Dividends on term preferred shares, where the shares have been recorded as a liability, should be debited to
A) interest expense.
B) retained earnings.
C) contributed surplus.
D) other comprehensive income.

Question

Quizplus · Accepted Answer

Dividends on term preferred shares are typically considered to be similar to interest payments, and are therefore accounted for as interest expense. This is true even though the shares themselves are recorded as a liability, because the payments made to the shareholders are similar to interest payments on a loan. Therefore, the correct answer is A) interest expense.

Dividends on Term Preferred Shares, Where the Shares Have Been