Which of the following statements is true?
A)A dividend payable in shares of the issuing company's stock is reported as a current liability.
B)Interest and dividends accrue as a liability as time passes.
C)Declaration of a dividend may not necessarily result in a current liability.
D)Dividends on cumulative preferred stock, even though undeclared, are a liability.

Question

Quizplus · Accepted Answer

Declaration of a dividend does not create a liability until the date of record, at which point the liability is recognized for the amount of the dividend to be paid to shareholders. Therefore, the declaration of a dividend may not necessarily result in a current liability. Choices A, B, and D are incorrect because dividends payable in shares of the issuing company's stock are reported as equity, interest and dividends accrue as a liability that increases over time, and dividends on cumulative preferred stock, whether declared or undeclared, are considered a liability.

Which of the Following Statements Is True