Banner Publications was organized early in 2018 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 (2016 through 2020) the corporation earned a total of $4,100,000 and paid dividends of $0.80 per share each year on the common stock. In 2021, however, the corporation reported a net loss of $1,250,000 and paid no dividends.

Instructions.
a. Prepare the stockholders’ equity section of the balance sheet at December 31, 2021. Include a supporting schedule showing your computation of retained earnings at the balance sheet date. (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 2021.
c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2021? Explain.