Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 11 - Reporting and Analyzing Stockholders' Equity - Questions: 11

Answer

step 1 (a) The difference between Common stock and preferred stock is as follows Step 2 (b) Preferred stock may have the facility of cumulative dividend. This feature gives a right to stock holders to get the dividend at the agreed rate, for the unpaid period with th year's dividend. Step 3 (c) Dividends in arrears will be presented in financial statements only on its declarations.

Work Step by Step

Step 1 A) A common stock has the voting right, whereas the preferred stock may or may not have the voting right. B) Preferred stock has the right to get the dividend at the agreed rate in preference to the common stock holders C) The dividend if agreed to be cumulative – the divided whenever declared, will first be paid to preference stock holders for cumulative period. D) In case of liquidation of the corporation, the assets will be shared by preferred stock holders, in priority to common stock holders. Step 2 For example, if the corporation has not declared the dividend for the year 2008 and 2009, then on declaration of dividend in 2010, first the preferred stock holders will get the dividend for the year 2008, 2009 and 2010, there after the dividend to common stock holders will be distributed. Step 3 However, companies should disclose in the notes to the financial statements the amount of dividends in arrears.
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