Dividends in arrears are associated with the cumulative preferred stock only.

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Quizplus · Accepted Answer

Dividends in arrears are indeed associated with cumulative preferred stock. When a company issues preferred stock, it can be either cumulative or non-cumulative. Cumulative preferred stock has a feature that requires the company to pay all past unpaid preferred dividends to the shareholders before any dividends can be paid to common shareholders.If a company that has issued cumulative preferred stock does not pay the dividend in any year, the unpaid amount accumulates. These unpaid dividends are known as "dividends in arrears." The company is not obligated to pay these dividends as a liability; however, it must pay the accumulated dividends in arrears to cumulative preferred shareholders before any dividends can be distributed to common shareholders.
In contrast, non-cumulative preferred stock does not have this feature. If the dividend is not declared in a given year, the right to receive it lapses, and the company is not required to pay it in the future.
It's important to note that dividends in arrears are not considered a legal debt of the company until they are declared by the board of directors. However, the accumulation of dividends in arrears can be a significant concern for preferred shareholders, as it represents a missed income opportunity until the company decides to pay.

Dividends in Arrears Are Associated with the Cumulative Preferred Stock