Question

In late 2015, 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, 2016, 2,000,000 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 $20 per share.

Prepare the shareholders' equity section of the Nicklaus balance sheet as of March 31, 2016. (Assume net income for the first quarter 2016 was $1,200,000.)

     

Part B

During 2016, the Nicklaus Corporation participated in three treasury stock transactions:

a.	On June 30, 2016, the corporation reacquires 130,000 shares for the treasury at a price of $12 per share.
b.	On July 31, 2016, 15,000 treasury shares are reissued at $15 per share.
c.	On September 30, 2016, 15,000 treasury shares are reissued at $10 per share.

Required:

1.	Prepare journal entries to record these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

2.	Prepare the Nicklaus Corporation shareholders' equity section as it would appear in a balance sheet prepared at September 30, 2016. (Assume net income for the second and third quarter was $2,650,000.)

     

Part C

On October 1, 2016, 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 $.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, 2016, the Nicklaus Corporation declares a $0.07 per share cash dividend on common stock and a $0.23 per share cash dividend on preferred stock. Payment is scheduled for December 1, 2016, to shareholders of record on November 15, 2016.

On December 2, 2016, the Nicklaus Corporation declares a 1% stock dividend payable on December 28, 2016, 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 38,000 (0.01 × 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

2.	Prepare the December 31, 2016, shareholders' equity section of the balance sheet for the Nicklaus Corporation. (Assume net income for the fourth quarter was $2,150,000.)

     

3.	Prepare a statement of shareholders' equity for Nicklaus Corporation for 2016. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.)

     

Answer 1

Nicklaus Corporation
Balance sheet as at March 31, 2016
Stockholders' equity
Paid in capital
Preferred Stock (1,000,000 shares of $5 par authorised and issued)	5000000
Common stock (4,000,000 shares of $1 par authorised, 2,000,000 issued)	2000000
Paid in capital in excess of par - preferred stock	15000000
Paid in capital in excess of par - common stock	18000000
Total paid in capital	40000000
Retained earnings	1200000
Total stockholders' equity	41200000

PART B:

1.

Journal entries for transactions during the second and third quarters of the year 2016
Date	Account title	Debit	Credit
06/30/16	Treasury stock	1560000
	Cash		1560000
	(Reacquisition of 130,000 shares of common stock @$12 per share)
07/31/16	Cash	225000
	Treasury stock		180000
	Paid in capital - treasury stock		45000
	(Reissue of 15,000 shares of treasury stock @15 per share)
09/30/16	Cash	150000
	Paid in capital - treasury stock	30000
	Treasury stock		180000
	(Reissue of 15,000 shares of treasury stock @10 per share)

2.

Nicklaus Corporation
Balance sheet as at September 30, 2016
Stockholders' equity
Paid in capital
Preferred Stock (1,000,000 shares of $5 par authorised and issued)		5000000
Common stock (4,000,000 shares of $1 par authorised, 2,000,000 issued)		2000000
Paid in capital in excess of par - preferred stock		15000000
Paid in capital in excess of par - common stock		18000000
Paid in capital - Treasury stock		15000
Total paid in capital		40015000
Retained earnings
Balance as at 4/1/16	1200000
Net income for the second and third quarters	2650000
Balance as at 9/30/16		3850000
Treasury stock (100,000 shares )		-1200000
Total stockholders' equity		42665000

PART C:

1.

Journal entries for transactions during the fourth quarter of the year 2016
Date	Account title	Debit	Credit
10/1/16	Dividend	266000
	Dividend payable		266000
	(Declaration of cash dividend of $0.07 per share on 3,800,000 shares of common stock outstanding)
11/1/16	Dividend	230000
	Dividend payable		230000
	(Declaration of cash dividend of $0.23 per share on 1,000,000 shares of preferred stock outstanding)
12/1/16	Dividend payable	496000
	Cash		496000
	(Cash dividend paid on common and preferred stock)
12/2/16	Stock dividend	380000
	Stock dividend distributable		380000
	(Declaration of 1% of stock dividend for common stock shareholders -- 3,800,000 shares outstanding)
12/28/16	Stock dividend distributable	380000
	Common stock		19000
	Paid in capital in excess of par - common stock		361000
	(Distribution of stock dividend declared on 2nd December)

2.

Nicklaus Corporation
Balance sheet as at December 31, 2016
Stockholders' equity
Paid in capital
Preferred Stock (1,000,000 shares of $5 par authorised and issued)		5000000
Common stock (8,000,000 shares of $0.50 par authorised, 4,000,000 issued and 3,800,000 outstanding)		2000000
Paid in capital in excess of par - preferred stock		15000000
Paid in capital in excess of par - common stock		18361000
Paid in capital - Treasury stock		15000
Total paid in capital		40376000
Retained earnings
Balance as at 9/30/16	3850000
Net income for the fourth quarter	2150000
Cash dividend paid	-496000
Stock dividend distributed	-380000
Balance as at 12/31/16		5124000
Treasury stock (200,000 shares )		-1200000
Total stockholders' equity		44300000

3.

Nicklaus Corporation
Balance sheet as at December 31, 2016
Stockholders' equity
Paid in capital
Preferred Stock (1,000,000 shares of $5 par authorised and issued)		5000000
Common stock (8,000,000 shares of $0.50 par authorised, 4,000,000 issued and 3,800,000 outstanding)		2000000
Paid in capital in excess of par - preferred stock		15000000
Paid in capital in excess of par - common stock		18361000
Paid in capital - Treasury stock		15000
Total paid in capital		40376000
Retained earnings
Net income for the year	6000000
Cash dividend paid	-496000
Stock dividend distributed	-380000
Balance as at December 31, 2016		5124000
Treasury stock (200,000 shares )		-1200000
Total stockholders' equity		44300000