Question

Finishing Touches has two classes of stock authorized: 9%, $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 $19 per share.

February 6 Issues 1,400 shares of 9% preferred stock for $11 per share.

September 10 Repurchases 11,000 shares of its own common stock for $24 per share.

December 15 Reissues 5,500 shares of treasury stock at $29 per share.

In its first year of operations, Finishing Touches has net income of $144,000 and pays dividends at the end of the year of $94,500 ($1 per share) on all common shares outstanding and $1,260 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.

Answer 1

Solution:

Stockholders' equity section of the balance sheet for Finishing Touches as of December 31, 2018:

Finishing Touches
Balance Sheet
[Stockholders` Equity Section]
For the Year Ended 31st December, 2018
Stockholder's equity :
9% Preferred Stock, $10 par, 1,400 shares issued and outstanding	$                         14,000
Common Stock, $1 par value, 100,000 shares issued and 94,500 shares outstanding	$                      100,000
Paid-in capital in excess of par-preferred stock [1400*1]	$                           1,400
Paid-in capital in excess of par-common stock [100000*18]	$                   1,800,000
Paid-in capital in excess of par-treasury stock [5500*5(29-24)]	$                         27,500
Total paid in capital	$                   1,942,900
Retained Earnings [Note; 1]	$                         48,240
Subtotal	$                   1,991,140
Less: Treasury Stock [ 5500*24]	$                    (132,000)
Total stockholder's Equity	$                   1,859,140

Notes:

1) Statement of Retained Earnings:

Finishing Touches
Retained Earnings Statement
For the Year Ended 31st December, 2018
Beginning Balance	$                           -
Add:Net Income	$                144,000
Less:
Dividends (Cash Dividend) [94500+1260]	$                (95,760)
Retained Earnings Closing Balance	$                  48,240