How should cumulative preferred dividends in arrears be shown on the balance sheet?
A) as an increase in shareholders' equity
B) as an increase in current liabilities
C) as an increase in current liabilities for the amount expected to be declared within the next year, and as an increase in long-term liabilities for the balance
D) by note disclosure only

Question

Quizplus · Accepted Answer

Cumulative preferred dividends in arrears are not recognized as a liability on the balance sheet until they are declared by the company's board of directors. Instead, they are typically disclosed in the notes to the financial statements to inform users about the potential obligation.

How Should Cumulative Preferred Dividends in Arrears Be Shown on the Balance