Banner Publications was organized early in 2006 with authorization to issue 10,000 shares of $100 par value preferred stock and I million shares of $1 par value common stock. All of the preferred stock was issued at par, and 400,000 shares of common stock were sold for $15 per share. The preferred stock pays a 10 percent cumulative dividend. During the first five years of operations (2006 through 2010) the corporation earned a total of $4,100,000 and paid dividends of S.80 per share each year on the common stock. In 2011, how- ever, the corporation reported a net loss of $1,100,000 and paid no dividends. Instructions a. Prepare the stockholders' equity section of the balance sheet at December 31, 2011. 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 2011. c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2011? Explain.

Banner Publications was organized early in 2006 with authorization to issue 10,000 shares of $100 par value preferred stock and I million shares of $1 par value common stock. All of the preferred stock was issued at par, and 400,000 shares of common stock were sold for $15 per share. The preferred stock pays a 10 percent cumulative dividend. During the first five years of operations (2006 through 2010) the corporation earned a total of $4,100,000 and paid dividends of S.80 per share each year on the common stock. In 2011, how- ever, the corporation reported a net loss of $1,100,000 and paid no dividends. Instructions a. Prepare the stockholders' equity section of the balance sheet at December 31, 2011. 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 2011. c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2011? Explain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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