Response to the following problem:
The following note appeared on the balance sheet of Sabre Rigging Limited: As of December 31, 2016, dividends on the cumulative preferred shares were in arrears for three years to the extent of $15 per share or $15,000 in total.
Required:
1. Does the amount of the arrears appear as a liability on the December 31, 2016 balance sheet? Explain your answer.
2. Why might the dividends be in arrears?
3. The comptroller of Sabre Rigging projects net income for the 2017 fiscal year of $35,000. When the company last paid dividends, the directors allocated 50 per cent of current year's net income for dividends. If dividends on preferred shares are resumed at the end of 2017 and the established policy of 50 per cent is continued, how much will be available for dividends to the common shareholders if the profit projection is realized?