Question

Part A
In late 2020, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 4,000,000 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, 2021, 2,000,000 shares of the common stock are issued in exchange for cash at an average price of $12 per share. Also on January 2, all 1,000,000 shares of preferred stock are issued at $30 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, 2021. (Assume net income for the first quarter 2021 was $1,300,000.)

Part B
During 2021, the Nicklaus Corporation participated in three treasury stock transactions:

1. On June 30, 2021, the corporation reacquires 150,000 shares for the treasury at a price of $14 per share.
2. On July 31, 2021, 25,000 treasury shares are reissued at $17 per share.
3. On September 30, 2021, 25,000 treasury shares are reissued at $12 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, 2021. (Assume net income for the second and third quarter was $2,750,000.)

Part C
On October 1, 2021, Nicklaus Corporation receives permission to replace its $1 par value common stock (4,000,000 shares authorized, 2,000,000 shares issued, and 1,900,000 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 $0.50 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, 2021, the Nicklaus Corporation declares a $0.09 per share cash dividend on common stock and a $0.26 per share cash dividend on preferred stock. Payment is scheduled for December 1, 2021, to shareholders of record on November 15, 2021.

On December 2, 2021, the Nicklaus Corporation declares a 3% 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 $12 per share. The dividend will result in 114,000 (0.03 × 3,800,000) 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 $2,250,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2021.

Journal entry worksheet Record the issuance of common shares. Note: Enter debits before credits. Date General Journal Debit Credit January 02 Record entry Clear entry View general journal

Answer 1

	Part A
1	Date	General journal					Debit	Credit
	2021
	Jan 2.	Cash			(2000000*12)		24000000
		Common stock			(2000000*1)			2000000
		Paid in capital in excess of par-common stock				(Plug)		22000000
		(Common stock issued)
	Jan 2.	Cash			(1000000*30)		30000000
		Preferred stock			(1000000*5)			5000000
		Paid in capital in excess of par-preferred stock				(Plug)		25000000
		(Preferred stock issued)
2		Shareholder's equity
										$
	Common stock,4000000 shares authorized,2000000 shares issued and outstanding,$1 par value									2000000
	Preferred stock,1000000 shares authorized,issued and outstanding,$5 par value									5000000
	Paid in capital in excess of par-common stock									22000000
	Paid in capital in excess of par-preferred stock									25000000
	Retained earnings									1300000
	Total shareholder's equity									55300000
	Part B
1	Date	General journal					Debit	Credit
	2021
	June 30.	Treasury stock			(150000*14)		2100000
		Cash						2100000
		(Acquired treasury stock)
	July 31.	Cash			(25000*17)		425000
		Treasury stock			(25000*14)			350000
		Paid in capital from treasury stock				(Plug)		75000
		(Reissued treasury stock)
	Sep 30.	Cash			(25000*12)		300000
		Paid in capital from treasury stock				(Plug)	50000
		Treasury stock			(25000*14)			350000
		(Reissued treasury stock)
2		Shareholder's equity
										$
	Common stock,4000000 shares authorized,2000000 shares issued and 1900000 shares									2000000
	outstanding,$1 par value
	Preferred stock,1000000 shares authorized,issued and outstanding,$5 par value									5000000
	Paid in capital in excess of par-common stock									22000000
	Paid in capital in excess of par-preferred stock									25000000
	Paid in capital from treasury stock							(75000-5000)		70000
	Retained earnings							(1300000+2750000)		4050000
	Total paid-in capital									58120000
	Less: Treasury stock						(2100000-350000-350000)			1400000
	Total shareholder's equity									56720000