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)
Want to see more full solutions like this?
Chapter 18 Solutions
Intermediate Accounting
- 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 75 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 $120 million, the president will receive 1 million shares; 2 million shares if net income exceeds $130 million. March 31 Issued 4 million shares in exchange for plant facilities. Net income for 2024 was $125 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).arrow_forwardh. 2. What amount should be reported as básic EPS for 2021 Problem 19-16 (AICPA Adapted) 10 fo Strauch Company had one class of share capital outstanding and no other securities that are potentially convertible into ordinary shares. During 2021, 120,000 shares were outstanding. a. b. On April 1, 2022, 40,000 shares of treasury were sold, and on July 1, 2022, a 2-for-1 share split was issued. C. d. Net income was P6,000,000 in 2022 and P3,600,000 in 2021. Pr 1. What amount should be reported as basic EPS for 2022 Du 20 sh. in the 2022 comparative income statement? a. 25.00 b. 20.00 c. 18.75 d. 37.50 P3 pa WE in the 2022 comparative income statement? a. a. 30,00 b. 15.00 C. 45.00 d. 22.50 b. C. d. 602arrow_forwardPROBLEM 1: The following events and transactions relate to the shareholder's equity accounts of the Reverse Corporation in 2020: Jan 3 The articles of incorporation were received, authorizing Reverse Corporation to issue 100,000 shares of P5 par ordinary shares and 30,000 shares of P50 par preference shares. Jan 5 Received subscriptions to 25,000 ordinary shares and 13,000 preference shares. The subscription price was P15 for ordinary share and P60 for preference share; one third of the total of each class of share was received as a down payment. Jan 9 200 preference shares were issued to the lawyers in payment for legal services rendered in drawing up the articles of incorporation. A value of P56 per share was deemed appropriate. Jan 15 50% of the remaining balance of preference shares subscribed in Jan 5 was collected. Jan 31 Issued 20,000 ordinary shares in exchange for building with book value of 80,000. Collected the balance due on the subscribed ordinary and preference shares.…arrow_forward
- PROBLEM 1: The following events and transactions relate to the shareholder's equity accounts of the Reverse Corporation in 2020: Jan 3 The articles of incorporation were received, authorizing Reverse Corporation to issue 100,000 shares of P5 par ordinary shares and 30,000 shares of P50 par preference shares. Jan 5 Received subscriptions to 25,000 ordinary shares and 13,000 preference shares. The subscription price was P15 for ordinary share and P60 for preference share; one third of the total of each class of share was received as a down payment. Jan 9 200 preference shares were issued to the lawyers in payment for legal services rendered in drawing up the articles of incorporation. A value of P56 per share was deemed appropriate. Jan 15 50% of the remaining balance of preference shares subscribed in Jan 5 was collected. Jan 31 Issued 20,000 ordinary shares in exchange for building with book value of 80,000. Collected the balance due on the subscribed ordinary and preference shares.…arrow_forwardProblem no. 1 ABC Corporation has the following transactions throughout the year of 2020: Jan ABC Corporation received its certificate of incorporation from Securities and Exchange Commission. From its submitted Articles of Incorporation, the corporation has a total of authorized share capital of PI0,000,000.00 divided into 1,000,000 ordinary shares with par value of P10.00. Out of the total authorized share capital, 30% has been fully paid and issued at P11.00 per share to incorporators. The company incurred P120,000 directly related to the issuance of shares. Feb 2 Mr. Z, an investor, subscribed 20,000 shares at a subscription price of P15.00. ABC has collected 20% of the total subscription price and remaining balance payable within 10 days. 5 ABC issued 140,000 shares at P17.00 per share. ABC issued 40,000 shares in exchange for equipment. The fair value of the shares is P11.00 and the fair value of the equipment is P480,000. 28 ABC issued 30,000 shares for payment of legal…arrow_forwardSubject : Accountingarrow_forward
- Problem no. 1 ABC Corporation has the following transactions throughout the year of 2020: Jan ABC Corporation received its certificate of incorporation from Securities and Exchange Commission. From its submitted Articles of Incorporation, the corporation has a total of authorized share capital of P10,000,000.00 divided into 1,000,000 ordinary shares with par value of P10.00. Out of the total authorized share capital, 30% has been fully paid and issued at P11.00 per share to incorporators. The company incurred P120,000 directly related to the issuance of shares. Feb 1 Mr. Z, an investor, subscribed 20,000 shares at a subscription price of P15.00. ABC has collected 20% of the total subscription price and remaining balance payable within 10 days. 5 ABC issued 140,000 shares at P17.00 per share. ABC issued 40,000 shares in exchange for equipment. The fair value of the shares is P11.00 and the fair value of the equipment is P480,000. 28 9 ABC issued 30,000 shares for payment of legal…arrow_forwardSubject : Accountingarrow_forwardFinancial Accounting and Reporting Topic: Issuance of Share Capitalarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning