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 2018, 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 net 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, 2018.

FINISHING TOUCHES Balance Sheet (Stockholders’ Equity Section) December 31, 2018 Stockholders’ equity: Common stock Preferred stock Additional paid-in capital Total paid-in capital Retained earnings Treasury stock Total stockholders’ equity

Explanation / Answer

SOLUTION

FINISHING TOUCHES

Balance Sheet

(Stockholders’ Equity Section)

December 31, 2018

Amount ($) Amount ($) Paid in capital Common Stock (95,000 shares @ 1 per share) 95,000 Preferred Stock (2,000 shares @ $10 per preferred share) 20,000 Additional Paid in capital: Common stock ([25-1]*100,000)+ ([35-1]*5,000) 2,570,000 Preferred Stock (2,000*2) 4,000 Total Additional paid in capital 2,574,000 Total Paid in capital 1,689,000 Add: Retained earnings (149000-94000-1330) 53,400 2,742,400 Less: Treasury Stock [(10,000*30)-(5,000*35)] (125,000) STOCKHOLDER'S EQUITY 2,617,400

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