Oakwood Inc. is a public enterprise whose shares are traded in the over-the-coun
ID: 2416471 • Letter: O
Question
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:
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 retained earnings for Oakwood for the year ended December 31, 2016. Assume that only single-period financial statements for 2016 are presented.
2. Prepare the shareholders' equity section of Oakwood's balance sheet at December 31, 2016.
Common stock $20,000,000 Additional paid-in capital on common stock 7,500,000 Retained earnings 6,470,000Explanation / Answer
Answer.1 Oakwood Inc. Retained Earning Statement As on year ended Dec. 31, 2016 Particulars Amount Balance at the Beginning 6,470,000 Add; Net Income 4,500,000 Less: Cash Dividend - Common Stock (2,520,000) Less: Dividend - Preference Shares (450,000) Balance at the end 8,000,000 Answer 2. Oakwood Inc. Shareholders' Equity Section of Balance Sheet As on year ended Dec. 31, 2016 Particulars Amount 9% cumulative preferred stock, $50 par value 6,00,000 shares authorized, 100,000 shares issued 5,000,000 Common Stock Issued - 2,500,000 Shares Issued 25,000,000 Additional Paid in Capital Preference ($4 X 100000 Pref Shares) 400,000 Common Stock 11,000,000 Treasury Stock ($5 X 10000) 50,000 Total paid in Capital 41,450,000 Add: Retained Earnings 8,000,000 Sub-Total 49,450,000 Less: Treasury Stock (10000 Shares X $16) (160,000) Total Stockholders Equity 49,290,000
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