COMPREHENSIVE SHAREHOLDERS’ EQUITY IN-CLASS EXERCISE
Part A
In late 2012, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance
of 10,000,000 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, 2013, 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. Prepare journal entries to record these transactions.
2. Prepare the shareholders' equity section of the Nicklaus balance sheet as of March 31,
2013. (Assume net income for the first quarter 2013 was $1,000,000.)
Requirement #1:
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Jan. 2 – Issuance of Common and Preferred Stock
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Dr. Cash (3 mill. * $10) 30,000,000
Cr. Common Stock (3 mill. * $1) 3,000,000
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Cr. APIC – CS 27,000,000 (plug)
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Dr. Cash (1 mill. * $20) 20,000,000
Cr. Preferred Stock (1 mill. * $5) 5,000,000
Cr. APIC – PS 15,000,000
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aC s
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Requirement #2: NICKLAUS CORPORATION
Balance Sheet-Shareholders' Equity Section
March 31, 2013
Shareholders' equity
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Preferred Stock, $5 par, 1 million shares $5,000,000
authorized, issued and outstanding
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Common Stock, $1 par, 10 million shares authorized, 3,000,000
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3 million shares issued and outstanding
APIC – Preferred Stock 15,000,000
APIC – Common Stock 27,000,000
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Retained Earnings 1,000,000
Total Shareholders’ Equity $51,000,000
1
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Part B
During 2013, the Nicklaus Corporation participated in three treasury stock transactions:
1. On June 30, 2013, the corporation reacquires 200,000 shares for the treasury at a price of
$12 per share.
2. On July 31, 2013, 50,000 treasury shares are reissued at $15 per share.
3. On September 30, 2013, 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, 2013. (Assume net income for the second and
third quarters combined was $3,000,000.)
Requirement #1:
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June 30: Purchase of Treasury Stock
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Dr. Treasury Stock ($12 * 200,000) 2,400,000
Cr. Cash 2,400,000
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July 31: Sale of Treasury Stockrs e
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Dr. Cash ($15 * 50,000) 750,000
Cr. Treasury Stock ($12 * 50,000) 600,000
Cr. APIC – Share Repurchase 150,000 (plug)
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Sept. 30: Sale of Treasury Stock
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Dr. Cash ($10 * 50,000) 500,000
Dr. APIC – Share Repurchase 100,000 (plug)
Cr. Treasury Stock ($12 * 50,000) 600,000
ed d
ar stu
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sh
2
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Requirement #2:
NICKLAUS CORPORATION
Balance Sheet - Shareholders' Equity Section
September 30, 2013
Shareholders' equity
Preferred Stock, $5 par, 1 million shares $5,000,000
authorized, issued and outstanding
Common Stock, $1 par, 10 million shares authorized 3,000,000
3 million issued, and 2.9 million outstanding*
APIC – Preferred Stock 15,000,000
APIC – Common Stock 27,000,000
APIC – Share Repurchase 50,000
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Retained Earnings 4,000,000
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Treasury Stock, at cost, 100,000 shares** (1,200,000)
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Total Shareholders’ Equity $52,850,000
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*3,000,000 shares issued – 200,000 repurchased + 100,000 resold = 2,900,000 outstanding
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**200,000 shares repurchased – 100,000 resold = 100,000 treasury shares
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Part C
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On October 1, 2013, Nicklaus Corporation enacts a 2-for-1 stock split on its common stock. (We
will assume Nicklaus applies the split to its treasury stock as well – this is not always the case.)
ed d
On November 1, 2013, the Nicklaus Corporation declares a $.05 per share cash dividend on
common stock and a $.25 per share cash dividend on preferred stock. Payment is scheduled for
ar stu
December 1, 2013, to shareholders of record on November 15, 2013.
On December 2, 2013, the Nicklaus Corporation declares a 1% stock dividend payable on
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December 28, 2013, 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.
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Required:
1. Prepare journal entries to record the declaration and payment of these stock and cash
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dividends.
2. Prepare the December 31, 2013, 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 2013.
3
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Requirement #1:
Oct. 1: Stock Split
No journal entry
(New par value $.50 per share, Issued: 6 million, Outstanding: 5.8 million; Treasury: 200,000)
Nov. 1: Cash Dividend Declared Common: $.05*5.8 mill. = 290,000
Preferred: $.25*1 mill. = 250,000
$540,000
Dr. Retained Earnings 540,000
Cr. Dividends Payable 540,000
Dec. 1: Dividend Paid
Dr. Dividends Payable 540,000
Cr. Cash 540,000
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Dec. 2: Stock Dividend Declared (5,800,000*.01 = 58,000 shares)
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Dr. Retained Earnings ($10*58,000) 580,000
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Cr. Common Stock ($.50*58,000) 29,000
Cr. APIC – CS rs e 551,000
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Requirement #2: NICKLAUS CORPORATION
Balance Sheet - Shareholders' Equity Section
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December 31, 2013
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Shareholders' equity
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Preferred Stock, $5 par, 1 million shares authorized $5,000,000
issued and outstanding
ed d
Common Stock, $.50 par, 10 million shares authorized, 3,029,000
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6,058,000 issued, and 5,858,000 outstanding
APIC – Preferred Stock 15,000,000
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APIC – Common Stock 27,551,000
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APIC – Share Repurchase 50,000
Retained Earnings 5,380,000
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Treasury Stock, at cost, 200,000 shares (1,200,000)
Total Shareholders’ Equity $54,810,000
Issued: 6,000,000 + 58,000 (stock dividend) = 6,058,000
Outstanding: 5,800,000 + 58,000 = 5,858,000
4
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Requirement #3:
NICKLAUS CORPORATION
Statement of Shareholders’ Equity
for the Year Ended Dec. 31, 2013
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($ in 000s)
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Total
Preferred Common Retained Treasury Shareholders’
d
Stock Stock APIC Earnings Stock Equity
e
Jan. 2, 2013
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Issuance of Preferred Stock 5,000 15,000 20,000
sh
Issuance of Common Stock 3,000 27,000 30,000
Purchase of Treasury Stock (2,400) (2,400)
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Preferred Stock Common Stock
Sale of Treasury Stock 50** 1,200* 1,250
5,000,000 3,000,000
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Cash Dividend Declared 29,000 (540) (540)
3,029,000
Stock Dividend Declared 29 551 (580) 0
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Net Income
co rc 6,500*** 6,500
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Dec. 31, 2013 5,000 3,029 42,601 5,380 (1,200) 54,810
*600,000 + 600,000 = $1,200,000
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**150,000 – 100,000 = $50,000
***1,000,000 + 3,000,000 + 2,500,000 = $6,500,000
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APIC-Preferred Stock APIC-Common Stock
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27,000,000
15,000,000 551,000
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27,551,000
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APIC-Share Repurchase
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150,000
100,000 ________
50,000
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Treasury Stock Retained Earnings
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2,400,000 1,000,000
600,000 3,000,000
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600,000 4,000,000
540,000
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580,000 2,500,000
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1,200,000 5,380,000
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