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 recorded as liabilities; they are disclosed in the notes to the financial statements. They do not reduce retained earnings until declared.

When Preferred Shares Are Cumulative and the Board of Directors