DELINQUENT SHARES

• subscribed shares which were not yet paid in full by the subscribers after the due date

What does corporation do to delinquent shares?

1. unpaid portion may be sold in public auction to the highest bidder
2. corporation purchase the delinquent shares then it will become treasury shares
Highest bidder – person who is willing to pay for the least number of shares subscribed including its costs, interest accrued, and
balance due

If no bidder – the corporation will purchase the delinquent shares to treasury shares

Illustration for Delinquent Shares

#1 A subscribed 10,000 shares at 50 par to SEC Corporation and provided down payment of 30%. The subscription must be paid
before the end of the month before it can be considered delinquent. After the end of the month the subscriber failed to pay the
balance and the corporation offers the delinquent in public auction.
Bidder 1 – 6,000 shares Bidder 2 – 5,500 shares Bidder 3 – 5,000 shares
Subscription OJE
Cash 150,000
Subscription Receivable 350,000
Subscribed Share Capital 500,000

Who is the highest bidder? Bidder 3. The remaining balance of SEC Corporation will be paid by Bidder 3 at 5,000 shares only.

#2 A corporation received subscription for 10,000 shares at 50 par. The subscriber paid 40%. The shares were considered
delinquent due to non-payment of the subscribers. The share was offered through public auction with the following
bidders (P5,000 were incurred in advertising the auction)
Bidder 1 – 7,000 shares Bidder 2 – 6,500 shares Bidder 3 – 5,500 shares
Subscription Journal
Cash 200,000
Subscription Receivable 300,000
Subscribed Share Capital 500,000
Delinquent Share Journal
Due from the highest bidder 300,000
Subscription Receivable 300,000

Due from the highest bidder 5,000

Cash 5,000

Payment Cash 305,000

is made Due from the highest bidder 305,000

Issuance of Share Capital Journal

Subscribed Share Capital 500,000
Ordinary Share Capital 500,000
Hence, the investor A will receive 4,500 shares and the bidder 3 will receive 5,500 shares – total of 10,000 shares
NOTE!!! after the issuance has been made, the certificate is divided by the 2 investors: the first buyer and the bidder 3 with
their corresponding no. of shares

#3 Kath B subscribed 2,000 shares of Rain Corporation at par of P150 per share. Ms. Kath paid P140,000 but was not able to pay
the balance. The unpaid portion was declared delinquent by Rain Corporation and was advertised for sale. Expenses incurred in
the sale of delinquent shares amounted to P45,000. The following were the bidders: Liza – 1,800 shares; Ivana – 1,750 shares;
Janella – 1,830 shares. The highest bidder paid the amount due.

Who is the highest bidder? Ivana with 1,750 shares

What amount was paid by the highest bidder? P205,000 (160k balance due and the 45k expenses incurred)
How many shares were issued to the highest bidder? 1,750 shares (because this was the agreed no. of shares to be paid by
Ivana)
How many shares were issued to Kath B? 250 shares (because this was the remaining no. of shares minus Ivana shares)

SHARE DIVIDEND – distribution in the form of the entity’s own shares

Dates relevant to the accounting for dividends
1. Date of Declaration
- BOD can declare issue of dividends
- includes the details about the dividend rate, the date of payment, and the date of record.
- declared dividends becomes obligation of the corporation
2. Date of Record
- contains list of shareholders entitled to dividends
3. Date of Payment
- dividends are distributed to the shareholders and settles its liability
- can be a form of cash, property, inventory, or share
Share Dividends
SMALL SHARE DIVIDENDS (less than 20%) – accounted at a fair value of share
 retained earnings is debited at fair value on declaration date
 the difference between the fair value and the par value is credited to share premium
LARGE SHARE DIVIDENDS (20% or more) – accounted at par value of shares
 retained earnings is debited at par value and no share premium
Proforma for SMALL Share Dividends
Outstanding shares is computed as follows:
No. of shares issued xx
Add: No. of shares subscribed xx
Less: No. of treasury shares (xx)
OUTSTANDING SHARES XX
Stock dividends payable/distributable is computed as follows:
Outstanding shares xx
Multiply: Dividends declared xx
Number of shares declared as dividends XX
Multiply: Fair value per share xx
TOTAL SHARE DIVIDENDS XX
Journal Entries
Date of Declaration
Retained Earnings xx
Stock Dividends Payable xx
Share premium xx
Date of Record
NO ENTRY
Date of Payment
Stock Dividends Payable xx
Share capital xx

Proforma for LARGE Share Dividends

Outstanding shares is computed as follows:
No. of shares issued xx
Add: No. of shares subscribed xx
Less: No. of treasury shares (xx)
OUTSTANDING SHARES XX
Stock dividends payable/distributable is computed as follows:
Outstanding shares xx
Multiply: Dividends declared xx
Number of shares declared as dividends XX
Multiply: Par value per share xx
TOTAL SHARE DIVIDENDS XX
Journal Entries
Date of Declaration
Retained Earnings xx
Stock Dividends Payable xx
Date of Record
NO ENTRY
Date of Payment
Stock Dividends Payable xx
Share capital xx
NOTE!!! 1) Share dividends do not affect total shareholder’s equity
 2) Stock dividends payable and share dividends distributable account is an adjunct equity account (addition to equity)
and not a liability account
Illustration for Share Dividend
The shareholder’s equity of Entity A on September 1 is as follows:
Share capital, P10 par value 1,000,000
Subscribed share capital 200,000
Outstanding share capital
Share premium 400,000
Share capital 100,000
Retained earnings 650,000 Subscribed share capital 20,000
Treasury shares (P15 cost per share) (150,000) Treasury shares (10,000)
Total shareholders’ equity 2,100,000 Outstanding share capital 110,000

Small share dividends

Entity A declares a “1 for 20 share dividends” on Sept 15 to shareholders of record as of Sept 21, for distribution on Sept 30. The
fair values per share were P14, P15, and P14.80, on Sept 15, 21, and 30. Provide the journal entry
Date of Declaration
Retained Earnings 77,000 Stock dividends payable (small)
Stock Dividends Payable 55,000 Outstanding shares 110,000
Share premium 22,000 Dividends declared 5%
Date of Record Shares declared as dividends 5,500
Fair value per share (Sept 15) 14
No entry
TOTAL SHARE DIVIDENDS 77,000
Date of Payment
Stock Dividends Payable 77,000
Share capital 77,000
Large share dividends
Entity A declares a “1 for 4 share dividends” on Sept 15 to shareholders of record as of Sept 21, for distribution on Sept 30. The
fair values per share were P14, P15, and P14.80, on Sept 15, 21, and 30. Provide the journal entry
Date of Declaration Stock dividends payable (large)
Retained Earnings 275,000 Outstanding shares 110,000
Stock Dividends Payable 275,000 Dividends declared 25%
Date of Record Shares declared as dividends 27,500
No entry Par value per share 10
Date of Payment TOTAL SHARE DIVIDENDS 275,000
Stock Dividends Payable 275,000
Share capital 275,000

SHARE SPLIT CAN BE IN A FORM OF:

• Split up or share spit – old shares are cancelled and replaced by LARGE NUMBER of new shares but WITH REDUCED
PAR/STATED VALUE per share. This happens because, after share split, the fair value of net assets will be divided by
larger number of outstanding shares which makes share more affordable to potential investors. Also, this can be used
by corporation as an equity financing tool.
• Split down or reverse share split – old shares are cancelled and replaced by SMALLER NUMBER of new shares but WITH
INCREASED PAR/STATED VALUE per share.

NOTE!!! Share split only affects the number of outstanding shares and par/stated value per share
Share split do not affect assets, liabilities, and equity or the aggregated par value of issued shares.
Share split is recorded through memo entry

Illustration for Share Split

#1 ABC Co. has 10,000 shares with par value per share of P100

Split Up – ABC Co. declares a “2-for-1 share split”

“Issued 20,000 shares with par value of P50 as a result of a 2-for-1 split of 10,000 old shares with par value of P100”

Split Down – ABC CO. declares a “1-for-2 reverse share split”

“Issued 5,000 shares with par value of P200 per share as a result of 1-for-2 split of 10,000 old shares with par value of P100”

In both cases, the aggregated par value of the shares before and after the share split is unaffected:
Original Issued Shares Split Up Split Down
No. of outstanding shares 10,000 shares 20,000 shares 5,000 shares
Par value P100 P50 P200
TOTAL PAR VALUE P1,000,000 P1,000,000 P1,000,000