Question

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.

Answer 1

Date	Account	Debit	Credit
Oct.01	Memo entry
	2:1 stock split occurred, which increased the number of shares outstanding from 1900,000 to 38,00,000.
	(1900000*2)
Nov.01	Retained Earnings	$                             6,02,000
	Dividend Payable-Preferred Stock (No. of Shares*$0.26)		$             2,60,000
	Dividend Payable-Common Stock(38Lakhs*$0.09)		$             3,42,000
	(being dividend declared on Common Stock and Preferred Stock)
	**Since you didn’t provide No. of Preferred stock outstanding, So I taken as 10 Lakh as guess
	Please change it according to your question
Dec.01	Dividend Payable-Preferred Stock	$                             2,60,000
	Dividend Payable-Common Stock	$                             3,42,000
	Cash		$             6,02,000
	(Being Dividend paid)
Dec.02	Retained Earnings (114000*12)	$                          13,68,000
	Common Stock Dividend Distributable (114000*0.5)		$                 57,000
	Paid in Capital in excess of Par Value-Common Stock		$           13,11,000
	(Being 3% stock dividend declared with a market value of $12 per share,
	Assumed that Authorized Shares increased to 4014000 )
Dec.28	Common Stock Dividend Distributable	$                                57,000
	Common Stock		$                 57,000
	(Being Stock dividend Issued)

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Shareholders' equity section of the balance sheet
	Preferred stock, (Details not Provided)	(Details not Provided)
Add:	Common stock, $.50 par,4,014,000 shares authorized, ,4,014,000 shares issued, and 3914000 shares outstanding	$                 20,57,000
Add:	Paid-in capital - excess of par	$                 13,11,000
Add:	Paid-in capital - share repurchase	(Details not Provided)
Add:	Retained earnings	$                   2,80,000
Less:	Treasury stock (100,000 shares at cost)	$                  -1,00,000
	Total shareholders' equity	$                 35,48,000

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Statement of Stockholders Equity
	Preferred	Common	Additional	Retained	Treasury	Total
	Stock	Stock	Paid-in	Earnings	Stock	Shareholders'
			Capital			Equity
Oct. 1, 2021	Not Provided	$           20,00,000	Not Provided	Not Provided	$          -1,00,000	$           19,00,000
Issuance of preferred stock	$                                          -	-	-	-	-	$                           -
Issuance of common stock	-	$                 57,000	$               13,11,000	-	-	$           13,68,000
Purchase of treasury stock	-	-	-	-	$                         -	$                           -
Net income	-	-	-	$             22,50,000		$           22,50,000
Common cash dividends				$              -3,42,000		$            -3,42,000
Preferred cash dividends				$              -2,60,000		$            -2,60,000
Stock dividend				$            -13,68,000		$          -13,68,000
December 31, 2021	$                                          -	$           20,57,000	$               13,11,000	$                2,80,000	$          -1,00,000	$           35,48,000

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Hope you Understood.
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Thank you.