Question

On October 1, 2018, 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, 2018, the Nicklaus Corporation declares a $0.10 per share cash dividend on common stock and a $0.27 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 76,000 (0.02 × 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, 2018, shareholders' equity section of the balance sheet for the Nicklaus Corporation. (Assume net income for the fourth quarter was $2,300,000.)
3. Prepare a statement of shareholders' equity for Nicklaus Corporation for 2018.

Answer 1

October 1, 2018

      No entry

      November 1, 2018

      Retained earnings a/c....................................................................dr.            650,000
           To Dividends payable - common equity                                                                 380,000
           To Dividends payable – preferred shares                                                               270,000

(Being the dividends payable for common equity ($.10 x 3,800,000) and for preferred stock ($.27 x 1,000,000))     

November 15, 2018

      No Entry

December 1

      Dividends payable – common equity...........................................dr.            380,000
      Dividends payable – preferred shares.........................................dr.            270,000
           To Cash a/c                                                                                                          650,000

Note: Dividends are not paid on shares held in the treasury. Cash dividends are paid only on the 3,800,000 common shares outstanding.

     

December 2

      Retained earnings ($10 fair value x 76,000 shares)                                760,000
            To Common stock dividends distributable....................                                      38,000
           To Paid-in capital – excess of par, common     ...............                                    722,000

(Being Retained earnings from common stock ($.50 par x 76,000 shares) and for paid incapitall is the difference)

     

December 28

      Common stock dividends distributable.........................................              38,000
          To Common stock........................................................                                      38,000

      1 (2,000,000 - 200,000 + 50,000 + 50,000) x 2 = 5,800,000 shares

      2 2% x 3,800,000 shares

Nicklaus Corporation

Balance Sheet-Shareholders' Equity Section

December 31, 2006

Shareholders' equity

Preferred stock, $5 par, authorized 1,000,000 shares,

       issued and outstanding 1,000,000 shares                                                             $ 5,000,000

     

Common stock, $.50 par, authorized 8,000,000 shares,

     issued 4,076,000 shares and 3,876,0001 shares outstanding                                   2,038,000

    Paid-in capital – excess of par2                                                                                  53,722,000

   Paid-in capital – share repurchase                                                                                      50,000

Retained earnings3                                                                                                       4,542,000

                                                                                                                                      $65,352,000
   Less: Treasury stock (100,000 shares at cost)                                                              (1,700,000)
         Total shareholders' equity                                                                                      $63,652,000

Working Notes:   

   1 3,800,000 + 76,000

      2 $28,000,000 + 25,000,000 + 722,000

      3 $3,650,000 - 448,000 - 760,000 + 2,100,000