How to Declare Unpaid Stock Dividends From Previous Years

Only cumulative preferred shares will have overdue dividends.

When dividends are not paid in one year, then they are known as dividends in arrears. The only time a company will have dividends in arrears is when it has cumulative preferred stock. Cumulative preferred stock is stock that will always pay dividends, even if a company does not declare dividends for the year. When the dividends are not paid, the dividends will accumulate in arrears. Before the company pays any other dividends, it must first pay its dividends in arrears.

Instructions

1. Determine the total amount of dividends in arrears and their per-share value. This is information that the company should keep for each year it does not pay dividends to cumulative preferred stockholders.

2. Determine how you want to disclose the information. The company must disclose both the total amount of dividends in arrears and the per-share amount. The company has a choice of disclosing the information either as a parenthetical explanation on the balance sheet or in the footnotes of the financial statement.

3. Calculate a new common stockholders' equity. This amount is used for formulas such as book value per share. To calculate common stockholders' equity, take total stockholders' equity and subtract preferred stock outstanding and dividends in arrears. The company will normally disclose this as part of any financial ratios it discloses in financial statements.

References

• Investopedia: Cumulative Preferred Stock
• Investopedia: Arrearage
• Cliffs Notes: Accounting Principles II - Dividends