Question

Part A
In late 2017, 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, 2018, 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. (1/2 Record issue of common shares. 1/2 Record issue of preferred shares.)
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 $1,350,000.)

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

On June 30, 2018, the corporation reacquires 160,000 shares for the treasury at a price of $12 per share.

On July 31, 2018, 30,000 treasury shares are reissued at $15 per share.

On September 30, 2018, 30,000 treasury shares are reissued at $10 per share.

Required:
1. Prepare journal entries to record these transactions. (6/30 Record acquisition of treasury stock. 7/31 Record the reissuance of 30,000 treasury shares on July 31st. 9/30 Record the reissuance of 30,000 treasury shares on September 30th.)
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 $2,800,000.)

Part C
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. (10/1 Record the entry for the 2-for-1 stock split. 11/1 Record declaration of cash dividend for common shares and preferred shares.. 11/15 Record the entry on date of record.. 12/1 Record payment of cash dividend for common shares and preferred shares. 12/2 Record declaration of common stock dividend. 12/28 Record distribution of common stock dividend.)

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.

	prefer stock	common stock	paid in capital	retained earing	treasury stock	total shareholder equity
Jan 2 2018
issuance of preferred stock
issuance of common stock
purchase of treasury stock
sale of treasury stock
net income
common cash dividends
preferred cash dividends
stock dividend

Answer 1

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Part A	Requirement-1
Date	Account	Debit	Credit
Jan 2 2018	Cash	$       20,000,000		2000000*10
	Common Stock		$          2,000,000	2000000*1
	Paid-in Capital-Excess of Par, Common		$       18,000,000	Balance
Jan 2 2018	Cash	$       20,000,000		1000000*20
	Preferred Stock		$          5,000,000	1000000*5
	Paid-in Capital-Excess of Par, Preferred		$       15,000,000	Balance
Part A	Requirement-2
	Nicklaus Corporation
	Balance Sheet-Shareholder's Equity Section
	March 31, 2018
	Shareholders' equity
	Preferred stock, $5 par, authorized 1,000,000 shares,
	-Issued and outstanding 1,000,000 shares		$          5,000,000
	Common stock, $1 par, authorized 4,000,000 shares,
	-Issued and outstanding 2,000,000 shares		$          2,000,000
	Paid-in capital – excess of par		$       33,000,000
	Retained earnings		$          1,350,000
	Total shareholders' equity		$       41,350,000
Part B	Requirement-1
Date	Account	Debit	Credit
Jun 30 2018	Treasury Stock	$          1,920,000		160000*12
	Cash		$          1,920,000	160000*12
Jul 31 2018	Cash	$             450,000		30000*15
	Treasury Stock		$             360,000	30000*12
	Paid-in Capital-share Repurchase		$                90,000	Balance
Sep 30 2018	Cash	$             300,000		30000*10
	Paid-in Capital-share Repurchase	$                60,000		Balance
	Treasury Stock		$             360,000	30000*12
Part B	Requirement-2
	Nicklaus Corporation
	Balance Sheet-Shareholder's Equity Section
	September 30, 2018			Working
	Shareholders' equity
	Preferred stock, $5 par, authorized 1,000,000 shares,
	-Issued and outstanding 1,000,000 shares		$          5,000,000
	Common stock, $1 par, authorized 4,000,000 shares,
	-Issued 2,000,000 and outstanding 1,900,000 shares		$          2,000,000	2000000-160000+30000+30000
	Paid-in capital – excess of par		$       33,000,000
	Paid-in capital – share Repurchase		$                30,000	90000-60000
	Retained earnings		$          4,150,000	1350000+2800000
			$       44,180,000
	Less: Treasury Stock (100000 Shares at cost)		$        -1,200,000
	Total shareholders' equity		$       42,980,000
Part C	Requirement-1
Date	Account	Debit	Credit
Oct 1 2018	No Entry
Nov 1 2018	Retained Earning	$             650,000
	Dividend Payable-Common		$             380,000	0.10*(1900000*2)
	Dividend Payable-Preferred		$             270,000	0.27*1000000
Nov 15 2018	No Entry
Dec 1 2018	Dividend Payable-Common	$             380,000
	Dividend Payable-Preferred	$             270,000
	Cash		$             650,000
Dec 2 2018	Retained Earning	$             760,000		76000*10
	Common Stock Dividend Distributable		$                38,000	76000*0.5
	Paid-in Capital-Excess of Par, Common		$             722,000	Balance
Dec 28 2018	Common Stock Dividend Distributable	$                38,000
	Common Stock		$                38,000
Part C	Requirement-2
	Nicklaus Corporation
	Balance Sheet-Shareholder's Equity Section
	March 31, 2018			Working
	Shareholders' equity
	Preferred stock, $5 par, authorized 1,000,000 shares,
	-Issued and outstanding 1,000,000 shares		$          5,000,000
	Common stock, $1 par, authorized 4,000,000 shares,
	-Issued 2,000,000 and outstanding 1,900,000 shares		$          2,038,000	2000000+38000
	Paid-in capital – excess of par		$       33,722,000	33000000+722000
	Paid-in capital – share Repurchase		$                30,000	90000-60000
	Retained earnings		$          5,040,000	4150000+2300000-650000-760000
			$       45,830,000
	Less: Treasury Stock (100000 Shares at cost)		$        -1,200,000
	Total shareholders' equity		$       44,630,000
Part C	Requirement-3
	Nicklaus Corporation
	Statement of Shareholder's Equity
	December 31, 2018
		Preferred Stock	Common Stock	Paid in Capital	Retained Earning	Treasury Stock	Total Shareholder Equity
Jan 2 2018	Jan 2 2018
	issuance of preferred stock	$       5,000,000		$                               15,000,000			$                   20,000,000
	issuance of common stock		$       2,000,000	$                               18,000,000			$                   20,000,000
	purchase of treasury stock					$    -1,920,000	$                    -1,920,000
	sale of treasury stock			$                                      30,000		$       720,000	$                        750,000
	net income				$         6,450,000		$                     6,450,000
	common cash dividends				$          -380,000		$                       -380,000
	preferred cash dividends				$          -270,000		$                       -270,000
	stock dividend		$                38,000	$                                                 722,000	$              -760,000		$                                -
	Dec 31 2018	$          5,000,000	$          2,038,000	$                                           33,752,000	$            5,040,000	$     -1,200,000	$                          44,630,000