If the stock issue is non-cumulative it behaves like common stock in that if a company does not declare a dividend, who is not entitled to a payment?

Question

Options

• Abonds stock holder
• Bpreferred stock holder
• Cexchange stock holder
• Dinvestment stock holder

• A
  16% (5)
• B
  72% (23)
• C
  6% (2)
• D
  6% (2)

Explanation

Preferred stockholders (B) are not entitled to a missed dividend payment when a company issues non-cumulative preferred stock and fails to declare a dividend. Non-cumulative preferred stock mirrors common stock in this specific way - skipped dividends are gone forever and do not accumulate as an obligation the company must pay later.

Why the distractors are wrong:

• A (bond stockholders) - bondholders receive interest payments, not dividends; interest is a contractual debt obligation, not a declaration-dependent payment.
• C (exchange stockholders) - "exchange stock holder" is not a standard financial instrument or shareholder classification.
• D (investment stockholders) - similarly, "investment stock holder" is not a recognized category in corporate finance.

Memory tip: Think of non-cumulative preferred stock as "use it or lose it" - if the board doesn't declare it, preferred holders don't receive it and can't claim it later, unlike cumulative preferred stock where unpaid dividends stack up as "arrears."

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