Dakota Corporation had the following shareholders’ equity' account balances at December 31, 2015:
Preferred stock ................... $1,800,000
Additional paid-in capital on preferred stock ........... 90,000
Common stock .................... 5,150,000
Additional paid-in capital on common stock ........... 3,500,000
Retained earnings .................... 4,000,000
Unrealized decrease in value of marketable equity securities .... 245,000
Treasury common stock ................ 270,000
Transactions during 2016 and other information relating to the shareholders’ equity' accounts were as follows:
1. Dakota's preferred and common shares are traded on the over-the-counter market. At December 31, 2015, 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 stated value of $5 per share.
2. On January' 9, 2016, 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, 2015. The shares were originally issued at $10 per share.
3. Dakota owned 10,000 shares of Bush Inc. common stock purchased in 2013 for $750,000. The Bush stock was included in Dakota's short-term marketable securities portfolio at the end of 2015 at a value of $650,000. On February' 13, 2016, 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, 2016. The market price of Bush common stock was $63 per share on February' 13, 2016. The dividend in kind was distributed on March 12, 2016.
4. On April 2, 2016, 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, 2016, 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. On December 10, 2016, Dakota declared the yearly cash dividend on preferred stock, payable on January 14, 2017, to shareholders of record on December 31, 2016.
6. After the year-end adjustment, the Unrealized Decrease in Value of Marketable Equity' Securities account had a debit balance of $135,000 at December 31, 2016.
7. On January 14, 2017, before the accounting records were closed for 2016, Dakota became aware that rent income for the year ended December 31, 2015, was overstated by $500,000. The after tax effect on 2015 net income was $275,000. The appropriate correcting entry' was recorded the same day.
8. After correcting the rent income, net income for 2016 was $2,600,000.
Required:
1. Prepare Dakota’s statement of retained earnings for the year ended December 31, 2016. Assume that only single period financial statements for 2016 arc presented.
2. Prepare the shareholders’ equity' section of Dakota’s balance sheet at December 31, 2016.