dividends in arrears on cumulative preferred stock are?

Question

a)disclosed in the notes to the financial statements
b)reported as a current liability on the balance sheet
c)ignored on the financial statements
d)reported as a long-term liability on the balance sheet

Answer 1

Dividends in arrears on cumulative preferred stock are omitted dividends on cumulative preferred stock. For example, if a corporation has cumulative preferred stock and due to a shortage of cash decides to omit the dividend on those preferred shares, the preferred dividend is in arrears. The result of having these dividends in arrears is that the owners of the common stock cannot receive a dividend until the preferred stock’s dividends in arrears are paid and the preferred stock’s current year dividend is also paid. Having dividends in arrears also requires a disclosure in the notes to the financial statements.

So the answer is (a) disclosed in the notes to the financial statements. This answer is further reinforced by the following:

If a preferred stock is designated as cumulative, its holders must receive any past dividends that had been omitted on the preferred stock and its current year dividend, before common stockholders are paid any dividends. (A corporation might omit its dividends because it is suffering operating losses and has little cash available.) If a corporation omits a dividend on its cumulative preferred stock, the past, omitted dividends are said to be "in arrears" and this must be disclosed in the notes to the financial statements.

The above are excerpts from the following sites.

Answer 2

Dividends In Arrears

Answer 3

Dividends that have not been paid out. When dividends are declare any cumulative preferred stock has to be paid first, then for the current year preferred stock holders, then finally common stockholders.

Answer 4

B