Question

Part A In late 2017, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 6,000,000 shares of common stock carrying a $1 par value, and 2,000,000 shares of $5 par value, noncumulative, nonparticipating preferred stock. On January 2, 2018, 4,000,000 shares of the common stock are issued in exchange for cash at an average price of $10 per share. Also on January 2, all 2.000.000 shares of preferred stock are issued at $25 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 $1.900,000.) Part B During 2018, the Nicklaus Corporation participated in three treasury stock transactions: a. On June 30, 2018, the corporation reacquires 280,000 shares for the treasury at a price of $12 per share. b. On July 31, 2018, 40,000 treasury shares are reissued at $15 per share. c. 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 $3,400,000.) Part C On October 1, 2018, Nicklaus Corporation receives permission to replace its $1 par value common stock (6,000,000 shares authorized, 4,000,000 shares issued, and 3,800,000 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 $0.21 per share cash dividend on common stock and a $0.38 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 1% 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 76,000 (0.01 7600,000) additional shares being issued to shareholders.

Answer 1

Part A

Solution: Req.1.

Credit Date Jan. 2 Debit $ 40,000,000 General Journal Cash (4,000,000*$10) Common Stock (4,000,000*$1) Paid-in Capital in excess of par-Common stock $ 4,000,000 $ 36,000,000 Jan. 2. $50,000,000 Cash (2,000,000*$25) Preferred Stock (2,000,000*$5) Paid-in Capital in excess of par-Preferred stock $ 10,000,000 $ 40,000,000

Req. 2 Part A.

NICKLAUS CORPORATION Balance Sheet- Shareholders' Equity Section 31-Mar-18 Shareholders' Equity Common Stock 4,000,000 Preferred Stock 10,000,000 Paid-in capital-excess of par 76,000,000 Retained earnings 1,900,000 Total shareholders' equity $ 91,900,000

Part B.

Req. 1

Credit Date June 30. General Journal Treasury stock (280,000*$12) Cash Debit $ 3,360,000 $ 3,360,000 July 31. $ 600,000 Cash Treasury stock Paid-in Capital -share repurchase (40,000*15) (40,000*12) $ $ 480,000 120,000 Sept. 30 Cash Paid-in Capital-share repurchase Treasury stock (40,000*$10) $ $ (40,000*$12) 400,000 80,000 $ 480,000

Req. 2

NICKLAUS CORPORATION Balance Sheet-Shareholders' Equity Section 30-Sep-18 Shareholders' equity Preferred stock 10,000,000 Common stock 4,000,000 Paid-in Capital-excess of par 76,000,000 Paid-in Capital-share repurchase 40,000 Retained earnings 5,300,000 $ 95,340,000 Less: Treasury stock 2,400,000 Total shareholders' equity $ 92,940,000

Workings:

Here, Paid-in Capital-share repurchase = $120,000- 80,000 = $40,000

   Retained earnings = $1,900,000 + 3,400,000 = $5,300,0000

   Treasury stock = $3,360,000 - 480,000 - 480,000 = $2,400,000