Intermediate Accounting
Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
bartleby

Videos

Textbook Question
Book Icon
Chapter 18, Problem 18.12P

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 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. 1. Prepare journal entries to record these transactions.
  2. 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 treasury stock transactions:

  1. a. On June 30, 2018, the corporation reacquires 200,000 shares for the treasury at a price of $12 per share.
  2. b. On July 31, 2018, 50,000 treasury shares are reissued at $15 per share.
  3. c. On September 30, 2018, 50,000 treasury shares are reissued at $10 per share.

Required:

  1. 1. Prepare journal entries to record these transactions.
  2. 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. 1. Prepare journal entries to record the declaration and payment of these stock and cash dividends.
  2. 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. 3. Prepare a statement of shareholders’ equity for Nicklaus Corporation for 2018.

Part A (1)

Expert Solution
Check Mark
To determine

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.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
January2Cash30,000,000
       Common Stock3,000,000

       Paid-in Capital–Excess of Par,

       Common

27,000,000
(To record issue of common stock)

Table (1)

Working Notes:

Compute common stock value.

Common stock value= Number of shares × Par value per share= 3,000,000 shares × $1= $3,000,000

Compute cash received.

Cash received = Number of shares × Average price per share= 3,000,000 shares × $10= $30,000,000

Compute paid-in capital excess of par value.

Paid-in capital excess of par= Cash received – Common stock= $30,000,000 – $3,000,000= $27,000,000

Prepare journal entries to record issuance of preferrred share.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
January2Cash20,000,000
Preferred Stock5,000,000

       Paid-in Capital–Excess of Par,

       Preferred

15,000,000
(To record issue of preferred stock)

Table (2)

Working Notes:

Compute preferred stock value.

Preferred stock value= Number of shares × Par value per share= 1,000,000 shares × $5= $5,000,000

Compute cash received.

Cash received = Number of shares × Average price per share= 1,000,000 shares × $20= $20,000,000

Compute paid-in capital excess of par value.

Paid-in capital excess of par= Cash received – Preferred stock= $20,000,000 – $5,000,000= $15,000,000

(2)

Expert Solution
Check Mark
To determine

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 CapitalAmount ($)

        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 par42,000,000
                Total paid-in capital50,000,000
Retained earnings1,000,000
Total stockholders’ equity$51,000,000

Table (3)

Part B (1)

Expert Solution
Check Mark
To determine

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.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
June30Treasury Stock2,400,000
Cash2,400,000
(To record purchase of treasury stock)

Table (4)

Working Note:

Compute treasury stock value.

Treasury stock value= Number of shares × Purchase price per share= 200,000 shares × $12= $2,400,000

(b)

Prepare journal entry to record the reissue of 50,000 treasury stock at $15 per share.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
July31Cash750,000
      Treasury Stock600,000
      Paid-in-Capital-Share Repurchase150,000
(To record re-issue oftreasury stock)

Table (5)

Working Notes:

Compute cash received.

Cash received = Number of shares × Selling price per share= 50,000 shares × $15= $750,000

Compute treasury stock value.

Treasury stock value= Number of shares × Purchase price per share= 50,000 shares × $12= $600,000

Compute paid-in-capital-share repurchase amount.

Paid-in-capital-share repurchase amount} = {(Selling price –Purchase price) × Number of shares re-acquired}=($15–$12) × 50,000 shares=$150,000

(c)

Prepare journal entry to record the reissue of 50,000 treasury stock at $10 per share.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
September30Cash500,000
Paid-in-Capital-Share Repurchase100,000
      Treasury Stock600,000
(To record re-issue oftreasury stock)

Table (6)

Working Notes:

Compute cash received.

Cash received = Number of shares × Selling price per share= 50,000 shares × $10= $500,000

Compute treasury stock value.

Treasury stock value= Number of shares × Purchase price per share= 50,000 shares × $12= $600,000

(2)

Expert Solution
Check Mark
To determine

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 CapitalAmount ($)

        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 par42,000,000
Paid-in capital–share repurchase50,000
     Total paid-in capital50,050,000
Retained earnings4,000,000
                Total paid-in capital and retained earnings54,050,000
Less: Treasury stock(1,200,000)
Total stockholders’ equity$52,850,000

Table (7)

Working Notes:

Compute retained earnings value.

ParticularsAmount ($)
Balance on March 31, 2018$1,000,000
Net income in third quarter3,000,000
Balance on September 30, 2018$4,000,000

Table (8)

Compute treasury stock value.

ParticularsAmount ($)
Treasury stock due to transaction on June 30, 2018(2,400,000)
Treasury stock due to transaction on July 31, 2018600,000
Treasury stock due to transaction on September 30, 2018600,000
Balance on December 31, 2018$(1,200,000)

Table (9)

Part C (1)

Expert Solution
Check Mark
To determine

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:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
November1Retained Earnings540,000
            Dividends Payable, Common290,000
            Dividends Payable, Preferred250,000
(To record declaration of cash dividends)

Table (10)

Working Notes:

Compute the amount of dividends payable, common.

Dividend payable = Number of shares×Dividend per share= 5,800,000 shares×$0.50= $290,000

Compute the amount of dividends payable, preferred.

Dividend payable = Number of shares×Dividend per share= 1,000,000 shares×$0.25= $250,000

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:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
December1Dividends Payable, Common290,000
Dividends Payable, Preferred250,000
         Cash540,000
(To record payment of dividends)

Table (11)

On the date of declaration of stock dividend:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
December2Retained Earnings580,000
     Common Stock Distributable29,000
     Paid-in Capital–Excess of Par551,000
(To record declaration of common stock dividend)

Table (12)

Working Notes:

Compute the stock dividends amount, which decreases the retained earnings.

Stock dividends shares = {Number of shares outstanding × Stock dividend percentage}= 5,800,000 shares× 1100= 58,000 shares

Stock dividends = Stock dividend shares × Market value per share= 58,000 shares × $10= $580,000

Compute common stock distributable value.

Common stock value} = Stock dividend shares × Par value of stock= 58,000 shares × $0.50= $29,000

Compute paid-in capital excess of par value.

Paid-in capital excess of par value} = (Stock dividends–Common stock distributable value )= $580,000 – $29,000= $551,000

On the date of settlement of stock dividend:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2018
December28Common Stock Distributable29,000
     Common Stock29,000
(To record distribution of common stock dividend)

Table (13)

(2)

Expert Solution
Check Mark
To determine

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 CapitalAmount ($)

        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 par42,551,000
        Paid-in capital–share repurchase50,000
                Total paid-in capital50,630,000
Retained earnings5,380,000
                Total paid-in capital and retained earnings56,010,000
Deduct: Treasury stock(1,200,000)
Total stockholders’ equity$54,810,000

Table (14)

Working Notes:

Compute retained earnings value.

ParticularsAmount ($)
Balance on September 30, 2018$4,000,000
Net income in fourth quarter2,500,000
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.

ParticularsAmount ($)
Paid-in capital due to transaction on January 2, 201827,000,000
Paid-in capital due to transaction on January 2, 201815,000,000
Paid-in capital due to transaction on December 2, 2018551,000
Balance on December 31, 2018$42,551,000

Table (16)

(3)

Expert Solution
Check Mark
To determine

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)
ParticularsPreferred StockCommon StockAdditional Paid-in CapitalRetained EarningsTreasury StockTotal Shareholders’ Equity
January 2, 2018------
Issuance of preferred stock5,000 15,000  20,000
Issuance of common stock 3,00027,000  30,000
Purchase of treasury stock    (2,400)(2,400)
Sale of treasury stock  50 1,2001,250
Net income   6,500 6,500
Common cash dividends   (290) (290)
Preferred stock dividends   (250) (250)
Stock dividend 29551(580)0
December 31, 20185,0003,02942,6015,380(1,200)54,810

Table (17)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Pls help
Answer question #3 onlyy thanks
Exercise 19-24 (Algo) New shares; contingently issuable shares [LO19-6,19-12] During 2024, its first year of operations, Kevin Berry Industries entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 100 million common shares, $1 par per share. January 2 Issued 55 million common shares for cash. January 2 Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2025 based on the earnings of Berry in 2025. If net income exceeds $140 million, the president will receive 1 million shares; 2 million shares if net income exceeds $150 million. March 31 Issued 4 million shares in exchange for plant facilities. Net income for 2024 was $148 million. Required: Compute basic and diluted earnings per share for the year ended December 31, 2024. Note: Do not round intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Basic Diluted Numerator + +…

Chapter 18 Solutions

Intermediate Accounting

Ch. 18 - The par value of shares historically indicated the...Ch. 18 - Prob. 18.12QCh. 18 - How do we report components of comprehensive...Ch. 18 - The balance sheet reports the balances of...Ch. 18 - At times, companies issue their shares for...Ch. 18 - Prob. 18.16QCh. 18 - The costs of legal, promotional, and accounting...Ch. 18 - When a corporation acquires its own shares, those...Ch. 18 - Discuss the conceptual basis for accounting for a...Ch. 18 - The prescribed accounting treatment for stock...Ch. 18 - Brandon Components declares a 2-for-1 stock split....Ch. 18 - What is a reverse stock split? What would be the...Ch. 18 - Suppose you own 80 shares of Facebook common stock...Ch. 18 - Prob. 18.24QCh. 18 - Comprehensive income LO181 Schaeffer Corporation...Ch. 18 - Stock issued LO184 Penne Pharmaceuticals sold 8...Ch. 18 - Prob. 18.3BECh. 18 - Prob. 18.4BECh. 18 - Prob. 18.5BECh. 18 - Retirement of shares LO185 Agee Storage issued 35...Ch. 18 - Treasury stock LO185 The Jennings Group...Ch. 18 - Prob. 18.8BECh. 18 - Prob. 18.9BECh. 18 - Cash dividend LO188 Real World Financials...Ch. 18 - Effect of preferred stock on dividends LO187 The...Ch. 18 - Property dividend LO187 Adams Moving and Storage,...Ch. 18 - Stock dividend LO188 On June 13, the board of...Ch. 18 - Prob. 18.14BECh. 18 - Stock split LO188 Refer to the situation...Ch. 18 - Prob. 18.16BECh. 18 - Comprehensive income LO182 The following is from...Ch. 18 - Prob. 18.2ECh. 18 - Earnings or OCI? LO182 Indicate by letter whether...Ch. 18 - Stock issued for cash; Wright Medical Group LO184...Ch. 18 - Issuance of shares; noncash consideration LO184...Ch. 18 - Prob. 18.6ECh. 18 - Share issue costs; issuance LO184 ICOT Industries...Ch. 18 - Reporting preferred shares LO184, LO187 Ozark...Ch. 18 - Prob. 18.9ECh. 18 - Prob. 18.10ECh. 18 - Retirement of shares LO185 In 2018, Borland...Ch. 18 - Treasury stock LO185 In 2018, Western Transport...Ch. 18 - Treasury stock; weighted-average and FIFO cost ...Ch. 18 - Prob. 18.14ECh. 18 - Prob. 18.15ECh. 18 - Prob. 18.16ECh. 18 - Transact ions affecting retained earnings LO186,...Ch. 18 - Effect of cumulative, nonparticipating preferred...Ch. 18 - Stock dividend LO188 The shareholders equity of...Ch. 18 - Prob. 18.20ECh. 18 - Cash in lieu of fractional share rights LO188...Ch. 18 - Prob. 18.22ECh. 18 - Transact ions affecting retained earnings LO186...Ch. 18 - Profitability ratio LO181 Comparative balance...Ch. 18 - Prob. 18.25ECh. 18 - Various stock transactions; correction of journal...Ch. 18 - Share buybackcomparison of retirement and treasury...Ch. 18 - Reacquired sharescomparison of retired shares and...Ch. 18 - Prob. 18.4PCh. 18 - Shareholders equity transactions; statement of...Ch. 18 - Prob. 18.6PCh. 18 - Prob. 18.7PCh. 18 - Prob. 18.8PCh. 18 - Effect o f preferred stock characteristics on...Ch. 18 - Prob. 18.10PCh. 18 - Stock dividends received on investments;...Ch. 18 - Various shareholders equity topics; comprehensive ...Ch. 18 - Prob. 18.13PCh. 18 - Prob. 18.1BYPCh. 18 - Prob. 18.2BYPCh. 18 - Research Case 184 FASB codification; comprehensive...Ch. 18 - Judgment Case 185 Treasury stock; stock split;...Ch. 18 - Prob. 18.6BYPCh. 18 - Prob. 18.7BYPCh. 18 - Prob. 18.8BYPCh. 18 - Prob. 1CCTC
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Text book image
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Earnings per share (EPS), basic and diluted; Author: Bionic Turtle;https://www.youtube.com/watch?v=i2IJTpvZmH4;License: Standard Youtube License