Bank,Rupp & Baroque,Inc.began on January 1,2015 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value,6% cumulative preferred stock.No dividends were declared in 2015 or 2016.Which of the following statements about this situation is correct?
A) Dividends Payable should be reported on the December 31, 2015 balance sheet.
B) Dividends Payable should be reported on the December 31, 2016 balance sheet.
C) Dividends in arrears should be disclosed in the notes to the 2015 and 2016 financial statements.
D) Dividends expense should be reported on the income statement for the year ended December 31, 2015.

Question

Quizplus · Accepted Answer

Since no dividends were declared in 2015 or 2016, no dividends payable or expense should be reported on the balance sheet or income statement. However, since the preferred stock is cumulative, any unpaid dividends from past years (dividends in arrears) should be disclosed in the notes to the financial statements.