Which statement is true about preferred stock in liquidation?

Which statement is true about preferred stock in liquidation?

• A. It has voting rights on par with common stock
• B. It has a claim on assets up to par value
• C. It is guaranteed dividends by the government
• D. It has priority over all debt in all cases

Answer: (B)

In liquidation, the order of payout starts with creditors, then preferred stockholders, and finally common stockholders. Preferred stock has a claim to assets up to its par value, meaning if assets remain after debts are paid, holders receive up to the par amount per share before any proceeds go to common shareholders. This priority up to par is what makes that statement true. Typically, preferred stock does not carry voting rights on par with common stock, dividends are not guaranteed by the government, and preferred stock does not outrank all debt in all cases—the debt holders are paid before any equity, including preferred stock.

In liquidation, the order of payout starts with creditors, then preferred stockholders, and finally common stockholders. Preferred stock has a claim to assets up to its par value, meaning if assets remain after debts are paid, holders receive up to the par amount per share before any proceeds go to common shareholders. This priority up to par is what makes that statement true.

Typically, preferred stock does not carry voting rights on par with common stock, dividends are not guaranteed by the government, and preferred stock does not outrank all debt in all cases—the debt holders are paid before any equity, including preferred stock.