Banner Publications was organized early in 2006 with authorization to issue 10,000 shares of $100 par value

Question:

Banner Publications was organized early in 2006 with authorization to issue 10,000 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 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 $.80 per share each year on the common stock. In 2011, however, 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.

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 Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...