Response to the following problem:
Early in 2006, Septa, Inc., was organized with authorization to issue 1,000 shares of $100 par value preferred stock and 200,000 shares of $1 par value common stock. Five hundred shares of the preferred stock were issued at par, and 80,000 shares of common stock were sold at $15 per share. The preferred stock pays a 10 percent cumulative dividend. During the first four years of operations (2006 through 2009), the corporation earned a total of $1,800,000 and paid dividends of 40 cents per share in each year on its outstanding common stock.
INSTRUCTIONS:
A. Prepare the stockholders equity section of the balance sheet at December 31, 2009. Include a supporting schedule showing your computation of the amount of retained earnings reported.
(Hint: Income increases retained earnings, whereas dividends decrease retained earnings.)