ACCTG 101 Lecture Notes - Lecture 18: Share Capital, Call Money, Retained Earnings

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7 Jul 2020

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Shares of publicly held companies are traded on organised exchanges. Market price per share is established by interaction between buyers and sellers. All shares listed on asx can be bought and sold only through a stockbroker for a fee. Par value is an arbitrary amount assigned to each share. Par value has no relationship with market value and is usually immaterial. In australia and new zealand shares are issued with no par value. In other countries (eg usa) shares can be issued with or without par value. Shareholders" equity section on a company"s statement of financial position consists of. The total amount of cash and other assets paid to the company by shareholders. Share may be ordinary or preference shares. Profit that is retained in a company. Profit is recorded in retained earnings by a closing entry. The primary objectives in accounting for the issue of ordinary shares are. To identify the specific sources of share capital.

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Part C

On October 1, 2016, Nicklaus Corporation receives permission toreplace its $1 par value common stock (5,000,000 shares authorized,3,000,000 shares issued, and 2,900,000 shares outstanding) with anew common stock issue having a $.50 par value. Since the new parvalue is one-half the amount of the old, this represents a 2-for-1stock split. That is, the shareholders will receive two shares ofthe $.50 par stock in exchange for each share of the $1 par stockthey own. The $1 par stock will be collected and destroyed by theissuing corporation.

On November 1, 2016, the NicklausCorporation declares a $0.13 per share cash dividend on commonstock and a $0.30 per share cash dividend on preferred stock.Payment is scheduled for December 1, 2016, to shareholders ofrecord on November 15, 2016.

On December 2, 2016, the NicklausCorporation declares a 1% stock dividend payable on December 28,2016, to shareholders of record on December 14. At the date ofdeclaration, the common stock was selling in the open market at $15per share. The dividend will result in 58,000 (0.01 Ã 5,800,000)additional shares being issued to shareholders.

Required:

1.	Prepare journal entries to record the declaration and payment ofthese stock and cash dividends. (If no entry is requiredfor a transaction/event, select "No journal entry required" in thefirst account field.)

2.	Prepare the December 31, 2016, shareholders' equity section ofthe balance sheet for the Nicklaus Corporation. (Assume net incomefor the fourth quarter was $2,450,000.)

3.	Prepare a statement of shareholders' equity for NicklausCorporation for 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers inthousands.)

Problem 18-12 Various shareholders' equity topics; comprehensive[LO18-1, 18-4, 18-5, 18-6, 18-7, 18-8]

Part A

In late 2015, the Nicklaus Corporation was formed. The corporatecharter authorizes the issuance of 5,000,000 shares of common stockcarrying a $1 par value, and 1,000,000 shares of $5 par value,noncumulative, nonparticipating preferred stock. On January 2,2016, 3,000,000 shares of the common stock are issued in exchangefor cash at an average price of $15 per share. Also on January 2,all 1,000,000 shares of preferred stock are issued at $30 pershare.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a particular transaction,select "No journal entry required" in the first accountfield.)

2.	Prepare the shareholders' equity section of the Nicklaus balancesheet as of March 31, 2016. (Assume net income for the firstquarter 2016 was $1,500,000.)

Part B
During 2016, the Nicklaus Corporation participatedin three treasury stock transactions:

a.	On June 30, 2016, the corporation reacquires 190,000 shares forthe treasury at a price of $17 per share.
b.	On July 31, 2016, 45,000 treasury shares are reissued at $20per share.
c.	On September 30, 2016, 45,000 treasury shares are reissued at$15 per share.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

2.	Prepare the Nicklaus Corporation shareholders' equity section asit would appear in a balance sheet prepared at September 30, 2016.(Assume net income for the second and third quarter was$2,950,000.)

Part C

Required:

Prepare journal entries to record the declaration and payment ofthese stock and cash dividends. (If no entry is requiredfor a transaction/event, select "No journal entry required" in thefirst account field.)

1.Record the entry for a 2-for-1 stock split.

2.Record declaration of cash dividend for common shares andpreferred shares.

3.Record the entry on date of record.

4.Record payment of cash dividend for common shares andpreferred shares.

5.Record declaration of common stock dividend.

6.Record distribution of common stock dividend.

2.	Prepare the December 31, 2016, shareholders' equity section ofthe balance sheet for the Nicklaus Corporation. (Assume net incomefor the fourth quarter was $2,450,000.)

3.	Prepare a statement of shareholders' equity for NicklausCorporation for 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers inthousands.)

Trask Corporation, a public company whose shares are traded in the over-the-counter market, had the following shareholders' equity account balances at December 31, 2016:

Common stock $7,875,000

Additional paid-in capital (including stock options) $16,050,000

Retained earnings $16,445,000

Treasury common stock $750,000

Transactions during 2017 and other information relating to the shareholders' equity accounts follow:

As of January 1, 2017, Trask had 4,000,000 authorized shares of $5 par-value common stock; it had issued 1,575,000 shares of which 75,000 were held in treasury.

On January 21, 2017, Trask issued 50,000 shares of $100 par value, 6% cumulative preferred stock at par in exchange for all of Rover Company's assets and liabilities. On that date, the net carrying amount of Rover's assets and liabilities equaled their fair values.

On January 22, 2017, Rover distributed the Trask shares to its stockholders in a complete liquidation and dissolution of Rover. Trask had 150,000 authorized shares of preferred stock.

On February 17, 2017, Trask formally retired 25,000 of 75,000 treasury common stock shares. The shares were originally issued at $15 per share and had been acquired on September 25, 2016, for $10 per share.

Trask owned 15,000 shares of Harbor Inc. common stock purchased in 2016 for $600,000. The Harbor stock shares are carried t fair value with price changes included in net income. On March 5, 2017, Trask declared a property dividend of one share of Harbor common stock for every 100 shares of Trask common stock held by a shareholder of record on April 16, 2017. Harbor stock's market price on March 5, 2017, was $60 per share. The property dividend was distributed on April 29, 2017.

On January 2, 2012, Trask granted stock options to employees to purchase 200,000 shares of the company's common stock at $12 per share, which was also the market price on that date. The options had a grant date fair value of $1.50 per share and are exercisable within a three-year period, beginning January 2, 2017. On June 1, 2017, employees exercised 150,000 options when the stock's market value was $25 per share. Trask issued new shares to settle the transaction.

On December 12, 2017, Trask declared the yearly cash dividend on preferred stock, payable on January 11, 2018, to shareholder of record on December 31, 2017.

On January 16, 2018, before the accounting records were closed for 2017, Trask learned that depreciation expense had been understated by $350,000 for the year ended December 31, 2016. The after-tax effect on 2016 net income was $245,000. The appropriate correcting entry to adjust January 1, 2017 retained earnings was recorded on the same day.

Net income for 2017 was $2,400,000.

Required:

Prepare a schedule to show how Trask's retained earnings changed from January 1, 2017, to December 31, 2017.

Prepare the shareholders' equity section of Trask's balance sheet at December 31, 2017.

Compute the book value per share of common stock at December 31, 2017

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ACCTG 101 Lecture Notes - Lecture 18: Share Capital, Call Money, Retained Earnings

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