Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, an

Question

Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, and $1 par value common. The following transactions affect stockholders' equity during 2012, its first year of operations: January 2 Issues 100,000 shares of common stock for $25 per share. February 6 Issues 2,000 shares of 8% preferred stock for $12 per share. September 10 Repurchases 10,000 shares of its own common stock for $30 per share. December 15 Reissues 5,000 shares of treasury stock at $35 per share. In its first year of operations, Finishing Touches has income of $150,000 and pays dividends at the end of the year of $95,000 ($1 per share) on all common shares outstanding and $1,600 on all preferred shares outstanding. Required: Prepare the stockholders' equity section of the balance sheet for Finishing Touches as of December 31, 2012.

Explanation / Answer

Balance Sheet - stocks

Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, and $1 par value common. The following transactions affect stockholders' equity during 2012, its first year of operations: January 2 Issues 100,000 shares of common stock for $25 per share. February 6 Issues 2,000 shares of 8% preferred stock for $12 per share. September 10 Repurchases 10,000 shares of its own common stock for $30 per share. December 15 Reissues 5,000 shares of treasury stock at $35 per share. In its first year of operations, Finishing Touches has income of $150,000 and pays dividends at the end of the year of $95,000 ($1 per share) on all common shares outstanding and $1,600 on all preferred shares outstanding. Required: Prepare the stockholders' equity section of the balance sheet for Finishing Touches as of December 31, 2012.

PLEASE REFER TO:

www.scribd.com/doc/46239395/Part-2-Solutions

http://www.jiskha.com/search/index.cgi?query=2.+A+20-year,+$1,000+par+value..

ANSWER:

September 10 Repurchases 10,000 shares of its own common stock for $30 per share.

Balance sheetand income statement data indicate thefollowing: Bonds payable,...During its first year, the corporation issued 2,000sharesof $50par value preferred.....Finishing Touches has two classesofstock authorized:8%,$10 par...affect stockholders'equity during2010,its first yearofoperations:January 2Issue

FOR EXAMPLE;

Direct labour hours requirement at maximum demand:

Cutting = 10/60 x 2,500 x 3 months + 20/60 x 1,500 x 3 months = 2,750 DLH

Finishing = 15/60 x 2,500 x 3 months + 40/60 x 1,500 x 3 months = 4,875 DLH

Thus, production constraint exists for hours in Finishing department.

Contribution margin per unit:

Wallets = $30 - $8 - $2 = $20

Belts = $50 - $15 - $3 = $32

Contribution margin per direct labour hour (Finishing):

Wallets = $20 / (15/60) = $80 per DLH (Finishing)

Belts = $32 / (40/60) = $48 per DLH (Finishing)

Thus, in addition to meeting the contract requirement for 1,800 belts, ALC should use

capacity to manufacture wallets first and then belts as follows:

Production Plan

Direct Labour Hours (Finishing) Required

Belts

1,800 units

1,800 x 40/60 = 1,200 DLH

Wallets

7,500 units

7,500 x 15/60 = 1,875 DLH

Belts

525 / (40/60) = 787.5 units 3,600 - 1,200 - 1,875 = 525 DLH

ALC should produce 7,500 wallets and 2,587 belts to maximize its profits.

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