Finishing Touches has two classes of stock authorized: 8%, $10 par preferred, an
ID: 2586559 • Letter: F
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 $23 per share.
February 6 Issues 1,800 shares of 8% preferred stock for $12 per share.
September 10 Purchases 10,000 shares of its own common stock for $28 per share.
December 15 Reissues 5,000 shares of treasury stock at $33 per share.
In its first year of operations, Finishing Touches has net income of $148,000 and pays dividends at the end of the year of $95,000 ($1 per share) on all common shares outstanding and $1,440 on all preferred shares outstanding.
Required:
Prepare the stockholders' equity section of the balance sheet for Finishing Touches as of December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)
FINISHING TOUCHES Balance Sheet (Stockholders’ Equity Section) December 31, 2018 Stockholders’ equity: Common stock $100,000 Preferred stock 18,000 Additional paid-in capital Total paid-in capital 118,000 Treasury stock Retained earnings Total stockholders’ equity $118,000Explanation / Answer
FINISHING TOUCHES
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2018
Stockholders’ equity:
Common stock
$100,000
Preferred stock
18,000
Additional paid-in capital
2,093,600
Total paid-in capital
2,211,600
Treasury stock
(5,000)
Retained earnings
51,560
Total stockholders’ equity
$2,258,160
Additional Paid in capital
= Excess received on (Equity + preference) – Excess paid on purchase of own stock – Excess received on reissue of purchased shares
= [$(23 - 1) * 100,000 Shares] + [$(12 – 10) * 1800 shares] – [$(28-1) * 10,000 shares] + $(33-1) *5000 shares
= 2,093,600
Treasury Stock
= 5000 (10,000 – 5,000) shares * $1
= $5,000
Retain Earnings
= Net Income – Dividend
= $148,000 – 95,000 – 1440
=$51,560
FINISHING TOUCHES
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2018
Stockholders’ equity:
Common stock
$100,000
Preferred stock
18,000
Additional paid-in capital
2,093,600
Total paid-in capital
2,211,600
Treasury stock
(5,000)
Retained earnings
51,560
Total stockholders’ equity
$2,258,160
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