McMinn Publications was organized early in 2010 with authorization to issue 20,000 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 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 (2010 through 2014) the corporation earned a total of $4,560,000 and paid dividends of $1 per share each year on the common stock. In 2015, however, the corporation reported a net loss of $1,825,000 and paid no dividends.

Instructions

a.	Prepare the stockholders' equity section of the balance sheet at December 31, 2015. 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.)

c.

Do the dividends in arrears appear as a liability of the corporation as of the end of 2015?

	No
	Yes

MCMINN PUBLICATIONS Partial Balance Sheet December 31, 2015 Stockholders' equity Total paid-in capital Retained earnings Retained earnings, December 2014 Retained earnings, December 31, 2015 Total stockholders' equity