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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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Dakota Corporation had the following shareholders’ equity account balances at December 31, 2018:

Chapter 16, Problem 8P, Dakota Corporation had the following shareholders equity account balances at December 31, 2018:

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

  1. 1. Dakota’s preferred and common shares are traded on the over-the-counter market. At December 31, 2018, Dakota had 100,000 authorized shares of $100 par, 10%, cumulative preferred stock; and 3,000,000 authorized shares of no-par common stock with a stared value of $5 per share.
  2. 2. On January 9, 2019, Dakota formally retired all 30,000 shares of its treasury common stock and had them revert to an unissued basis. The treasury stock had been acquired on January 20, 2018. The shares were originally issued at $10 per share.
  3. 3. Dakota owned 10,000 shares of Bush Inc. common stock purchased in 2016 for $750,000. The Bush stock was included in Dakota’s short-term marketable securities portfolio at the end of 2018 at a value of $650, 000. On February 13, 2019, Dakota declared a dividend in kind of 1 share of Bush for every 100 shares of Dakota common stock held by shareholders of record on February 27, 2019. The market price of Bush common stock was $63 per share on February 13, 2019. The dividend in kind was distributed on March 12, 2019.
  4. 4. On April 2, 2019, 250,000 stock rights were issued to the common shareholders permitting the purchase of 1 new share of common stock in exchange for 1 right and $11 cash. On April 23, 2019, 210,000 stock rights were exercised when the market price of Dakota’s common stock was $13 per share. Dakota issued new shares to settle the transaction. The remaining 40,000 rights were not exercised and expired.
  5. 5. On December 10, 2019, Dakota declared the yearly cash dividend on preferred stock, payable on January 14, 2017, to shareholders of record on December 31, 2019.
  6. 6. Alter the year-end adjustment, the Unrealized Decrease in Value of Marketable Equity Securities account had a debit balance of $135,000 at December 31, 2019.
  7. 7. On January 14, 2020, before the accounting records were closed for 2019, Dakota became aware that rent income for the year ended December 31, 2018, was overstated by $500,000. The after-tax effect on 2018 net income was $275,000. The appropriate correcting entry was recorded the same day.
  8. 8. After correcting the rent income, net income for 2019 was $2,600,000.

    Required:

  9. 1. Prepare Dakota’s statement of retained earnings for the year ended December 31, 2019. Assume that only single-period financial statements for 2019 are presented.
  10. 2. Prepare the shareholders’ equity section of Dakota’s balance sheet at December 31, 2019.

1.

To determine

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

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.

Company D
statement of  retained earnings
For the  year ended December 31,2019
ParticularsAmount in $Amount in $
Balance, December 31, 2018, as originally reported 4,000,000

Add: Prior Period adjustment from error understating

         inventories at December 31, 2018

 500,000
Less: Income tax effect  (225,000)
As  restated  3,725,000
Add: Net income 2,600,000
  6,325,000
Less dividends:  
         Cash dividend on preferred stock (1)180,000 
         Dividends in kind on common stock (2)630,000(810,000)
Balance, Dece...

2.

To determine

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

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