Question

In late 2020, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 6,000,000 shares of common stock carrying a $1 par value, and 2,000,000 shares of $5 par value, noncumulative, nonparticipating preferred stock. On January 2, 2021, 4,000,000 shares of the common stock are issued in exchange for cash at an average price of $10 per share. Also on January 2, all 2,000,000 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, 2021. (Assume net income for the first quarter 2021 was $1,600,000.)

Answer 1

1. Jan-02

Dr Cash $ 40,000,000.00

Cr Common stock $ 4,000,000.00

Cr Paid-in capital – excess of par, common $ 36,000,000.00

Jan 02

Dr Cash $ 40,000,000.00

Cr Preferred stock $ 10,000,000.00

Cr Paid-in capital – excess of par, preferred $ 30,000,000.00

2. $81,600,000.00

Step-by-step explanation:

1. Preparation of the journal entries to record these transactions

Jan-02

Dr Cash (4,000,000 x $10) $ 40,000,000.00

Cr Common stock ($1 par x 4,000,000 shares) $ 4,000,000.00

Cr Paid-in capital – excess of par, common $ 36,000,000.00

Jan 02 Cash (amount received) (2,000,000 x $20) $ 40,000,000.00

Preferred stock ($5 par x 2,000,000 shares) $ 10,000,000.00

Paid-in capital – excess of par, preferred (difference) $ 30,000,000.00

2. Preparation of the shareholders' equity section of the Nicklaus balance sheet as of March 31, 2021.

Nicklaus Corporation

Balance Sheet-Shareholders' Equity Section

September 30, 2018

Shareholders' equity

Preferred stock, $5 par, authorized 2,000,000 shares, issued and outstanding 2,000,000 shares$ 10,000,000

Common stock, $1 par, authorized 6,000,000 shares, issued and outstanding 4,000,000 shares $ 4,000,000.00

Paid-in capital – excess of par $ 66,000,000.00

Retained earnings $ 1,600,000.00

Total shareholders' equity$ 81,600,000.00