Question

Prepare a statement of stockholders' equity for Oakwood for the year ended December 31, 2016 based on the following information:

Oakwood Inc. is a public enterprise whose shares are traded in the over-the-counter market. At December 31, 2015, Oakwood had 6,000,000 authorized shares of $10 par value common stock, of which 2,000,000 shares were issued and outstanding. The shareholders' equity accounts at December 31, 2015, had the following balances: Common stock $20,000,000 Additional paid-in capital on common stock 7,500,000 Retained earnings 6,470,000 Transactions during 2016 and other information relating to the shareholders' equity accounts were as follows: On January 5, 2016, Oakwood issued at $54 per share, 100,000 shares of $50 par value, 9%, cumulative convertible preferred stock. Each share of preferred stock is convertible, at the option of the holder, into 2 shares of common stock. Oakwood had 600,000 authorized shares of preferred stock. On February 2, 2016, Oakwood reacquired 20,000 shares of its common stock for $16 per share. Oakwood uses the cost method to account for treasury stock. On April 27, 2016, Oakwood sold 500,000 shares (previously unissued) of $10 par value common stock to the public at $17 per share. On June 18, 2016, Oakwood declared a cash dividend of $1 per share of common stock, payable on July 13, 2016, to shareholders of record on July 2, 2016. On November 9, 2016, Oakwood sold 10,000 shares of treasury stock for $21 per share. On December 14, 2016, Oakwood declared the yearly cash dividend on preferred stock, payable on January 14, 2017, to shareholders of record on December 31, 2016. On January 18, 2017, before the books were closed for 2016, Oakwood became aware that the ending inventories at December 31, 2015, were understated by $300,000 (the after-tax effect on 2015 net income was $210,000). The appropriate correcting entry was recorded the same day. After correcting the beginning inventory, net income for 2016 was $4,500,000. Required: 1. Prepare a statement of stockholders' equity for Oakwood for the year ended December 31, 2016. Assume that only single-period financial statements for 2016 are presented.

Answer 1

1)
OAKWOOD, INC.
Statement of Retained Earnings
For the Year Ended December 31, 2016
Balance, December 31, 2015, as originally reported		$    64,70,000.00
Add: Prior period adjustment from error understatinginventories at December 31, 2015	$      3,00,000.00
Less: Income Tax Effect	$       -90,000.00	$      2,10,000.00
As restated		$    66,80,000.00
Net Income for 2016		$    45,00,000.00
		$ 1,11,80,000.00
Deduct cash dividends:
Preferred Dividend = 100,000 shares X $50 par value x 9%	$      4,50,000.00
Common Dividend = 2000000 - 20000 + 500000 shares x $1	$    24,80,000.00	$ -29,30,000.00
Balance, December 31, 2016		$    82,50,000.00
2. Prepare the shareholders' equity section of Oakwood's balance sheet at December 31, 2016.
OAKWOOD, INC.
Shareholders' Equity Section of Balance Sheet
December 31, 2016
Contributed Capital:
Preferred stock, $50 par value; authorized, 600,000 shares; issued, 100,000 shares	$    50,00,000.00
Common stock, $10 par value; authorized, 6,000,000 shares; issued, 2,500,000 shares(of which 10,000 held in treasury stock)	$ 2,50,00,000.00
Paid-in capital in excess of par—preferred (100000 shares x ($54 - $50)	$      4,00,000.00
Paid-in capital in excess of par—common ($7500000 + (500000 x (17 -10)	$ 1,10,00,000.00
Paid-in capital in excess of cost—treasury (10000 x ($21-$16)	$         50,000.00
Retained earnings	$    82,50,000.00
Total contributed capital and retained earnings	$ 4,97,00,000.00
Less: Treasury Stock (10000 x 16)	$    -1,60,000.00
Total shareholders' equity	$ 4,95,40,000.00