Reference no: EM132586474

Question 1. The Anna Company has 100,000 shares of common stock outstanding with a $10 per share par value. In addition, the company has 20,000 shares of preferred stock outstanding with a $100 par value. On this preferred stock, there is a 4 percent annual dividend that is cumulative. What does the term "cumulative" mean in this situation ?

Option 1: If the preferred stock dividend is not paid in one year, it must be paid the following year.

Option 2: If the preferred stock dividend is not paid in one year, an additional (or penalty) dividend must be paid in the subsequent period

Option 3: The current and any missed dividends must be paid on the preferred stock shares before any dividends can be paid to the owners of the common stock

Option 4: The preferred stock dividend must be paid each year