Question

Part A
In late 2020, 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, 2021, 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.

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 $1,200,000.)

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

1. On June 30, 2021, the corporation reacquires 130,000 shares for the treasury at a price of $12 per share.
2. On July 31, 2021, 15,000 treasury shares are reissued at $15 per share.
3. On September 30, 2021, 15,000 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 $2,650,000.)

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 $0.07 per share cash dividend on common stock and a $0.23 per share cash dividend on preferred stock. Payment is scheduled for December 1, 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 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.
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 $2,150,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2021.

Answer 1

Part A:

1.

Date	General Journal	Debit	Credit
Jan-02	Cash (2,000,000 * $10)	2,00,00,000
	Common stock ($1 par x 2,000,000 shares)		20,00,000
	Paid-in capital - excess of par, common (difference)		1,80,00,000
	(To record issuance of common stock)
Jan-02	Cash (1,000,000 * $20)	2,00,00,000
	Preferred stock ($5 par x 1,000,000 shares)		50,00,000
	Paid-in capital - excess of par, preferred (difference)		1,50,00,000
	(To record issuance of preferred stock)

2.

NICKLAUS CORPORATION
Balance Sheet (Partial)
December 31, 2021
Stockholders' Equity:
Preferred stock	5000000
Common stock	2000000
Paid-in capital in excess of par-preferred	15000000
Paid-in capital in excess of par-common	18000000
Retained earnings	1200000
Total stockholders' equity	41200000

Part B:

1.

Date	General Journal	Debit	Credit
Jun. 30	Treasury stock (130000 x $12)	1560000
	Cash		1560000
	(To record purchase of treasury stock)
Jul. 31	Cash (15000 x $15)	225000
	Treasury stock (15000 x $12)		180000
	Paid-in capital from treasury stock		45000
	(To record sale of treasury stock)
Sep. 30	Cash (15000 x $10)	150000
	Paid-in capital from treasury stock	30000
	Treasury stock (15000 x $12)		180000
	(To record sale of treasury stock)

2.

NICKLAUS CORPORATION
Balance Sheet (Partial)
December 31, 2021
Stockholders' Equity:
Preferred stock	5000000
Common stock	2000000
Paid-in capital in excess of par-preferred	15000000
Paid-in capital in excess of par-common	18000000
Paid-in capital from treasury stock	15000
Retained earnings	3850000
	43865000
Less: Treasury stock	1200000
Total stockholders' equity	42665000

Part C:

1.

Date	General Journal	Debit	Credit
Oct. 1	No Entry
Nov-01	Retained earnings	4,96,000
	Dividends payable - common ($.07 x 3,800,000)		2,66,000
	Dividends payable - preferred ($.23 x 1,000,000)		2,30,000
Nov. 15	No Entry
Dec. 1	Dividends payable - common	266000
	Dividends payable - preferred	230000
	Cash		496000
Dec. 2	Retained earnings ($10 fair value x 38,000 shares2)	3,80,000
	Common stock dividends distributable ($.50 par x 38,000 shares)		19000
	Paid-in capital - excess of par, common (difference)		3,61,000
Dec. 28	Common stock dividends distributable	19000
	Common stock		19000

2.

NICKLAUS CORPORATION
Balance Sheet (Partial)
December 31, 2021
Stockholders' Equity:
Preferred stock	5000000
Common stock	2019000
Paid-in capital in excess of par-preferred	15000000
Paid-in capital in excess of par-common	18361000
Paid-in capital from treasury stock	15000
Retained earnings	5124000
	45519000
Less: Treasury stock	1200000
Total stockholders' equity	44319000

Retained Earnings = 385000 - 496000 - 380000 + 2150000 = 5,124,000