The stockholders’ equity section of Grouper Corp.’s balance sheet at December 31

Question

The stockholders’ equity section of Grouper Corp.’s balance sheet at December 31 is presented here. GROUPER CORP. Balance Sheet (partial) Stockholders’ equity

Paid-in capital Preferred stock, cumulative, 9,500 shares authorized, 5,700 shares issued and outstanding $ 587,100

Common stock, no par, 748,707 shares authorized, 579,000 shares issued 2,895,000 Total paid-in capital 3,482,100 Retained earnings 1,200,000

Total paid-in capital and retained earnings 4,682,100

Less: Treasury stock (6,800 common shares) 36,267

Total stockholders’ equity $4,645,833 (

e) If dividends of $73,200 were in arrears on preferred stock, what would be the balance reported for retained earnings? The Retained Earnings balance

Explanation / Answer

$1,200,000.

If dividends of $73,200 were in arrears on preferred stock, the balance reported in retained earnings will be $1,200,000.

In other words the balance in retained earnings is not affected by arrears of dividends on preferred stock.

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