Q1) Waller Publications was organized early in 2004 with authorization to issue 30,000 shares of $100 par value preferred stock and 1 million shares of $1 par value common stock. All of preferred stock was issued at par, and 300,000 shares of common stock were sold for $20 per share. Preferred stock pays 10 percent cumulative dividend.
In first five years of operations (2004 through 208) corporation earned total of $4,460,000 and paid dividends of $1 per share each year on common stock. In 2009, though, corporation reported net loss of $1,750,000 and paid no dividends.
a. Create stockholders equity section of balance sheet at December 31, 2009. Include supporting schedule illustrating your calculations of retained earnings at balance sheet date. (Hint: Income increases retained earnings, while dividends and net losses decrease retained earnings.)
b. Draft note to accompany financial statements disclosing any dividends in arrears at end of 2009. Do dividends in arrears appear as liability of corporation as end of 2009? Describe.