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Unformatted text preview: the dividends preferred stockholders are entitled to if and when the company's board of directors declares a dividend. The amount of dividends in arrears equals the cumulative total of dividends not declared and not paid to preferred stockholders in the current and past years. The amount of dividends in arrears at the end of each year would be as follows. December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 c. $25,000 $20,000 $0 $10,000 $0 Dividends in arrears should not be considered a liability. A liability represents the probable future sacrifice of assets. A company may choose to reinvest its profits back into the company, or the company may not be financially secure enough to pay a dividend. This uncertainty is only resolved when the company's board of directors actually declares a dividend. Preferred stockholders are only entitled to receive their dividend when the company declares a dividend. If the board of directors never declares a dividend, then the preferred stockhol...
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