Question

The following information pertains to Powers Corp. as of December 31, 20X1:

Cumulative Preferred stock

Dividends in arrears $165,000

20X1 Dividends $75,000

Common Stock

20X1 dividends to be declared in 20X2 $50,000

In addition, Jeff Kurtz, the CFO of Powers Corp. will be paid his 20X1, $120,000 bonus on January 8, 20X2.

What amount should Powers Corp. report as current liabilities on its balance sheet at December 31, 20X1?

Answer 1

The above question needs coupe of clarification in relates to declared amount at Current Liability in the financial Statement :

We need to determined current Liability amount need to disclose by Power Corp as of 31^st Dec 20X1

Dividend in arrear - $ 165000 –It is never be liability . Just mentioned as arrear .

Important point to understand – When Dividend will be part of current Liability – As per standard , A current liability account that reports the amount of :

Cash dividend that have been declared by the Board of director but not yet distributed to stakeholders .--- represents Dividend payable .

As per above case , dividend arrear is not part of liability .

Another scenario , 20X1 , dividend to be declared in 2002 $ 50000. Again not cover under Current Liability. This amount not pertaining to 20X1 financial .

Interesting point to note that, Jeff Kurtz the CFO of Powers will be paid his 20X1 $ 120000 bonus on January 8 , 20x2 .

So as on 31^st Dec 20X1 , company has t make provision relates to Bonus payable and this amount should be part of Current Liability

So as per my understanding only Bonus payable will be cover under Current Liability