Accounting Multiple Choice Question – 21 May 2020

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Accounting
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In the case of a company which has issued both cumulative preference shares and ordinary shares, which of the following statements is true?

Select ONE answer:

  1. If the dividend on the cumulative preference shares is not paid when due, an ordinary dividend cannot be paid until all arrears of the preference dividend have first been paid.
  2. If the dividend on the cumulative preference shares for the current year is not paid when due, the company may pay an ordinary dividend next year once next year’s preference dividend is paid first.
  3. A dividend must be paid on the ordinary shares before any dividend can be paid on the cumulative preference shares.
  4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

  1. Correct – In respect of any particular accounting period, dividends on preference shares, whether cumulative or non-cumulative, must be paid before any dividend can be paid on ordinary shares. If the company is unable to pay the dividend due on preference shares, whether cumulative or non—cumulative, it cannot pay a dividend on ordinary shares. In the case of non- cumulative preference shares, the shareholder‘s right to receive a dividend lapses. However, in the case of cumulative preference shares, the shareholder’s right to receive a dividend does not lapse – and all such dividends must be paid before any dividend can be paid on ordinary shares in any future accounting period.
  2. Not correct
  3. Not correct
  4. Not correct

 

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

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