Banner Publications was organized early in 2006 with authorization to
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.

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