When should a corporation record a liability for dividends in arrears on its cumulative preferred stock?
A)When the dividends have been declared.
B)When the corporation knows it will not be paying dividends.
C)When recording year-end adjusting entries.
D)Never.

Question

Quizplus · Accepted Answer

Dividends are not an actual liability until the board of directors declares them.As soon as a dividend is declared the company becomes obligated to pay any dividends in arrears.Prior to this,the company does not record a liability for dividends in arrears.

When Should a Corporation Record a Liability for Dividends in Arrears