Waller Publications was organized early in 2006 with authorization to issue 20,0
ID: 2355884 • Letter: W
Question
Waller Publications was organized early in 2006 with authorization to issue 20,000shares 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 $4,460,000and 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.
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
b. do the dividends in arrears appear as a liability of the corporation as of the end of 2007?explain
Explanation / Answer
a.
Stockholder’s Equity
Common Stock 300,000
Paid-in capital in excess of par, common stock 5,700,000
Preferred Stock 2,000,000
Retained Earnings 210,000
Total Stockholder’s Equity 8,210,000
Retained Earnings:
4,460,000 – net income 2006-2010
-1,500,000 – common stock dividends (300,000*1*5)
-1,000,000 – preferred dividends (2,000,000*0.1*5)
-1,750,000 – net loss in 2011
210,000 – retained earnings
b. No, Dividends in arrears are not a liability on the balance sheet. A liability does not exist until the board of directors declares a dividend.
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