BOOK VALUE AND PREFERENCE DIVIDENDS

Problem 27-14

Bonanza Company provided the following shareholders equity on December 2015

Preference share capital, P100 par, 80 shares issued,

12% cumulative and fully participating
8,000,000
Ordinary share capital, P50 par, 200,000 shares issued
10,000,000
Share Premium
5,000,000
Retained Earnings
7,000,000

Dividends on the preference shares are in arrearsfor two years including the current year. On
December 31, 2015 the entity intends to pay cash dividend of P10 per share to the ordinary
shareholders

What is the total amount of dividends to be declared for the preference and ordinary shares ?

a. 4,560,000
b. 3,920,000
c. 3,600,000
d. 5,520,000

Solution :

Ordinary dividend(200,000 x 10)

2,000,000
Preference Dividends
2014(12% x 8,000,000) 960,000
2015(20 % x 8,000,000) 1,600,000 2,560,000
4,560,000

Problem 27-15

Yodel company had 50,000 ordinary shares of P100 par value and 25,000 preference shares of
P100 par value, 6% cumulative and participating. Dividends on the preference shares are two
years in arrears including the current year. The entity distributed P1,350,000 as dividends in the
current year.
What is the dividend payable to the ordinary shareholders?

a. 1,050,000
b. 1,200,000
c. 800,000
d. 550,000

Solution :
Dividends Preference Ordinary

Amount 1,350,000
6% x 2,500,00 x 2 (300,000) 300,000
6% x 5,000,000 (300,000)
300,000

Balance prorata 750,000 250,000 500,000

550,000 800,000