Waller Publications was organized early in 2006 with authorization to issue 20,000 shares of $100par value preferred stock and 1 million shares of $1 par value common stock. All of the preferredstock was issued at par, and 300,000 shares of common stock were sold for $20 per share. Thepreferred stock pays a 10 percent cumulative dividend.During the first five years of operations (2006 through 2010) the corporation earned a total of$4,460,000 and paid dividends of $1 per share each year on the common stock. In 2011, however,the corporation reported a net loss of $1,750,000 and paid no dividends.Instructionsa. Prepare the stockholders’ equity section of the balance sheet at December 31, 2011. Include asupporting schedule showing your computation of retained earnings at the balance sheet date.(Hint: Income increases retained earnings, whereas dividends and net losses decrease retainedearnings.)b. Draft a note to accompany the financial statements disclosing any dividends in arrears at theend of 2011.c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2011?Explain.
Waller Publications was organized early in 2006 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 (2006 through 2010) the corporation earned a total of
$4,460,000 and paid dividends of $1 per share each year on the common stock. In 2011, however,
the corporation reported a net loss of $1,750,000 and paid no dividends.
Instructions
a. Prepare the
supporting schedule showing your computation of
(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.
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