Question

Part A
In late 2020, 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, 2021, 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 $20 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 $1,600,000.)

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

1. On June 30, 2021, the corporation reacquires 220,000 shares for the treasury at a price of $12 per share.
2. On July 31, 2021, 10,000 treasury shares are reissued at $15 per share.
3. On September 30, 2021, 10,000 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, 2021. (Assume net income for the second and third quarter was $3,100,000.)

Part C
On October 1, 2021, 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 $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 $0.15 per share cash dividend on common stock and a $0.32 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 1% 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 76,000 (0.01 × 7,600,000) 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, 2021, shareholders' equity section of the balance sheet for the Nicklaus Corporation. (Assume net income for the fourth quarter was $2,600,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2021.

Answer 1

Part A:

1.

Journal entries:

Date	Accounts title	Debit	Credit
2-Jan	Cash (4000000 * 10)	40,000,000
	Common Stock (4000000 shares x $1 par value)		4,000,000
	Additional Paid-in Capital - Common Stock		36,000,000
2-Jan	Cash (2000000*20)	40,000,000
	Preferred Stock (2000000 shares x $5 par value)		10,000,000
	Additional Paid-in Capital - Preferred Stock		30,000,000

.

b.

Shareholder's equity section:

Nicklaus Corporation
Shareholder's equity section
As of March 31, 2021
Common Stock (6 million shares authorized, 4 million shares issued and outstanding @ $1 par value)	$4,000,000
Preferred Stock (2 million shares authorized and issued @ $5 par value)	10,000,000
Additional Paid-in Capital - Common Stock	36,000,000
Additional Paid-in Capital - Preferred Stock	30,000,000
Retained Earnings	1,600,000
Total Shareholders' Equity	$81,600,000

.

Part B:

1.

Journal entries:

Date	Accounts title	Debit	Credit
30-Jun	Treasury Shares (220000 * 12)	2,640,000
	Cash		2,640,000
31-Jul	Cash (10000 * 15)	150,000
	Treasury Shares(10000 * 12)		120,000
	Additional Paid-in Capital - Treasury Shares		30,000
30-Sep	Cash (10000 x $10)	100,000
	Additional Paid-in Capital - Treasury Shares     (10000 * (12 - 10)	20,000
	Treasury Shares (10000 * 12)		120,000

.

b.

Shareholder's equity section:

Nicklaus Corporation
Shareholder's equity section
As of March 31, 2021
Common Stock (6 million shares authorized, 4 million shares issued and outstanding @ $1 par value)	$4,000,000
Preferred Stock (2 million shares authorized and issued @ $5 par value)	10,000,000
Additional Paid-in Capital - Common Stock	36,000,000
Additional Paid-in Capital - Preferred Stock	30,000,000
Additional Paid-in Capital - treasury shares (30000 - 20000)	10,000
Retained Earnings (1600000 + 3100000)	4,700,000
Less: treasury shares (200000 * 12)	-2,400,000
Total Shareholders' Equity	$82,310,000

.

Part C:

1.

Journal entries:

Date	Accounts title	Debit	Credit
1-Nov	Retained Earnings	1,780,000
	Common Dividend Payable (7600000*0.15)		1,140,000
	Preferred Dividend Payable (2000000 * 0.32)		640,000
1-Dec	Common Dividend Payable	1,140,000
	Preferred Dividend Payable	640,000
	Cash		1,780,000
2-Dec	Retained Earnings (76,000 x $10)	760,000
	Stock Dividend Distributable (76,000 x $0.50)		38,000
	Additional Paid-in Capital		722,000
28-Dec	Stock Dividend Distributable	38,000
	Common Stock		38,000

.

2.

Shareholder's equity section:

Nicklaus Corporation
Shareholder's equity section
As of March 31, 2021
Common Stock (12 million shares authorized, 8076000 shares issued and 7676000 outstanding @ $0.50 par value)	$4,038,000
Preferred Stock (2 million shares authorized and issued @ $5 par value)	10,000,000
Additional Paid-in Capital - Common Stock (36000000 + 722000)	36,722,000
Additional Paid-in Capital - Preferred Stock	30,000,000
Additional Paid-in Capital - treasury shares (30000 - 20000)	10,000
Retained Earnings (4700000 - 1140000 - 640000 - 760000 + 2600000)	4,760,000
Less: treasury shares	-2,400,000
Total Shareholders' Equity	$83,130,000

.

3.

Statement of shareholder's equity:

Nicklaus Corporation
Statement of Shareholder's equity
As of March 31, 2021
Common Stock (12 million shares authorized, 8076000 shares issued and 7676000 outstanding @ $0.50 par value)	$4,038,000
Preferred Stock (2 million shares authorized and issued @ $5 par value)	10,000,000
Additional Paid-in Capital - Common Stock (36000000 + 722000)	36,722,000
Additional Paid-in Capital - Preferred Stock	30,000,000
Additional Paid-in Capital - treasury shares (30000 - 20000)	10,000
Retained Earnings (4700000 - 1140000 - 640000 - 760000 + 2600000)	4,760,000
Less: treasury shares	-2,400,000
Total Shareholders' Equity	$83,130,000

The final quater section of shareholder's equity has clubbed all the values of other quarter thus, it will be equal to statement of shareholders's equity for the year.

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