Question

Part C On October 1, 2021, Nicklaus Corporation receives permission to replace its S1 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 $0.50 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 50 par stock in exchange for each share of the S1 par stock they own. The $1 par stock will be collected and destroyed by the issuing corporation On November 1, 2021, the Nicklaus Corporation declares a $0.05 per share cash dividend on common stock and a SO 25 per share cash dividend on preferred stock. Payment is scheduled for December 1, 2021, to shareholders of record on November 15, 2021 page 1096 On December 2, 2021, the Nicklaus Corporation declares a 19 stock dividend payable on December 28, 2021, 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 58,000 (0.01 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, 2021, shareholders' equity section of the balance sheet for the Nicklaus Corporation (Assume net income for the fourth quarter was $2,500,000) 3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2021. 3:29 PM 2/19/2020

Answer 1

Solution:

1)

Particulars	Debit	Credit
Retained Earnings	540,000
Dividends Payable		540,000
Dividends Payable	540,000
Cash		540,000
Cash ($10 * 58,000)	580,000
CS ($0.50 * 58,000)		29,000
APIC - CS		551,000

　

Working:

New par value = $.50/share (split par value in half);

Issued (3,000,000 shares X 2) = 6,000,000;

Outstanding: 5,800,000;

Treasury = 200,000

Common ($0.05*5,800,000)	290,000
Preferred ($0.25*1,000,000)	250,000
	540,000

　

2)

Balance Sheet - Shareholders' Equity Section
Preferred Stock , $5 par, 1,000,000 shares authorized	5,000,000
Issued, and outstanding
Common Stock , $0.50 par, 10,000,000 shares authorized	3,029,000
6,058,000 issued, 5,858,000 outstanding
APIC - Preferred Stock	15,000,000
APIC - Common Stock	27,551,000
APIC - Share Repurchase	50,000
Retained Earnings	5,960,000
Treasury Stock, at cost, 200,000 shares	-1,200,000
Total Shareholders’ Equity	55,390,000

　

Working:

Issued = [6 million + 58,000] = 6,058,000

Outstanding = [5,800,000 + 58,000] = 5,858,000

3)

Statement of Shareholders’ Equity	Preferred stock	Common stock	APIC	Retained earnings	Treasury stock	Total shareholder's equity
Issuance of Preferred Stock	5,000		15,000			20,000
Issuance of Common Stock		3,029	27,551			30,580
Purchase of Treasury Stock					-2400	-2,400
Sale of Treasury Stock			50		1200	1,250
Cash Dividend Declared				-540		-540
Stock Dividend Declared
Net income				6500		6,500
Dec 31'2021	5,000	3,029	42,601	5,960	-1,200	55,390

　

Working:

Issuance of common stock : [3,000,000 + 29,000] = 3,029,000

APIC - Common Stock: [27,000,000 + 551,000] = 27,551,000

Treasury Stock Sale : [600,000 + 600,000] = 1,200,000

APIC - SR: [150,000 - 100,000] = 50,000