Dividends in arrears occur when the company doesn’t pay dividends to A. cumulative preferred stockholders. B. noncumulative preferred stockholders. C. participating preferred stockholders. D. nonparticipating common stockholders.
Dividends in arrears occur when the company doesn’t pay dividends to A. cumulative preferred stockholders.
Dividends in arrears occur when a company fails to pay dividends to cumulative preferred stockholders. To understand this, it's necessary to know the characteristics of these different types of stockholders:
A. Cumulative preferred stockholders: These stockholders are entitled to receive any unpaid dividends from previous years, in addition to their regular dividends. If the company doesn't pay the dividends in a given year, the unpaid dividends accumulate as arrears.
B. Noncumulative preferred stockholders: These stockholders do not have a right to receive unpaid dividends from previous years. If the company fails to pay dividends in a particular year, there are no accumulated arrears.
C. Participating preferred stockholders: These stockholders have the right to receive their regular dividends, as well as an additional share of profits if the company achieves specific financial targets or exceeds a certain level of profitability.
D. Nonparticipating common stockholders: Common stockholders do not have specific rights to regular dividends but may receive a share of the profits if the company declares and pays dividends.
Therefore, the correct answer is A. cumulative preferred stockholders.