Question

McMinn Publications was organized early in 2016 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 (2016 through 2020) the corporation earned a total net income of $4,560,000 and paid dividends of $1 per share each year on the common stock. In 2021, however, the corporation reported a net loss of $1,825,000 and paid no dividends.

Required:

a. Prepare the stockholders’ equity section of the balance sheet at December 31, 2021.

c. Do the dividends in arrears appear as a liability of the corporation as of the end of 2021?

• Required A
• Required C

Prepare the stockholders’ equity section of the balance sheet at December 31, 2021.

MCMINN PUBLICATIONS Partial Balance Sheet December 31, 2021 Stockholders' equity Common stock, $1 par value, authorized 1 million shares issued and outstanding 300,000 shares $300,000 10% cumulative preferred stock, $100 par value, authorized 100,000 shares, issued and outstanding 20,000 shares 2,000,000 Additional paid-in capital: common stock 5,700,000 Total paid-in capital $8,000,000 Retained earnings ? ? ? Retained earnings, December 2020 ? Less: Net loss of 2021 ? Retained earnings, December 31, 2021 ? Total stockholders' equity $8,000,000

• Do the dividends in arrears appear as a liability of the corporation as of the end of 2021

  	Do the dividends in arrears appear as a liability of the corporation as of the end of 2021? No

Answer 1

Requirement:A

MCMINN PUBLICATIONS
Partial Balance Sheet
31-Dec-21
Stockholders' equity
Common stock, $1 par value, authorized 1 million shares issued and outstanding 300,000 shares	$              300,000
10% cumulative preferred stock, $100 par value, authorized 100,000 shares, issued and outstanding 20,000 shares	$           2,000,000
Additional paid-in capital: common stock	$           5,700,000
Total paid-in capital	$           8,000,000
Retained earnings[Working]	$              235,000
Total stockholders' equity	$           8,235,000

Working:

Retained earnings	$           4,560,000
Less: Common stock dividend [300000*$1*5 Years]	$          (1,500,000)
Less: Preferred stock dividend [20000*$100*10%*5 Years]	$          (1,000,000)
Retained earnings, December 2020	$           2,060,000
Less: Net loss of 2021	$          (1,825,000)
Retained earnings, December 31, 2021	$              235,000

Requirement:C

Do the dividends in arrears appear as a liability of the corporation as of the end of 2021?

No

Explanation:

1) Yes, It is true that preferred dividend arrears is not disclosed as liability in balance sheet and disclosed below the balance sheet in notes to the balance sheet.