Apex Co. Dividends in Arrears Reporting in 20X5 Financial Statements

What should Apex Co. report regarding dividends in arrears in its 20X5 financial statements?

A. Accrued liability of $15,000.
B. Disclosure of $15,000.
C. Accrued liability of $20,000.
D. Disclosure of $20,000.

Final Answer:

The Disclosure of $15,000 is the correct answer because Apex should report dividends in arrears as a disclosure in its 20X5 financial statements, reflecting the unpaid cumulative dividends on its preferred stock. This does not constitute an actual accrued liability. The correct option is B).

Explanation:

Apex Co. should report dividends in arrears in its 20X5 financial statements as a "Disclosure of $15,000" (Option B). Dividends in arrears represent the cumulative preferred dividends that have not been paid in previous years when they should have been. In this case, as of December 31, 20X4, no dividends were in arrears, meaning Apex was up to date on its preferred stock dividend payments.

During 20X5, Apex paid a cash dividend of $10,000 on its preferred stock. However, this payment did not cover the full cumulative amount that should have been paid, which is $15,000 ($100 par value x 5% dividend rate x 3 years). Since Apex did not pay the full amount, they should disclose the amount of dividends in arrears, which is $15,000, in their financial statements.

This disclosure provides transparency to investors and creditors about the company's obligation to pay these accumulated dividends in the future.

In summary, Apex should report dividends in arrears as a disclosure of $15,000 in its 20X5 financial statements because they did not pay the full cumulative amount owed on their preferred stock during the year. This ensures accurate financial reporting and transparency regarding the company's outstanding obligations to preferred stockholders.

Therefore, option B. is correct.