Preferred Stock
ABC Corporation has $6 cumulative preferred stock outstanding. The company missed dividend payments for 3 years and now wants to pay common stockholders a dividend. What must happen first?
With cumulative preferred, dividends in arrears must be paid before any common dividends. The company missed 3 years of $6 annual dividends, so $18 per share (3 x $6) must be paid to preferred stockholders before common
Complete Analysis & Legal Rationale
With cumulative preferred, dividends in arrears must be paid before any common dividends. The company missed 3 years of $6 annual dividends, so $18 per share (3 x $6) must be paid to preferred stockholders before common shareholders receive anything.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.