In short
Dividends in arrears are undeclared dividends on cumulative preferred stock from past periods. They aren't a liability until declared, but they are disclosed and must be paid before any common dividend.
Key takeaways
- For basic earnings per share, the current year's cumulative preferred dividend is deducted whether or not declared.
- Arrears from earlier years aren't deducted again when later paid.
- Noncumulative preferred dividends that are skipped are lost.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has net income of $600,000 and paid $50,000 in dividends on cumulative preferred stock during the year, none of which were declared. What amount should be used as the numerator for basic EPS?