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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
$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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