The balance sheet of MDS, Inc. included the following shareholders\' equity acco
ID: 2488803 • Letter: T
Question
The balance sheet of MDS, Inc. included the following shareholders' equity accounts at December 31, 2012:
Paid-in capital:
Preferred stock, 7.6%, 100,000 shares at $1 par $ 100,000
Common stock, 728,000 shares at $1 par ...... 728,000
Paid-in capital – excess of par, preferred........ 2,900,000
Paid-in capital – excess of par, common......... 5,148,000
Retained earnings........................................... 9,800,000
Treasury stock, at cost; 8,000 common shares (88,000)
Total shareholders’ equity.............................. $17,688,000
During 2013, several events and transactions affected the retained earnings of MDS.
Required:
1. Prepare the appropriate entries for these events.
a. On February 20, the board of directors declared a property dividend of 100,000 shares of Brown International common stock that MDS had been purchased in January as an investment (book value: $485,000). The investment shares had a fair market value of $5 per share and were distributed March 20 to shareholders of record February 28.
b. On April 4, a 5 for 4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $12 per share.
c. On July 25, a 3% common stock dividend was declared and distributed. The market value of the common stock was $12 per share.
d. On December 2, the board of directors declared the 7.6% cash dividend on the 100,000 preferred shares, payable on December 27 to shareholders of record December 19.
e. On December 2, the board of directors declared a cash dividend of $.50 per share on its common shares, payable on December 27 to shareholders of record December 19.
2. Prepare the shareholders' equity section of the balance sheet for MDS, Inc. for the year ended at December 31, 2013. Net income for the year was $900,000.
Explanation / Answer
Date :::::::::::::::Particulars::::::::::::::::::::::::::::::::::::::::::::::::::::::::::LF:::::::::Debit:::::::::::::::::::::::::::::::::::::Credit
Feb, 2013, Investments sharesA/c Dr:::::::::::::::::::::::::::::::;::::N/A:::::::::$15,000
To Gain on Investments shares::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$15,000
100,000 *45=$500,000 = market share value - $485,000(Book value)=$15,000
______________________________________________________________________________________
Feb , 2013 Retained Earnings a/c Dr::::::::::::::::::::::::::::::::::::::N/A:::::$500,000
To property dividend payable a/c Dr:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$500,000
100,000 *$5=$500,000
________________________________________________________________________________________
Feb 20, 2013Dividends payable a/c Dr:::::::::::::::::::::::::::::::::::::$500,000
To Investments sharesA/c::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$500,000
(record the dividend declared)
______________________________________________________________________________________
April 4, 2013, only Memorandum entry.
5 for 4 stock split increased the number of shares of common stock outstanding from 728,000 to910,000 and reduced par value to $1 to $0.50.
182,000 new shares were distributed.
( 728,000 *1/4=182,000: 182,000 + 728,000=910,000)
________________________________________________________________________________________
July 25, 2013 Retained earnings A/c Dr::::::::::::::::::::::::::::::::N/A::::::::::::::::::$262,080
To common stock A/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$21840
To Additional paid in capital A/c ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$240,240
Common stock, 728,000 *3/100=21840 shares shares at $1 par
21840 *$1=$21840
$21840*$11=$240,240
______________________________________________________________________________________-
Preferred stock
Dec 02, 2013 :::::Retained earnings a/c Dr::::::::::::::::::::::::::N/A:::::::::::::::::::::$7,600
To dividends payable a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$7,600
Declared dividend)
____________________________________________________________________________________
Dec 19, 2013 :::::Dividends A/c Dr ::::::::::::::::::::::::::::::::::::::N/A:::::::::::::::::::$7,600
To dividends payable a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$7,600
($100,000 *7.6%,=$7,600)
(Recorded dividend)
__________________________________________________________________________________
Dec 27, 2013::::::Dividends payable a/c ::::::::::::::::::::::::::::::::N/A::::::::::::::::::::$7,600
To Cash a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$7,600
(dividend paid)
____________________________________________________________________________________
common stock
Dec 02, 2013 :::::Retained earnings a/c Dr::::::::::::::::::::::::::N/A::::::::::::::::::::$455,000
To dividends payable a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$455,000
(Declared dividend)
__________________________________________________________________________________
Dec 19, 2013 :::::Dividends A/c Dr ::::::::::::::::::::::::::::::::::::::N/A:::::::::::::::::::$455,000
To dividends payable a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$455,000
910,000 *$0.50=$455,000
(Recorded dividend)
___________________________________________________________________________
Dec 27, 2013::::::Dividends payable a/c ::::::::::::::::::::::::::::::::N/A::::::::::::::::::::$455,000
To Cash a/c :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$455,000
(dividend paid)
_____________________________________________________________________________
shareholders' equity section of the balance sheet for MDS, Inc. for the year ended at December 31, 2013
Particulars::::::::::::::::::::::::::::::::::::Amount
Paid in capital
Common stock:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$455,000
Preferred stock::::::::::::::::::::::::::::::::::::::::::::::::::::;:::::::::$100,000
Paid in capital: excess of par value::::::::::::::::::::::::::::::$10,010,000($11*910,000)
Paid in capital: excess of par value:::::::::::::::::::::::::::::::$2,900,000
Retained earnings:::::::::::::::::::::::::::::::::::::::::::::::::::::::::$160320
Less:
Treasury Stock:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$88,000
__________________________________________________________
Total shareholders’ equity.::::::::::::::::::::::::::::::::::::::::::::$135,37,320
Retained earnings = ($900,000-15,000 -$262,080 -$455,000 -$7,600 =$160320)
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