Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?
A) The shareholders must be allowed to convert their shares to common stock.
B) The unpaid dividends are accrued as a liability.
C) The unpaid dividends are reported in a note to the financial statements.
D) The unpaid dividends accrue interest until paid.

Question

Quizplus · Accepted Answer

When dividends are not declared or paid on cumulative preferred stock, the unpaid dividends do not accrue as a liability on the balance sheet. Instead, they are typically disclosed in the notes to the financial statements, providing transparency about the dividends in arrears without recognizing them as a current obligation.

Which of the Following Statements Is True When Dividends Are