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 $12 per share. Also on January 2, all 2,000,000 shares of preferred stock are issued at $25 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 $1,650,000.)

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

1. On June 30, 2021, the corporation reacquires 230,000 shares for the treasury at a price of $14 per share.
2. On July 31, 2021, 15,000 treasury shares are reissued at $17 per share.
3. On September 30, 2021, 15,000 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 $3,150,000.)

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 $0.16 per share cash dividend on common stock and a $0.33 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 $12 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 $2,650,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2021

Answer 1

A)

1. Journal Entries :-

Date	Particulars	Debit($)	Credit($)
02 Jan 2021	Cash A/c (4000000*$12)	48000000
	Common Stock A/c (4000000*$1)		4000000
	Paid in Capital excess of par-Common ($48000000-$4000000)		44000000
02 Jan 2021	Cash A/c (2000000*$25)	50000000
	Preferred Stock A/c (2000000*$5)		10000000
	Paid in Capital excess of par - Preferred ($50000000-$10000000)		40000000

2) Shareholders' Equity Section ;-

Shareholders' Equity	Amount ($)
Preferred Stock	10000000
Common Stock	4000000
Paid in Capital Excess of Par - Common	44000000
Paid in Capital Excess of Par - Preferred	40000000
Retained Earnings	1650000
Total Shareholders' Equity	99650000

B)

1. Journal Entries :-

Date	Particulars	Debit($)	Credit($)
30 June 2021	Treasury Stock A/c (230000*$14)	3220000
	Cash A/c		3220000
31 July 2021	Cash A/c (15000*$17)	255000
	Treasury Stock A/c (15000*$14)		210000
	Paid in Capital Excess of Par - Treasury ($255000-$210000)		45000
30 Sep 2021	Cash A/c (15000*$12)	180000
	Paid in Capital Excess of Par - Treasury ($210000-$180000)	30000
	Treasury Stock A/c (15000*$14)		210000

2) Shareholders' Equity Section ;-

Shareholders' Equity	Amount ($)
Preferred Stock
Common Stock
Paid in Capital Excess of Par - Treasury Stock($45000-$30000)	15000
Retained Earnings	3150000
Treasury Stock ((230000-15000-15000)*$14)	(2800000)
Total Shareholders' Equity	365000