Answer (D) is correct . Preferred shareholders have priority over common shareholders in the assets and earnings of the enterprise. If preferred dividends are cumulative, any past preferred dividends must be paid before any common dividends. Preferred stock may also be convertible into common stock, and it may be participating. For example, 10% fully participating preferred stock will receive additional distributions at the same rates as other shareholders if dividends paid to all shareholders exceed 10%.
Answer (A) is incorrect because Bonds normally have a coupon yield stated in percentage and may be convertible but are not participating.
Answer (B) is incorrect because Common stock is not described as convertible or participating on the financial statements.
Answer (C) is incorrect because Common stock options are not participating and do not have a stated yield rate.
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