Bank,Rupp & Baroque,Inc.began on January 1,2017 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 2017 or 2018.Which of the following statements about this situation is correct?

Question

Quizplus · Accepted Answer

Dividends are not an actual liability until the board of directors declares them.As such,no Dividends Payable would be reported on the balance sheet as of December 31,2017 or 2018.However,since the preferred stock is cumulative,the amount of the dividends in arrears must be disclosed in the notes to the 2017 and 2018 financial statements.Dividends are not an expense.