What happens to unpaid cumulative dividends for stockholders?

Unpaid cumulative dividends are a feature of cumulative preferred stock. When a corporation issues cumulative preferred stock, it promises to pay dividends at a specified rate. If the corporation does not pay these dividends in any given year, the unpaid amounts are not forfeited; instead, they accumulate.

This means that before any dividends can be paid to common stockholders, all accumulated unpaid dividends on the cumulative preferred stock must be cleared. This ensures that cumulative preferred shareholders maintain their right to receive previously unpaid dividends, enhancing the security of their investment. Therefore, the correct understanding of the treatment of unpaid cumulative dividends is that they accumulate and must be fulfilled prior to providing dividends to holders of common stock.

The other choices do not accurately reflect the nature of cumulative dividends or the rights of stockholders with respect to them.