How much should a holder of non-cumulative preferred stock with a $7 dividend receive if dividends were not paid last year?

How much should a holder of non-cumulative preferred stock with a $7 dividend receive if dividends were not paid last year?

• A. $7
• B. $10
• C. $14
• D. $20

Answer: (A)

A holder of non-cumulative preferred stock is entitled to receive a fixed dividend amount, which in this case is $7. The key characteristic of non-cumulative preferred stock is that if the dividend is not paid during a particular year, the missed dividend does not accumulate. This means that the holder does not have a right to claim any unpaid dividends from previous periods. Since the question specifies that dividends were not paid last year, the holder of the non-cumulative preferred stock would still only receive the $7 dividend for the current year. There is no provision for recovering any past unpaid dividends, distinguishing it from cumulative preferred stock, where unpaid dividends would accumulate and need to be paid before any dividends to common stockholders. Therefore, based on the nature of non-cumulative preferred stock, the correct amount the holder should receive is the fixed dividend amount of $7 for the current year, irrespective of the prior year's missed payment.

A holder of non-cumulative preferred stock is entitled to receive a fixed dividend amount, which in this case is $7. The key characteristic of non-cumulative preferred stock is that if the dividend is not paid during a particular year, the missed dividend does not accumulate. This means that the holder does not have a right to claim any unpaid dividends from previous periods.

Since the question specifies that dividends were not paid last year, the holder of the non-cumulative preferred stock would still only receive the $7 dividend for the current year. There is no provision for recovering any past unpaid dividends, distinguishing it from cumulative preferred stock, where unpaid dividends would accumulate and need to be paid before any dividends to common stockholders.

Therefore, based on the nature of non-cumulative preferred stock, the correct amount the holder should receive is the fixed dividend amount of $7 for the current year, irrespective of the prior year's missed payment.