidation.

Analyze the first option: 'It typically pays a fixed dividend before any dividends are paid to common shareholders.' This is a key characteristic of preferred stock, as preferred shareholders are entitled to receive their fixed dividends before any dividends are distributed to common shareholders.

Evaluate the second option: 'It grants voting rights in corporate elections.' Preferred stock generally does not grant voting rights, unlike common stock, which typically allows shareholders to vote on corporate matters.

Assess the third option: 'It must be repaid at maturity like a bond.' Preferred stock does not have a maturity date and does not need to be repaid like a bond. It is considered equity, not debt.

Review the fourth option: 'It guarantees a share in company profits above the fixed dividend.' Preferred stockholders are entitled to fixed dividends, but they do not typically receive additional profits beyond the fixed dividend unless the stock is classified as participating preferred stock, which is less common.