If a corporation has dividends in arrears of $25,000 on its cumulative preferred shares,it must:

Question

Quizplus · Accepted Answer

Dividends in arrears on cumulative preferred shares must be paid before common shareholders can receive dividends. Setting aside cash or appropriating retained earnings are both potential ways to pay the dividends, but they do not fulfill the requirement to pay the arrears before paying common dividends. Capitalizing the amount as part of permanent capital is not appropriate as it is not a long-term source of funding.

If a Corporation Has Dividends in Arrears of $25,000 on Its