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 $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 $1,450,000.) Part B During 2018, the Nicklaus Corporation participated in three treasury stock transactions: a. On June 30, 2018, the corporation reacquires 180,000 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 $2,900,000.) 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 2,900,000 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 $0.12 per share cash dividend on common stock and a $0.29 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 116,000 (0.02 x 5,800,000) 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 $2,400,000.) 3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2018.

Answer 1

Debit Credit Calculation Nicklaus Corporation Date Account Part A 2-Jan Cash Common Stock Paid in Capital in Excess of Par Value-Common Stock 30,000,000 =3,000,000*10 3,000,000*1 3,000,000 27,000,000 25,000,000 =1,000,000*25 =1,000,000*5 5,000,000 20,000,000 2-Jan Cash Preferred Stock Paid in Capital in Excess of Par Value-Preferred Stock Part B 30-Jun Treasury Stock Cash 2,160,000 =180,000*12 2,160,000 600,000 31-Jul Cash Treasury Stock Paid in Capital from Sale of Treasury Stock =40,000*15 -40,000*12 480,000 120,000 -40,000*10 480,000 =40,000*12 30-Sep Cash 400,000 Paid in Capital from Sale of Treasury Stock 80,000 Treasury Stock Part C 1-Oct No Entry as its only stock split In Stock split, only par value per share changes and not total par value 1-Nov Common cash dividend Preferred cash dividend Dividends Payable 696,000 290,000 =5,800,000*0.12 =1,000,000*0.29 986,000 986,000 1-Dec Dividends Payable Cash 986,000 1,160,000 2-Dec Common stock dividend Common stock dividend distributable Paid in Capital in Excess of Par Value-Common Stock =116,000*10 =116,000*0.50 58,000 1,102,000 58,000 28-Dec Common stock dividend distributable Common Stock 58,000

Nicklaus Corporation Stockholders Equity section of Balance Sheet Calculation 31-Dec 31-Mar 30-Sep 31-Dec Capital Stock Preferred Stock Common Stock Total Capital Stock 5,000,000 3,000,000 8,000,000 5,000,000 3,000,000 8,000,000 5,000,000 3,058,000 8,058,000 =3,000,000+58,000 Additional Paid in capital Paid in Capital in Excess of Par Value-Preferred Stock Paid in Capital in Excess of Par Value-Common Stock Paid in Capital from Sale of Treasury Stock Total Additional Paid in Capital 20,000,000 27,000,000 20,000,000 27,000,000 40,000 47,040,000 20,000,000 28,102,000 40,000 48,142,000 =27,000,000+1,102,000 =120,000-80,000 47,000,000 Retained Earnings Total Paid in Capital Less: Treasury Stock Total Stockholders Equity 1,450,000 56,450,000 - 56,450,000 4,350,000 59,390,000 (1,200,000) 58,190,000 4,604,000 Below statement 60,804,000 (1,200,000) =2,160,000-480,000-480,000 59,604,000 Nicklaus Corporation Statement of Retained Earnings 31-Mar 30-Sep 1,450,000 2,900,000 31-Dec 4,350,000 2,400,000 1,450,000 Retained Earnings, Beginning Balance Net income Dividends Common cash dividend Preferred cash dividend Common stock dividend Changes during the year Retained Earnings, Ending Balance (696,000) (290,000) (1,160,000) 254,000 4,604,000 1,450,000 1,450,000 2,900,000 4,350,000

Nicklaus Corporation Statement of shareholders' equity for the Year Ended Dec 31, 2018 Preferred Stock Common Stock Additional Paid in Capital Retained Earnings Treasury Stock Total Equity 5,000,000 20,000,000 27,000,000 3,000,000 40,000 Jan 2, 2018 Issue of preferred stock Issue of common stock Purchase of treasury stock Sale of treasury stock Net Income Common cash dividends Preferred cash dividends Stock dividends Dec 31, 2018' 25,000,000 30,000,000 (2,160,000) (2,160,000) 960,000 1,000,000 6,750,000 (696,000) (290,000) 6,750,000 (696,000) (290,000) (1,160,000) 4,604,000 58,000 3,058,000 1,102,000 48,142,000 5,000,000 (1,200,000) 59,604,000

Date Nicklaus Corporation T Accounts Date Debit Date Credit Common Stock 2-Jan $3,000,000 28-Dec $ 58,000 Date Debit Date Credit Paid in Capital in Excess of Par Value-CS 2-Jan $ 27,000,000 2-Dec $ 1,102,000 Debit Date Credit Preferred Stock 2-Jan $ 5,000,000 Date Debit Date Credit Paid in Capital in Excess of Par Value-PS 2-Jan $ 20,000,000 $ 20,000,000 Bal. $3,058,000 Treasury Stock 30-Jun $2,160,000 31-Jul $ 480,000 30-Sep $ 480,000 Bal. $ 28,102,000 Paid in Capital from Sale of Treasury Stock 30-Sep $ 80,000 31-Jul $ 120,000 Bal. $ 5,000,000 Retained Earnings 31-Dec $1,160,000 31-Mar $ 1,450,000 31-Dec $ 696,000 30-Sep $ 2,900,000 31-Dec $ 290,000 31-Dec $ 2,400,000 Bal. $1,200,000 Bal. $ 40,000 Bal. $ 4,604,000