University of Central Florida (UCF) ACG3173 Accounting for Decision-Makers Exam 3 Practice

Preferred stock is a type of equity security that generally provides its holders with certain advantages over common stockholders. The statement that dividends have preference over common stock but no voting rights accurately reflects the characteristics of preferred stock.

Preferred stockholders typically receive dividends before any dividends are distributed to common stockholders. This priority ensures that those who hold preferred shares have a more stable income stream, especially in companies that may face fluctuations in profitability. Furthermore, preferred stock usually does not carry voting rights, which means that preferred shareholders do not have a say in corporate governance matters, unlike common shareholders who can vote on important issues such as electing the board of directors.

Understanding these characteristics is essential for investors when choosing between preferred and common stock, as it impacts their rights and expectations regarding returns.