Walter Publications was organized early in 2004 with authorization to issue 20,000 shares of $100 par value preferred stock and 1 million shares of $1 par value common stock. AB of the preferred stock was issued at par, and 300,00 shares of common stock were sold for $20 per share. The preferred stock pays a 10% cumulative dividend. During the first 5 years of operations (2004-2008) the corporation earned a total of $4,460,000 and paid dividends of $1 per share each year on the common stock. In 2009, however, the corporation reported a net loss of $1,750,000 and paid no dividends.
a) Prepare the stockholders' equity section of the balance sheet at December 31, 2009. 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 2009.