Question

chapter 18 -- question 10 -- prebuilt--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 x 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

Nicklaus Corporation Balance Sheet – Shareholders’ Equity Section December 31, 2018
Shareholders’ equity
Total shareholders’ equity

Nicklaus Corporation Statement of Shareholders’ Equity For the Year Ended Dec. 31, 2018 ($ in 000s)
	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock’	Total Shareholders’ Equity
Jan 2, 2018
Issuance of preferred stock
Issuance of common stock
Purchase of treasury stock
Sale of treasury stock
Net income
Common cash dividends
Preferred cash dividends
Stock dividend
December 31, 2018	0	0	0	0	0	0

Answer 1

Credit Debit 1094000 Date Account 1-Nov-18 Retained Earnings Common Dividend payable Preferred Dividend Payable 784000 310000 Common Dividend = 0.14* 2800000*2 = 784000 Preferred Dividend = 0.31*1000000 = 310000 ( Assuming 1000000 preferred stock) 1-Dec-18 Common Dividend payable Preferred Dividend Payable Cash 784000 310000 1094000 1120000 2-Dec-18 Retained Earnings Common Stock Dividend Distributable Paid In capital (Balancing Figure ) 56000 1064000 Common Stock Dividend Distributable = 2% of 5600000 shares * 0.5 par vaue= 56000 Retained Earnings = Fair value 10 per share * No. of additional shares 56000 28-Dec-18 Common Stock Dividend Distributable Common Stock 56000

To answer the 2nd and 3rd requirements, we need parts A and B of the question.