Various shareholders’ equity topics; comprehensive
• LO18–1, LO18–4 through LO18–8
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
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 $1,000,000.)
Part B
During 2018, the Nicklaus Corporation participated in three
- a. On June 30, 2018, the corporation reacquires 200,000 shares for the treasury at a price of $12 per share.
- b. On July 31, 2018, 50,000 treasury shares are reissued at $15 per share.
- c. On September 30, 2018, 50,000 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 $3,000,000.)
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 2,900,000 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, 2018, the Nicklaus Corporation declares a $0.05 per share cash dividend on common stock and a $0.25 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 1% 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 58,000 (0.01 × 5,800,000) 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 $2,500,000.)
- 3. Prepare a statement of shareholders’ equity for Nicklaus Corporation for 2018.
Part A (1)
Stockholders’ equity:
The claims of owners on a company’s resources, after the liabilities are paid off, are referred to as stockholders’ equity. Therefore, stockholders’ equity is sometimes referred to as net worth of owners or shareholders or stockholders.
To prepare: Journal entries to record the transactions of Corporation N.
Explanation of Solution
(First quarter of corporation N)
Prepare journal entries to record issuance of common share.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
January | 2 | Cash | 30,000,000 | ||
Common Stock | 3,000,000 | ||||
Paid-in Capital–Excess of Par, Common | 27,000,000 | ||||
(To record issue of common stock) |
Table (1)
Working Notes:
Compute common stock value.
Compute cash received.
Compute paid-in capital excess of par value.
Prepare journal entries to record issuance of preferrred share.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
January | 2 | Cash | 20,000,000 | ||
Preferred Stock | 5,000,000 | ||||
Paid-in Capital–Excess of Par, Preferred | 15,000,000 | ||||
(To record issue of preferred stock) |
Table (2)
Working Notes:
Compute preferred stock value.
Compute cash received.
Compute paid-in capital excess of par value.
(2)
Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance stockholders’ equity as on reported date at the end of the financial year.
To prepare: Stockholders’ equity section of balance sheet for Corporation N.
Explanation of Solution
Prepare stockholders’ equity section of balance sheet for Corporation N.
Corporation N | |
Stockholders’ Equity Section | |
At the end of first quarter March 31, 2018 | |
Paid-in Capital | Amount ($) |
Preferred stock, $5 par, authorized 1,000,000 shares, issued and outstanding 1,000,000 shares | $5,000,000 |
Common stock, $1 par, authorized 5,000,000 shares, issued and outstanding 3,000,000 shares | 3,000,000 |
Paid-in capital–excess of par | 42,000,000 |
Total paid-in capital | 50,000,000 |
Retained earnings | 1,000,000 |
Total stockholders’ equity | $51,000,000 |
Table (3)
Part B (1)
To prepare: Journal entries to record the transactions of Corporation N.
Explanation of Solution
(Second and third quarter of corporation N):
(a)
Prepare journal entry to record purchase of 200,000 treasury stockat $12 per share.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
June | 30 | Treasury Stock | 2,400,000 | ||
Cash | 2,400,000 | ||||
(To record purchase of treasury stock) |
Table (4)
Working Note:
Compute treasury stock value.
(b)
Prepare journal entry to record the reissue of 50,000 treasury stock at $15 per share.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
July | 31 | Cash | 750,000 | ||
Treasury Stock | 600,000 | ||||
Paid-in-Capital-Share Repurchase | 150,000 | ||||
(To record re-issue oftreasury stock) |
Table (5)
Working Notes:
Compute cash received.
Compute treasury stock value.
Compute paid-in-capital-share repurchase amount.
(c)
Prepare journal entry to record the reissue of 50,000 treasury stock at $10 per share.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
September | 30 | Cash | 500,000 | ||
Paid-in-Capital-Share Repurchase | 100,000 | ||||
Treasury Stock | 600,000 | ||||
(To record re-issue oftreasury stock) |
Table (6)
Working Notes:
Compute cash received.
Compute treasury stock value.
(2)
To Prepare: The stockholders’ equity section of balance sheet for Corporation N.
Explanation of Solution
Prepare the stockholders’ equity section of balance sheet for Corporation N.
Corporation N | |
Stockholders’ Equity Section | |
At the end of third quarter, September 30, 2018 | |
Paid-in Capital | Amount ($) |
Preferred stock, $5 par, authorized 1,000,000 shares, issued and outstanding 1,000,000 shares | 5,000,000 |
Common stock, $1 par, authorized 5,000,000 shares, issued 3,000,000 shares, 2,900,000 shares outstanding | 3,000,000 |
Paid-in capital–excess of par | 42,000,000 |
Paid-in capital–share repurchase | 50,000 |
Total paid-in capital | 50,050,000 |
Retained earnings | 4,000,000 |
Total paid-in capital and retained earnings | 54,050,000 |
Less: Treasury stock | (1,200,000) |
Total stockholders’ equity | $52,850,000 |
Table (7)
Working Notes:
Compute retained earnings value.
Particulars | Amount ($) |
Balance on March 31, 2018 | $1,000,000 |
Net income in third quarter | 3,000,000 |
Balance on September 30, 2018 | $4,000,000 |
Table (8)
Compute treasury stock value.
Particulars | Amount ($) |
Treasury stock due to transaction on June 30, 2018 | (2,400,000) |
Treasury stock due to transaction on July 31, 2018 | 600,000 |
Treasury stock due to transaction on September 30, 2018 | 600,000 |
Balance on December 31, 2018 | $(1,200,000) |
Table (9)
Part C (1)
To journalize: the transactions related to the declaration and payment of stock and cash dividends.
Explanation of Solution
(Fourth quarter of corporation N)
On the date of declaration of cash dividend:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
November | 1 | Retained Earnings | 540,000 | ||
Dividends Payable, Common | 290,000 | ||||
Dividends Payable, Preferred | 250,000 | ||||
(To record declaration of cash dividends) |
Table (10)
Working Notes:
Compute the amount of dividends payable, common.
Compute the amount of dividends payable, preferred.
On the date of record:
Do not record any entry for the transaction occurred on date of record for the following reasons:
- The dividends will not be paid for those who buy the stock after the date of record.
- The company does not record any transactions on the date of record.
- The ownership of shares alone is verified.
On the payment dateof cash dividend:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 1 | Dividends Payable, Common | 290,000 | ||
Dividends Payable, Preferred | 250,000 | ||||
Cash | 540,000 | ||||
(To record payment of dividends) |
Table (11)
On the date of declaration of stock dividend:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 2 | Retained Earnings | 580,000 | ||
Common Stock Distributable | 29,000 | ||||
Paid-in Capital–Excess of Par | 551,000 | ||||
(To record declaration of common stock dividend) |
Table (12)
Working Notes:
Compute the stock dividends amount, which decreases the retained earnings.
Compute common stock distributable value.
Compute paid-in capital excess of par value.
On the date of settlement of stock dividend:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 28 | Common Stock Distributable | 29,000 | ||
Common Stock | 29,000 | ||||
(To record distribution of common stock dividend) |
Table (13)
(2)
To Prepare: The stockholders’ equity section of balance sheet for Corporation N as at December 31, 2016.
Explanation of Solution
Prepare stockholders’ equity section of balance sheet for Corporation N as at December 31, 2016.
Corporation N | |
Stockholders’ Equity Section | |
At the end of fourth quarter December 31, 2018 | |
Paid-in Capital | Amount ($) |
Preferred stock, $5 par, authorized 1,000,000 shares, issued and outstanding 1,000,000 shares | $5,000,000 |
Common stock, $0.50 par, authorized 5,000,000 shares, issued 6,058,000 and outstanding 5,858,000 shares | 3,029,000 |
Paid-in capital–excess of par | 42,551,000 |
Paid-in capital–share repurchase | 50,000 |
Total paid-in capital | 50,630,000 |
Retained earnings | 5,380,000 |
Total paid-in capital and retained earnings | 56,010,000 |
Deduct: Treasury stock | (1,200,000) |
Total stockholders’ equity | $54,810,000 |
Table (14)
Working Notes:
Compute retained earnings value.
Particulars | Amount ($) |
Balance on September 30, 2018 | $4,000,000 |
Net income in fourth quarter | 2,500,000 |
Retained earnings on November 1 | (540,000) |
Retained earnings on December 2 | (580,000) |
Balance on December 31, 2018 | $5,380,000 |
Table (15)
Compute paid-in capital excess of par value.
Particulars | Amount ($) |
Paid-in capital due to transaction on January 2, 2018 | 27,000,000 |
Paid-in capital due to transaction on January 2, 2018 | 15,000,000 |
Paid-in capital due to transaction on December 2, 2018 | 551,000 |
Balance on December 31, 2018 | $42,551,000 |
Table (16)
(3)
To Prepare: The statement of shareholders’ equity for 2018 for Corporation N.
Explanation of Solution
Prepare statement of shareholders’ equity for 2018 for Corporation N.
Corporation N | ||||||
Statement of Shareholders’ Equity | ||||||
For the Years Ended December 31, 2018 | ||||||
(Amounts in Thousands) | ||||||
Particulars | Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total Shareholders’ Equity |
January 2, 2018 | - | - | - | - | - | - |
Issuance of preferred stock | 5,000 | 15,000 | 20,000 | |||
Issuance of common stock | 3,000 | 27,000 | 30,000 | |||
Purchase of treasury stock | (2,400) | (2,400) | ||||
Sale of treasury stock | 50 | 1,200 | 1,250 | |||
Net income | 6,500 | 6,500 | ||||
Common cash dividends | (290) | (290) | ||||
Preferred stock dividends | (250) | (250) | ||||
Stock dividend | 29 | 551 | (580) | 0 | ||
December 31, 2018 | 5,000 | 3,029 | 42,601 | 5,380 | (1,200) | 54,810 |
Table (17)
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