Stockholders’ Equity in a Balance Sheet
Early in 2012, Robbinsville Press was organized with authorization to issue 100,000 shares of $100 par value preferred stock and 500,000 shares of $1 par value common stock. Ten thousand shares of the preferred stock were issued at par, and 170,000 shares of common stock were sold for $15 per share. The preferred stock pays an 8 percent cumulative dividend.
During the first four years of operations (2012 through 2015), the corporation earned a total of $1,385,000 and paid dividends of 75 cents per share in each year on its outstanding common stock.
Instructions
a. Prepare the stockholders’ equity section of the balance sheet at December 31, 2015. Include a supporting schedule showing your computation of the amount of retained earnings reported. (Hint: Income increases retained earnings, whereas dividends decrease retained earnings.)
b. Are there any dividends in arrears on the company’s preferred stock at December 31, 2015? Explain your answer.
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