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Finishing Touches has two classes of stock authorized: 9%, $10 par preferred, and $1 par value common. The following transactions affect stockholders' equity during 2021, its first year of operations: January 2 Issues 100,000 shares of common stock for $29 per share. February 6 Issues 2,400 shares of 9% preferred stock for $11 per share. September 10 Purchases 11,000 shares of its own common stock for $34 per share. December 15 Resells 5,500 shares of treasury stock at $39 per share. In its first year of operations, Finishing Touches has net income of $154,000 and pays dividends at the end of the year of $94,500 ($1 per share) on all common shares outstanding and $2,160 on all preferred shares outstanding.

Required:

Prepare the stockholders' equity section of the balance sheet for Finishing Touches as of December 31, 2021.

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Answer:

The stockholder's equity section of Finishing Touches balance sheet:

Common stock                                $100,000 ( 100,000 common shares - par $1)

Preferred stock                                $24,000 ( 2,400 preferred shares - par $10)

Additional paid-in capital-common $2,800,000 (to show difference between selling price and par value, calculated as (29-1) x 100,000)

Additional paid-in capital-preferred $2,400 (to show difference between selling price and par value, calculated as (11-1) x 2,400)

Retained Earnings                              $57,340 ( calculated as Net income - total dividend paid out = $94,500 - $2,160 = $57,340)

Treasury stock                                    $(187,000) (calculated as 34*( 11,000-5,500) =$187,000

Additional paid-in, treasury               $27,500 ( calculated as amount received from the share resold - amount paid to the share repurchase and later resold = 39 * 5,500 - 34 * 5,500 = $27,500).

Total Equity                                         $2,824,240 (total number of all accounts above).

Explanation:

Explanation is given above at each account.

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