Yvonne Antonette P.

Duyao Section 9
CFAS March 15, 2022

Problem 18. Book value per share

The shareholder’s equity of Dancing Queen Co. in the statement of financial position on December 31, 2014 is
as follows:

Share capital, P10 par, 110,000 shares P1,000,000

Share premium 500,000
Retained earnings 250,000
Treasury shares 10,000 shares, cost - 50,000 50,000

REQUIRED:
Compute the book value per share as of December 31, 2014 of Dancing Queen Co.?

Answer:
950,000+500,000+250,0000
Book value per share =
100,000

BVPS = 17

PROBLEM 19. Dividends

Journalize each transaction below independently:
a. During the May 31, 2014, the Board of Directors of Cashew Corporation declared a dividend of P5
per share, payable September 30, 2014, to shareholders of record July 31, 2014. The entity has 10,000
shares issued and outstanding with par value of P100. Give the journal entries on (a) May 31, (b) July
31, and (c) September 30.
b. During the May 31, 2014, the Board of Directors of Cool Corporation declared a 10% dividend,
payable September 30, 2014, to shareholders of record July 31, 2014. The entity has 10,000 shares
issued and outstanding with par value of P100. Give the journal entries on (a) May 31, (b) July 31, and
(c) September 30.
c. Libra Co.’s board of directors decided to declare a dividend on June 30, 2014 to be distributed on
August 1, 2014. The company will give inventories worth P1,500,000 to its shareholders of record
July 10, 2014. Give the journal entries on (a) June 30, (b) July 10, and (c) August 1.
d. Twins Corporation declared on July 1, 2014 dividends to its stockholders of record as of September 1,
2014. However, due to shortage of cash, the corporation issued scrip dividends at the time of
declaration amounting to P100,000 with 12% interest payable on December 31, 2014. Give the journal
entries on (a) July 1, (b) September 1, and (c) December 31.

e. Consider the following information:

Share capital, P10 par, 100,000 shares
authorized, 50,000 shares issued P500,000
Share premium 200,000
Retained earnings 300,000
The Board of Directors declared a “bonus issue” on March 1, 2014 to be distributed on April 1, 2014.
Fair value of shares is P14 per share.

Prepare the entries on March 1, 2014 and April 1, 2014 assuming the company declared (a) 20% issue
and (b) 10% issue.
f. The company holds 15,000 shares in treasury costing P7.00 each with market value of P12 per share.
The BOD declared such treasury shares as dividend on February 14, 2014 to be issued on May 1,
2014.

Prepare the journal entries to record the foregoing transactions.

DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
(a) May 31 Dividend / Retained Earnings (10000 x 5) 50,000

Dividend Payable 50,000

To record dividend declared

(b) July 31 No Journal Entry

(c ) September 30 Dividend payable 1,000,000

Bank 1,000,000
To record payment of dividend

(a) June 30 Retained Earnings 15,000,000

Property Dividend Payable 15,000,000

To record dividend declared

(b) July 10 No Journal Entry

( c ) August 1 Property Dividend Payable 15,000,000

Inventory 15,000,000
To record payment of dividend through
inventory
(a) July 1 Retained Earnings 1,000,000

Notes Payable to Stockholders 1,000,000

to record dividend declared

(b) Notes Payable to stockholders 1,000,000

Inventory 1,000,000

To record payment of dividend through

inventory

(c ) December 31 Interest (100000 x 12% x 6m/12m) 6,000

Interest Payable 6,0000

To interest payable on notes payable

PROBLEM 20. Allocation of Dividends

The shareholder’s equity in the statement of financial position on December 31, 2014 of Quijones Corporation
showed the following:

Preference share capital, 10% P50 par, 40,000 shares P2,000,000

Ordinary shares capital, P100 par, 30,000 shares 3,000,000
Share premium 500,000
Retained earnings 2,500,000
Total shareholder’s equity P8,000,000
No dividends are in arrears up to December 31, 2012. The company declared P1,000,000 dividend at the end
of 2014 at the appropriate rate for preference shares and the remainder to ordinary.

REQUIRED:
Determine the allocation of the dividend to (1) preference and (2) ordinary, assuming the following cases
independently:

a. Preference share is noncumulative and nonparticipating.

Answer: Preference share capital – 2,000,000 ( 20,000,000 x 10%)

Shareholder’s equity - P8,000,000
10,00,0000
b. Preference share is cumulative and nonparticipating.

Answer: Preference share capital – 2,000,000 ( 20,000,000 x 10%)

Shareholder’s equity - P8,000,000
10,00,0000

c. Preference share is cumulative and participating.

d. Preference share is cumulative and participating up to 12%.

PROBLEM 21. Allocation of Dividends - more than one class of preference shares
The shareholder’s equity in the statement of financial position on December 31, 2014 of Quijones Corporation
showed the following:

Class “A” Preference share capital, 10% P50 par, 40,000 shares P2,000,000
Class “B” Preference share capital, 14% P50 par, 20,000 shares P1,000,000
Ordinary shares capital, P100 par, 30,000 shares 3,000,000
Share premium 500,000
Retained earnings 2,500,000
Total shareholder’s equity P9,000,000
No dividends are in arrears up to December 31, 2012. The company declared P1,100,000 dividend at the end
of 2014 at the appropriate rate for preference shares and the remainder to ordinary. Determine the allocation of
the dividend to
(1) preference and (2) ordinary assuming both class of preference shares are cumulative and participating.

Answer:

Dividends for the year 2013:

Class A= P200,000
Class B= P140,000
 Ordinary shares= Nil
Total dividend in arrear= P340,000

Dividends declared for the year 2014= P1,100,000

Less: Class A dividend for 2013= (P200,000)
Less: Class B dividend for 2013= (P140,000)

Remaining to be distributed in 2014= P760,000

Dividend distribution for 2014:

Class A= P200,000
Class B= P140,000
Ordinary shares= P420,000

Problem 1 (Cash and Scrip Dividends)

Presented below the capital structure of DBM Corporation as of December 31, 2018:

Ordinary Share Capital, P 50 par, 100,000 issued and 95,000 outstanding shares 5,000,000
Ordinary Share Premium 1,000,000
Retained Earnings 8,000,000
Treasury Shares 120,000

The Corporation declared the following dividends during 2019:

April 1 Declared a cash dividend of P 10 per share of ordinary shares. The corporation issued 6%
interest bearing promissory note in relation to cash dividend declared payable on September
30 to shareholders of record of April 20.

November 10 Declared a cash dividend of P 6 per share of ordinary shares, payable on December 15 to
shareholders of record of November 20.

Requirement: Record the transactions occurred during 2019.\

DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
Scrip Dividend
April 1 Retained Earnings Account 50,000
(Scrip Dividend Declared) (5000*10)
Notes Payable to stockholders 50,000
(Scrip dividend Payable)
Declared cash dividend to payable on 30 Sep to
shareholder of record of April 20

September 30 Notes Payable to stockholders 50,000

(Scrip dividend Payable)
Interest Expense Account 1,5000
(50000*6%*6/12)
To Cash Account 51,500
Paid the dividend declared on April 1

Cash Dividend
 November 10 Retained Earnings Account (5000*6) 30,000
To dividend Payable 30,000
Declared cash dividend to payable on 15 Dec to
shareholder of record of Nov 20

December 15 Dividend Payable 30,000

To Cash Account 30,0000
Paid the dividend declared on nov 10

Problem 2 (Property Dividend)

Goodie Corporation owns 20,000 shares of JFC Corporation recorded as “Investment in JFC Corporation”
amounting to P 1.1 million as of December 31, 2019.

On December 15, 2020, Goodie Corporation declared a property dividend to shareholders of record of
December 30, distributable on January 5, 2021. The corporation will distribute three (3) ordinary shares of JFC
Corporation for every share of Goodie Corporation owned by the shareholders. Goodie Corporation has 5,000
issued and outstanding shares at the time of declaration. The carrying value of JFC as of December 15, 2020 is
60 per share.

The fair market value of JFC Corporation as follows:

December 15 – 65 per share; December 31 – 67 per share; January 5 – 66 per share .

Requirement:
1. Journalize the transactions occurred in relation to property dividends.

The journal entry on the date of declaration to account for the 975,000 increase in the securities' value
would be as follows:

Debit Credit
Marketable Securities 150,000
Gain on Market Securities 150,000

Since retained earnings are used to fund the dividend, a second journal entry is needed on the date of
declaration

Debit Credit
Retained Earnings 975,000
Property Dividends Payable 975,000

On 15th December the following journal entry is made to reflect the distribution of the property dividend to
shareholders:

Debit Credit
Dividend Payable 975,000
Market Securities 975,000

2. What will be the gain or loss on January 5, 2021?

Total Gain = 150,000

Problem 3 (Small and Large Stock Dividends)
On November 7, Lauren Enterprise Company declared a share capital dividend distributable to shareholders of
record of November 15, distributable on December 5. The Lauren Enterprise Company has 250,000 ordinary
shares with 20 par value per share at the date of declaration. The fair market value of Lauren Enterprise as
follows:
November 7 – 25 per share; November 15 – 22 per share; December 5 – 24 per share.

Requirement:
Prepare all the necessary entries to record the transaction of share capital dividends using the following
independent assumptions:

1. A 15% share capital dividend

DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
November 7 Stock Dividend 937,500
Stock Dividend Distributable 937,500
Stock dividend of 37,500 shares declared

December 5 Stock Dividend Distributable 937,500

Common Stock 750,000
Additional Paid- In capital 187,500
Stock dividend Distributed

2. A 25% share capital dividend

DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT

November 7 Stock Dividend 1,562,500
Stock Dividend Distributable 1,562,500
Stock dividend of 62,500 shares declared

December 5 Stock Dividend Distributable 1,562,500

Common Stock 1,250,000
Additional Paid- In capital 312,500
Stock dividend Distributed
Problem 4 (Allocation of Cash Dividends to Preference and Ordinary Shareholders)

The Company has the same capital structure (except for retained earnings) for the past five year, see details
below:
6% Preference Share Capital, 80,000 shares issued and outstanding, P 50 par P4,000,000
Ordinary Share Capital, 200,000 shares issued and outstanding, P 30 par 6,000,000
Retained Earnings 5,000,000

No dividends were paid prior to 2020 for two years. On December 10, 2020, the Company declared P
1,500,000 as cash dividends to shareholders of record of December 21, 2020, payable on January 5, 2021.

Requirements:
1. Prepare all the necessary journal entries to record the dividend transactions.

2. Allocate the dividends between ordinary shareholders and preference shareholders if:
Case A. Preference share capital is NON-CUMULATIVE and NON PARTICIPATING

Case B. Preference share capital is CUMULATIVE and NON-PARTICIPATING

Case C. Preference share capital is NON-CUMULATIVE and FULLY PARTICIPATING

Case D. Preference share capital is NON-CUMULATIVE and PARTICIPATING UP TO

ADDITIONAL 5%

Answer:

6 % PSC 80,000 x 50 = 4,000,000

ESC 200,000 x 30 = 600,000
Retained earnings 5,000,000

Annual preference share dividend = 240,000 (4,000,000 x 6%)

Declared dividend on dec 10 2020 = 1,500,000

CASE A.
DATE ACCOUNTS DEBIT CREDIT
Dec 21 2020 Retained Earnings 240,000
To dividend to PS Holders 240,000
Dividend payable to PSH recorded

Dec 21 2020 Retained Earnings 1,260,000

To dividend to ES Holders 1,260,000
Dividend payable to ESH recorded

CASE B.
DATE ACCOUNTS DEBIT CREDIT
Dec 21 2020 Retained Earnings 720,000
To dividend to PS Holders 720,000
Cumulative Dividend payable to PSH
recorded

Dec 21 2020 Retained Earnings 780,000

 To dividend to ES Holders 780,0000
Dividend payable to ESH recorded

CASE C.
DATE ACCOUNTS DEBIT CREDIT
Dec 21 2020 Retained Earnings 870,000
To dividend to PS Holders 870,000
Dividend payable to PSH at 6% and
participating dividend

Dec 21 2020 Retained Earnings 630,000

To dividend to ES Holders 630,000
Dividend payable to ESH recorded
Working notes: 6% preference dividend = 240,000
Balance declared dividend = 1,260,000
Share of participating PS = 50 %
participating Dividend of PS = 630,000 (1,260,000 x 0.5)
total dividend to PSH = 870,000

CASE D.
DATE ACCOUNTS DEBIT CREDIT
Dec 21 2020 Retained Earnings 440,000
To dividend to PS Holders 440,000
Cumulative Dividend payable to PSH
recorded

Dec 21 2020 Retained Earnings 1,060,000

To dividend to ES Holders 1,060,000
Dividend payable to ESH recorded

Working notes: 6% preference dividend = 240,000

Balance declared dividend = 1,260,000
5 % Participating Share = 200,000
total dividend to PSH = 440,000

3. Assuming the dividend declared is P 1,000,000 what will be the allocation of dividends if in case the
preference share is CUMULATIVE and FULLY PARTICIPATING

Answer:

Assuming the dividend declared is P 1,000,000

Preference dividend = 720,000

Participating dividend = (1,000,000 – 720,000) / 2
= 140,000
Total preference dividend = 720,000 + 140,000
= 860,000
Equity dividend = 140,000