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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Oakwood Inc. is a public enterprise whose shares are traded in the over-the-counter market. At December 31, 2018, 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, 2018, had the following balances:

Chapter 16, Problem 7P, Oakwood Inc. is a public enterprise whose shares are traded in the over-the-counter market. At

Transactions during 2019 and other information relating to the shareholders’ equity accounts were as follows:

  1. 1. On January 5, 2019, 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.
  2. 2. On February 2, 2019, Oakwood reacquired 20,000 shares of its common stock for $16 per share. Oakwood uses the cost method to account for treasury stock.
  3. 3. On April 27, 2019, Oakwood sold 500,000 shares (previously unissued) of $10 par value common stock to the public at $17 per share.
  4. 4. On June 18, 2019, 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.
  5. 5. On November 9, 2019, Oakwood sold 10,000 shares of treasury stock for $21 per share.
  6. 6. On December 14, 2019, Oakwood declared the yearly cash dividend on preferred stock, payable on January 14, 2017, to shareholders of record on December 31, 2019.
  7. 7. On January 18, 2020, before the books were closed for 2019, Oakwood became aware that the ending inventories at December 31, 2018, were understated by $300,000 (the after-tax effect on 2018 net income was $210,000). The appropriate correcting entry was recorded the same day.
  8. 8. After correcting the beginning inventory, net income for 2019 was $4,500,000.

    Required:

    1. Prepare a statement of retained earnings for Oakwood for the year ended December 31, 2019. Assume that only single-period financial statements for 2019 are presented.

    2. Prepare the shareholders’ equity section of Oakwood’s balance sheet at December 31, 2019.

1.

To determine

Prepare statement of retained earnings for the Company O for the year ended December 31, 2019 by assuming that single- period financial statement is provided.

Explanation

Retained earnings:

Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Prepare statement of retained earnings for the Company O for the year ended December 31, 2019 by assuming that single- period financial statement is provided

Company O
statement of  retained earnings
For the  year ended December 31,2019
ParticularsAmount in $Amount in $
Balance, December 31, 2018, as originally reported 6,470,000

Add: Prior Period adjustment from error understating

         inventories at December 31, 2018

 300,000
Less: Income tax effect  (90,000)
As  restated  6,680,000
Add: Net income 4,500,000
  11,180,000
Less Cash dividends:  

         On preferred stock  at required rate

        (100,000×$4

2.

To determine

Compute the stockholder’s equity section of Company O’s balance sheet at December 31, 2019.

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