Reference no: EM132586462

Question 1: A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true ?

Option 1: All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock

Option 2: The company should report a $20,000 liability on its year-end balance sheet

Option 3: The preferred stockholders are guaranteed to receive this $20,000 at some point in the future

Option 4: By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year