Question

Part A
In late 2017, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 5,000,000 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, 2018, 3,000,000 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, 2018. (Assume net income for the first quarter 2018 was $1,550,000.)

Part B
During 2018, the Nicklaus Corporation participated in three treasury stock transactions:

On June 30, 2018, the corporation reacquires 280,000 shares for the treasury at a price of $12 per share.

On July 31, 2018, 40,000 treasury shares are reissued at $15 per share.

On September 30, 2018, 40,000 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, 2018. (Assume net income for the second and third quarter was $3,050,000.)

Part C
On October 1, 2018, Nicklaus Corporation receives permission to replace its $1 par value common stock (5,000,000 shares authorized, 3,000,000 shares issued, and 2,800,000 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, 2018, the Nicklaus Corporation declares a $0.14 per share cash dividend on common stock and a $0.31 per share cash dividend on preferred stock. Payment is scheduled for December 1, 2018, to shareholders of record on November 15, 2018.

On December 2, 2018, the Nicklaus Corporation declares a 2% stock dividend payable on December 28, 2018, 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 112,000 (0.02 × 5,600,000) 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, 2018, shareholders' equity section of the balance sheet for the Nicklaus Corporation. (Assume net income for the fourth quarter was $2,550,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2018

Answer 1

PART A.

1.

Date	Account Title	Debit	Credit
Jan.2,2018	Cash	30000000
	Common Stock		3000000
	Additional paid-in-capital - common Stock		27000000
	(Issue of 3,000,000 common shares of41 par for $10 each)
Jan.2,2018	Cash	20000000
	Preferred Stock		5000000
	Additional paid-in-capital - preferred Stock		15000000
	(Issue of 1,000,00 preferred shares of $5 par for $20 each)

2.

NICKLAUS CORPORATION
Balance sheet (partial)
March 31, 2018
Paid up capital:
Preferred Stock, non cumulative, $5 par , 1,000,000 shares authorized		5000000
1,000,000 shares issued and outstanding
Common Stock, $1 par, 5,000,000 million shares authorised,		3000000
3,000,000 shares issued and outstanding
Paid-in-capital in excess of par, preferred stock		15000000
Paid-in-capital in excess of par, common stock		27000000
Total paid-up capital		50000000
Retained Earnings		1550000
Total Stockholders' capital		51550000

PART B.

1.

Date	Account Title	Debit	Credit
June.30, 2018	Treasury Stock	3360000
	Cash		3360000
	(Purchase of 280,000 shares of own stock for $12 per share)
July 31, 2018	Cash	600000
	Treasury Stock		480000
	Additional paid-in-capital - common Stock		120000
	(Reissue of 40,000 shares of treasury stock @$15 per share)
Sept.30,2018	Cash	400000
	Additional paid-in-capital - common Stock	80000
	Treasury stock		480000
	(Reissue of 40,000 shares of treasury stock @$10 per share)

2.

NICKLAUS CORPORATION
Balance sheet (partial)
September 30, 2018
Paid up capital:
Preferred Stock, non cumulative, $5 par , 1,000,000 shares authorized		5000000
1,000,000 shares issued and outstanding
Common Stock, $1 par, 5,000,000 million shares authorised,		3000000
3,000,000 shares issued and outstanding
Paid-in-capital in excess of par, preferred stock		15000000
Paid-in-capital in excess of par, common stock		27040000
Total paid-up capital		50040000
Retained Earnings		4600000
Treasury stock (200,000 shares at cost)		-2400000
Total Stockholders' capital		52240000

PART C.

1.

Date	Account Title	Debit	Credit
Nov.1, 2018	Dividend	392000
	Dividend Payable		392000
	(Dividend declared @$0.14 per share on 2,800,000 shares of common stock)
Nov.1, 2018	Dividend	310000
	Dividend Payable		310000
	(Dividend declared @$0.31 per share on 1,000,000 shares of preferred stock)
Dec.1, 2018	Dividend Payable	702000
	Cash		702000
	(Payment of cash dividend declared on Nov.1)
Dec.2, 2018	Stock dividend	1120000
	Stock dividend distributable		1120000
	(2% stock dividend payable on 5,600,000 shares of common stock.Market price $10 per share)
Dec.28, 2018	Stock dividend distributable	1120000
	Common Stock		56000
	Additional paid-in-capital - common Stock		1064000
	(Stock dividend declared on Dec.2 distributed)

2.

NICKLAUS CORPORATION
Balance sheet (partial)
March 31, 2018
Paid up capital:
Preferred Stock, non cumulative, $5 par , 1,000,000 shares authorized		5000000
1,000,000 shares issued and outstanding
Common Stock, $0.5 par, 5,000,000 million shares authorised,		3056000
6,112,000 shares issued and outstanding
Paid-in-capital in excess of par, preferred stock		15000000
Paid-in-capital in excess of par, common stock		28104000
Total paid-up capital		51160000
Retained Earnings		5328000
Treasury stock (200,000 shares at cost)		-2400000
Total Stockholders' capital		54088000
Retained earnings as at Sept.30	4600000
Add:net income	2550000
	7150000
Less: Cash dividend                                                                                                                                             702000
Stock dividend                                                                                                                                          1120000	1822000
Retained earnings as at Dec.31	5328000