Mary Dvorak organized Mullin Enterprises, Inc., in January 2019. The corporation immediately issued at $12 per share on half of its 300,000 authorized shares of $1 par value common stock. On January 2, 2020, the corporation sold at par value the entire 6,000 authorized shares of 7 percent, $30 par value cumulative preferred stock. On January 2, 2021, the company again needed capital and issued 3,500 shares of an authorized 12,000 shares of no-par cumulative preferred stock for a total of $455,000. The no-par shares have a stated dividend of $10 per share.

The company declared no dividends in 2019 and 2020. At the end of 2020, its retained earnings were $275,000. During 2021 and 2022 combined, the company earned a total net income of $920,000. Dividends of 80 cents per share in 2021 and $1.15 per share in 2022 were paid on common stock.

Required:

1. Prepare the stockholders equity section of the balance sheet on December 31, 2022. Include a supporting schedule showing your computation of retained earnings at the balance sheet date. (Hint: Income increases retained earnings, whereas dividends decrease retained earnings). Ensure that your partial balance sheet is labeled correctly and uses the correct format for the stockholders equity section of the balance sheet.

2. Assume that on January 2, 2020, the corporation could have borrowed $180,000 at 10 percent interest on a long-term basis instead of issuing the 6,000 shares of the $30 par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with long-term debt.