Which type of preferred stock accrues dividends in arrears?

• A. Straight
• B. Cumulative
• C. Participating
• D. Callable

Answer: (B)

Dividends in arrears are a feature of cumulative preferred stock. When a dividend is not paid when due, the unpaid amount accrues for future payment, and those past-due dividends must be paid before any dividends can be paid to common shareholders. That accumulation is what “in arrears” refers to.

Straight (noncumulative) preferred stock does not accumulate missed dividends—if a dividend is skipped, the holder loses the right to that payment. Participating preferred can receive extra distributions beyond the fixed rate if the issuer pays additional amounts, but this doesn’t involve accumulated arrears. Callable stock can be redeemed by the issuer at a set price, which also isn’t about whether dividends accrue in arrears.