Question

Part A
In late 2017, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 5,000,000 shares of common stock carrying a $1 par value, and 1,000,000 shares of $5 par value, noncumulative, nonparticipating preferred stock. On January 2, 2018, 3,000,000 shares of the common stock are issued in exchange for cash at an average price of $10 per share. Also on January 2, all 1,000,000 shares of preferred stock are issued at $20 per share.

Required:
1. Prepare journal entries to record these transactions.
2. Prepare the shareholders' equity section of the Nicklaus balance sheet as of March 31, 2018. (Assume net income for the first quarter 2018 was $1,550,000.)

Part B
During 2018, the Nicklaus Corporation participated in three treasury stock transactions:

1. On June 30, 2018, the corporation reacquires 280,000 shares for the treasury at a price of $12 per share.
2. On July 31, 2018, 40,000 treasury shares are reissued at $15 per share.
3. On September 30, 2018, 40,000 treasury shares are reissued at $10 per share.

Required:
1. Prepare journal entries to record these transactions.
2. Prepare the Nicklaus Corporation shareholders' equity section as it would appear in a balance sheet prepared at September 30, 2018. (Assume net income for the second and third quarter was $3,050,000.)

Part C
On October 1, 2018, Nicklaus Corporation receives permission to replace its $1 par value common stock (5,000,000 shares authorized, 3,000,000 shares issued, and 2,800,000 shares outstanding) with a new common stock issue having a $.50 par value. Since the new par value is one-half the amount of the old, this represents a 2-for-1 stock split. That is, the shareholders will receive two shares of the $.50 par stock in exchange for each share of the $1 par stock they own. The $1 par stock will be collected and destroyed by the issuing corporation.

On November 1, 2018, the Nicklaus Corporation declares a $0.14 per share cash dividend on common stock and a $0.31 per share cash dividend on preferred stock. Payment is scheduled for December 1, 2018, to shareholders of record on November 15, 2018.

On December 2, 2018, the Nicklaus Corporation declares a 2% stock dividend payable on December 28, 2018, to shareholders of record on December 14. At the date of declaration, the common stock was selling in the open market at $10 per share. The dividend will result in 112,000 (0.02 × 5,600,000) additional shares being issued to shareholders.

Required:
1. Prepare journal entries to record the declaration and payment of these stock and cash dividends.
2. Prepare the December 31, 2018, shareholders' equity section of the balance sheet for the Nicklaus Corporation. (Assume net income for the fourth quarter was $2,550,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2018.

Answer 1

PART A

January 2,2018	Cash (3000000*10)	3,00,00,000
	Common stock (3000000*1)		30,00,000
	Paid up value in excess of par – Common stock (3000000*9)		2,70,00,000
	(Issue of common stock)
January 2,2018	Cash (1000000*20)	2,00,00,000
	Preferred stock(1000000*5)		50,00,000
	Paid up value in excess of par – Preferred stock(1000000*15)		1,50,00,000
	(Issue of Preferred stock)

Nicklaus Corporation
Balance sheet (Partial)
Shareholders’ equity section
Shareholders’ equity
Paid-in capital
Preferred stock	50,00,000
Common stock	30,00,000
Paid up value in excess of par – Preferred stock	1,50,00,000
Paid up value in excess of par – Common stock	2,70,00,000
Total paid in capital	5,00,00,000
Retained earnings	15,50,000
Total paid in capital and retained earnings	5,15,50,000

PART-B

June 30,2018	Treasury stock (280000*12)	33,60,000
	Cash		33,60,000
	(Purchase of treasury stock)
July 31,2018	Cash (40000*15)	6,00,000
	Treasury stock (40000*1)		40,000
	Paid up value in excess of par – Treasury stock (40000*14)		5,60,000
	(Reissue of treasury stock)
September 30,2018	Cash (40000*10)	4,00,000
	Treasury stock (40000*1)		40,000
	Paid up value in excess of par – Treasury stock (40000*9)		3,60,000
	(Reissue of treasury stock)

Nicklaus Corporation
Balance sheet (Partial)
Shareholders’ equity section
Shareholders’ equity
Paid-in capital
Preferred stock	50,00,000
Common stock	30,00,000
Paid up value in excess of par – Preferred stock	1,50,00,000
Paid up value in excess of par – Common stock	2,70,00,000
Paid up value in excess of par – Treasury stock	9,20,000
Total paid in capital	5,09,20,000
Retained earnings (1550000+3050000)	46,00,000
Total paid in capital and retained earnings	5,55,20,000
Less: Treasury stock	-32,80,000
Total shareholders’ equity	5,22,40,000

PART C

November 1,2018	Dividend (2800000*2*.14)	7,84,000
	Dividend payable		7,84,000
	(Equity dividend accoutned)
	Dividend (1000000*.31)	3,10,000
	Dividend payable		3,10,000
	(Preference dividend accoutned)
December 1,2018	Dividend payable	10,94,000
	Cash		10,94,000
	(Dividend paid
December 2,2018	Stock dividend	1,12,000
	Common stock		1,12,000
	(Stock dividend accounted)

Nicklaus Corporation
Balance sheet (Partial)
Shareholders’ equity section
Shareholders’ equity
Paid-in capital
Preferred stock	50,00,000
Common stock	31,12,000
Paid up value in excess of par – Preferred stock	1,50,00,000
Paid up value in excess of par – Common stock	2,70,00,000
Paid up value in excess of par – Treasury stock	9,20,000
Total paid in capital	5,10,32,000
Retained earnings (1550000+3050000+2550000-112000)	70,38,000
Total paid in capital and retained earnings	5,80,70,000
Less: Treasury stock	-32,80,000
Total shareholders’ equity	5,47,90,000

Particulars	Preferred stock	Common stock	Paid up value in excess of par – Preferred stock	Paid up value in excess of par – Common stock	Paid up value in excess of par – Treasury stock	Retained earnings	Treasury stock	total
Begining balance	0
Issued	50,00,000	30,00,000	1,50,00,000	2,70,00,000				5,00,00,000
Q1	0	0	0	0		15,50,000		15,50,000
Q3	0	0			9,20,000	30,50,000	-32,80,000	6,90,000
Q4	0		0	0	0	25,50,000		25,50,000
Stock dividend		1,12,000				-1,12,000		0
Total	50,00,000	31,12,000	1,50,00,000	2,70,00,000	9,20,000	70,38,000	-32,80,000	5,47,90,000