When preferred shares are cumulative and the board of directors passes on a dividend, the amount in arrears must be shown as a liability on the statement of ﬁnancial position and a reduction from retained earnings on the statement of shareholders' equity and the statement of ﬁnancial position.

Question

Quizplus · Accepted Answer

Cumulative preferred dividends in arrears are not recognized as a liability until a dividend is declared by the board of directors. Instead, they are generally disclosed in the notes to the financial statements.

When Preferred Shares Are Cumulative and the Board of Directors