Stockholders’ Equity Section
McMinn Publications was organized early in 2010 with authorization to issue 20,000 shares of $100 par value preferred stock and 1 million shares of $1 par value common stock. All of the preferred stock was issued at par, and 300,000 shares of common stock were sold for $20 per share. The preferred stock pays a 10 percent cumulative dividend.
During the first five years of operations (2010 through 2014) the corporation earned a total of $4,560,000 and paid dividends of $1 per share each year on the common stock. In 2015, however, the corporation reported a net loss of $1,825,000 and paid no dividends.
Instructions
a. Prepae the stockholders’ equity section of the balance sheet at December 31, 2015. Include a supporting schedule showing your computation of retained earnings at the balance sheet date. (Hint: Income increases retained earnings, whereas dividends and net losses decrease retained earnings.)
b. Draft a note to accompany the financial statements disclosing any dividends in arrears at the end of 2015.
c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2015? Explain.
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