Asked by Alexsis Oltsher on Jul 18, 2024
Verified
Dividends in arrears on cumulative preferred stock are considered a liability.
Dividends in Arrears
Unpaid dividends on cumulative preferred stock that must be paid out before any dividends can be distributed to common stockholders.
Cumulative Preferred Stock
A type of preferred stock that entitles the holder to receive dividends in arrears before common stockholders can receive any dividends.
Liability
Any financial obligation or debt that an entity is responsible for paying to another party.
- Understand the legal and financial differences between common and preferred shares.
Verified Answer
SM
Siddhesh MaverickJul 20, 2024
Final Answer :
False
Explanation :
Dividends in arrears on cumulative preferred stock are not considered a liability until they are declared by the company's board of directors. Until then, they are only a disclosure in the financial statements' notes.
Learning Objectives
- Understand the legal and financial differences between common and preferred shares.