Cumulative preferred stock refers to stock:

Cumulative preferred stock refers to stock:

• A. Whose market value accumulates with each dividend.
• B. That accrues unpaid dividends.
• C. Convertible into common stock.
• D. With priority of liquidation in cash.

Answer: (B)

Cumulative preferred stock is specifically designed to accumulate unpaid dividends. This means that if a company fails to pay dividends during any period, those missed payments do not just disappear. Instead, the unpaid dividends accumulate and must be paid out to cumulative preferred shareholders before the company can pay any dividends to common shareholders. Therefore, if a company is unable to make its dividend payments in a given year, cumulative preferred shareholders are entitled to receive those dividends in the future—essentially catching up on any missed payments—before any distributions can be made to holders of common stock. This characteristic of cumulative preferred stock provides a safeguard for investors, ensuring they have a priority claim on dividends even if a company experiences financial difficulties. The other options describe aspects that are not specific to cumulative preferred stock, such as convertible features or the market value of shares, which do not directly relate to the accumulation of unpaid dividends.

Cumulative preferred stock is specifically designed to accumulate unpaid dividends. This means that if a company fails to pay dividends during any period, those missed payments do not just disappear. Instead, the unpaid dividends accumulate and must be paid out to cumulative preferred shareholders before the company can pay any dividends to common shareholders. Therefore, if a company is unable to make its dividend payments in a given year, cumulative preferred shareholders are entitled to receive those dividends in the future—essentially catching up on any missed payments—before any distributions can be made to holders of common stock.

This characteristic of cumulative preferred stock provides a safeguard for investors, ensuring they have a priority claim on dividends even if a company experiences financial difficulties. The other options describe aspects that are not specific to cumulative preferred stock, such as convertible features or the market value of shares, which do not directly relate to the accumulation of unpaid dividends.