Early in 2018, Robbinsville Press was organized with authorization to issue 100,000 shares of $100 par value preferred stock and 500,000 shares of $1 par value common stock. Ten thousand shares of the preferred stock were issued at par, and 170,000 shares of common stock were sold for $15 per share. The preferred stock pays an 8 percent cumulative dividend. During the first four years of operations (2018 through 2021), the corporation earned a total of $1,385,000 and paid dividends of 75 cents per share in each year on its outstanding common stock. Required:
a. Prepare the stockholders’ equity section of the balance sheet at December 31, 2015. Include a supporting schedule showing your computation of the amount of retained earnings reported. (Hint: Income increases retained earnings, whereas dividends decrease retained earnings.)
b. Are there any dividends in arrears on the company’s preferred stock at December 31, 2015?