Apex Co. Dividends in Arrears Analysis
Understanding Apex Co. Dividends in Arrears
On December 31, 20X2 and 20X3, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock outstanding. No dividends were in arrears as of December 31, 20X1. Apex did not declare a dividend during 20X2. During 20X3, Apex paid a cash dividend of $10,000 on its preferred stock. Apex should report dividends in arrears in its 20X3 financial statements as a (an) disclosure of $20,000.
Answer:
Answer: the correct answer is a disclosure of $20,000
Explanation:
The annual preferred stock dividend is $15,000 = 3,000 x $100 x 5%. Total dividends in arrears at the end of 20X3 are therefore $20,000 = 2 years x $15,000 - $10,000 paid.
Dividends in arrears are footnoted only. They are not recognized as a liability until they are declared.
What should Apex Co. report in its 20X3 financial statements regarding dividends in arrears? Apex Co. should report a disclosure of $20,000 in its 20X3 financial statements for dividends in arrears.