Problem 1:

1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. FALSE

Problem 2:

Accounting for dividends

Case 1:

 The outstanding shares are computed as follows:

Shares issued (1,000,000 ÷ P10) 100,000

Shares subscribed (200,000 ÷ P10) 20,000
Treasury shares (150,000 ÷ P15) (10,000)
Outstanding shares 110,000

 The cash dividends payable is computed as follows:

Outstanding shares 110,000

Multiply by: dividends per share P2
Total cash dividends 220,000

Journal entries:
Sept. 15, 20x1 Retained earnings 220,000
(date of declaration) Cash dividends payable 220,000
Sept. 21,20x1 No Entry
(date of record)
Sept. 30, 20x1 Cash dividends payable 220,000
(date of distribution) Cash 220,000

Case 2:
 The outstanding shares is computed as follows:

Shares issued (1,000,000 ÷ P10) 100,000

Shares subscribed (200,000 ÷ P10) 20,000
Treasury shares (150,000 ÷ P15) (10,000)
Outstanding shares 110,000

 The stock dividends payable or share dividends distributable is computed as follows:

Outstanding shares 110,000

 Multiply by: dividends declared 1/20
Number of shares declared as dividends 5,500
Multiply by: Fair value per share P14
Total share dividends 77,000

Journal entries:

Sept. 15, 20x1 Retained earnings (5,500 x P14) 77,000

(date of declaration) Stock dividends payable (5,500 x P10) 55,000
Share premium [5,500 x (P14 – P10) 22,000
Sept. 21,20x1 No entry
(date of record)
Sept. 30, 20x1 Stock dividends payable 55,000
(date of distribution) Share capital 55,000

Case 3:
 The outstanding shares are computed as follows:

Shares issued (1,000,000 ÷ P10) 100,000

Shares subscribed (200,000 ÷ P10) 20,000
Treasury shares (150,000 ÷ P15) (10,000)
Outstanding shares 110,000

 The stock dividends payable or share dividends distributable is computed as follows:

Outstanding shares 110,000

Multiply by: dividends declared ¼
Number of shares declared as dividends 27,500
Multiply by par value per share P10
Total share dividends 275,000

Journal entries:

Sept. 15, 20x1 Retained earnings (27,500 sh. x P10) 275,000

(date of declaration) Stock dividends payable 275,000
(27,500 sh. x P10 par value)
Sept. 21,20x1 No Entry
(date of record)
Sept. 30, 20x1 Share dividends payable 275,000
(date of distribution) Share capital 275,000

Case 4:

 The outstanding shares are computed as follows:

 Shares issued (1,000,000 ÷ P10) 100,000
Shares subscribed (200,000 ÷ P10) 20,000
Treasury shares (150,000 ÷ P15) (10,000)
Outstanding shares 110,000

 The stock dividends payable is computed as follows:

Outstanding shares 110,000

Multiply by: dividends declared 1/20
Number of shares declared as dividends 5,500
Multiply by: cost per treasury shares P15
Total share dividends 82,500

Journal entries:

Sept. 15, 20x1 Retained earnings (5,500 sh. x P15) 82,500

(date of declaration) Stock dividends payable 82,500
(5,500 sh. x P15 cost)
Sept. 21,20x1 No Entry
(date of record)
Sept. 30, 20x1 Stock dividends payable 82,500
(date of distribution) Treasury shares 82,500
Retained earnings – appropriated 82,500
Sept. 30, 20x1 Retained earnings – unrestricted 82,500
To reserve the restriction o retained
earnings for the treasury shares
issued as dividends

Accounting for dividends on preference shares

Case 1: Noncumulative and Nonparticipating

Total dividends declared 600,000

Allocation:
(1) Allocation to preference shares (P500K par x 10% x 1 yr.) 50,000
(2) Excess allocated to ordinary shares (P600K – 50K) 550,000
As allocated ---

Case 2: Cumulative and Nonparticipating

Total dividends declared 600,000

Allocation:
(1) Allocation to preference shares (P500K par x 10% x 3 yrs.) 150,000
(2) Excess allocated to ordinary shares (P600K – P150K) 450,000
As allocated ------

Case 3: Noncumulative and fully participating

Total dividends declared 600,000

Allocation:
(1) Basic allocation to preference sh. (P500K par x 10% x 1 yr.) 50,000
(2) Basic allocation to ordinary sh. (P1M par x 10%) 100,000
Excess subject to participation (600K – 50K – 100K) 450,000
(3) Participation of preference sh. (P450K x 500K par ÷ P1.5M par) 150,000
(4) Participation of ordinary sh. (P450K x P1M par ÷ P1.5M par) 300,000
As allocated --

Preference shares: (P50,000 basic + P150,000 participation) 200,000

Ordinary shares: (P100,000 basic + P300,000 participation) 400,000
Total dividends 600,000

Case 4: Cumulative and fully participating

Total dividends declared 600,000

Allocation:
(1) Basic allocation to preference sh. (P500K par x 10% x 3yrs.) 150,000
(2) Basic allocation to ordinary sh. (P1M par x 10%) 100,000
Excess subject to participation (600K – 150K – 100K) 350,000
(3) Participation of preference sh. (P350K x P500K par ÷ P1.5M par) 116,666.67
(4) Participation or ordinary sh. (P350K x P1M par ÷ P1.5M par) 233,333.33
As allocated ----

Preference shares: (P150,000 basic + P116,666.67 participation) 266,666.67

Ordinary shares: (P100,000 basic + P233,333.33 participation) 333,333.33
Total dividends 600,000.00

Case 5: Cumulative and participating up to 18%

Total dividends declared 600,000

Allocation:
(1) Basic allocation to preference sh. (P500K par x 10% x 3yrs.) 150,000
(2) Basic allocation to ordinary sh. (P1M par x 10%) 100,000
Excess subject to participation (600K – 150K – 100K) 350,000
(3) Participation of preference sh. [(18% - 10%) x P500K par] 40,000
(4) Excess allocated to ordinary shares (P350K – P40K) 310,000
As allocated ---
Preference shares: (P150,000 basic + P40,000 participation) 190,000
Ordinary shares: (P100,000 basic + P310,000 participation) 410,000
Total dividends 600,000

More than one class of preference shares

Case 1:

Total dividends declared 1,200,000

Allocation:
(1) Basic allocation to 10% of PS (P500K par x 10% x 3yrs) 150,000
(2) Basic allocation to 14% PS (P300K par x 14% x 1yr.) 42,000
(3) Basic allocation to ordinary sh. (P1M par x 10%) 100,000
Excess subject to participation (1.2M – 150K – 42K – 100K) 908,000
(4) Participation to 10% PS (P908K x P500K par ÷ P1.8M par) 252,222.22
(5) Participation of 14% PS (P908K x 300K par ÷ P1.8M par) 151,333.33
(6) Participation of ordinary sh. (P908K x P1M par ÷ P1.8M par) 504,444.44
As allocated ----

10% PS: (P150K basic + 252,222.22 participation) 402,222.22

14% PS: (P42K basic + P151,333.33 participation) 193,333.33
Ordinary shares: (P100K basic + P504,444 participation) 2,000,000

Liquidating dividends

Dec. 31, 20x1 Capital liquidated (P500K x 75%) 375,000

(date of declaration) Retained earnings (P500K x 25%) 125,000
Cash dividends payable 500,000

Problem 3: Computations

 The outstanding shares are computed as follows:

Shares issued (2,800,000 ÷ P20) 140,000

Shares subscribed (400,000 ÷ P20) 20,000
Treasury shares (350,000 ÷ 25) (14,000)
Outstanding shares 146,000

1. Outstanding shares 146,000

Multiply by: dividends per share P5
Total cash dividends 730,000
 Journal entries:

May 15, 20x1 Retained earnings 730,000

(date of declaration) Cash dividends payable 730,000
May 21, 20x1 No entry
(date of record)
May 31, 20x1 Cash dividends payable 730,000
(date of distribution) Cash 730,000

2. Outstanding shares 146,000

Multiply by: dividends declared 1/10
Number of shares declared as dividends 14,600
Multiply by: fair value per share P24
Total share dividends 350,400

Journal entries:

May 15, 20x1 Retained earnings (14,600 x P24) 350,400

(date of declaration) Stock dividends payable 292,000
(14,600 x P20)
Share premium 58,400
May 21, 20x1 No entry
(date of record)
May 31, 20x1 Stock dividends payable 292,000
(date of distribution) Share capital 292,000

3. Outstanding shares 146,000

Multiply by: dividends declared 1/5
Number of shares declared as dividends 29,200
Multiply by: par value P20
Total share dividends 584,000

Journal entries:

May 15, 20x1 Retained earnings (29,200 x P20) 584,000

(date of declaration) Stock dividends payable 584,000
 (29,200 sh. x P20 par value)
May 21, 20x1 No entry
(date of record)
May 31, 20x1 Share dividends payable 584,000
(date of distribution) Share capital 584,000

4. Since the entity declares all treasury shares as dividends, the total share dividend is computed
as follows:

Treasury shares (350,000 ÷ P25) 14,000

Multiply by: dividends declared 100%
Number of shares declared 14,000
Multiply by: cost of treasury shares P25
Total share dividends 350,000

Journal entries

May 15, 20x1 Retained earnings 350,000

(date of declaration) Stock dividends payable 350,000
May 21, 20x1 No entry
(date of record)
May 31, 20x1 Stock dividends payable 350,000
(date of distribution) Share capital 350,000
May 31, 20x1 Retained earnings – appropriated 350,000
Retained earnings- unrestricted 350,000

5. Noncumulative and nonparticipating

Total dividends declared 1,200,000

Allocation:
(1) Allocation to preference shares (P1M x 10% x 1yr.) 100,000
(2) Excess allocated to ordinary shares (P1.2M – P100K) 1,100,000
As allocated -

6. Cumulative and nonparticipating

Total dividends declared 1,200,000

Allocation:
(1) Allocation to preference shares (P1M x 10% x 3yrs.) 300,000
(2) Excess allocated to ordinary shares (P1.2M – P300K) 900,000
As allocated -

7. Noncumulative and fully participating

 Total dividends declared 1,200,000
Allocation:
(1) Basic allocation to preference sh. (P1M par x 10% x 1yr.) 100,000
(2) Basic allocation to ordinary sh. (P2M par x 10%) 200,000
Excess subject to participation (1.2M – 100k – 200K) 900,000
(3) Participation of preference sh. (P900K x P1M par ÷ P3M) 300,000
(4) Participation of ordinary sh. (P900K x P2M par ÷ P3M) 600,000
As allocated

Preference shares: (P100K basic + P300K participation) 400,000

Ordinary shares: (P200K basic + P600K participation) 800,000
Total dividends 1,200,000

8. Cumulative and fully participating

Total dividends declared 1,200,000

Allocation:
(1) Basic allocation to preference sh. (P1M par x 10% x 3yrs.) 300,000
(2) Basic allocation to ordinary sh. (P2M par x 10%) 200,000
Excess subject to participation (1.2M – 300K – 200K) 700,000
(3) Participation of preference sh. (P700K x P1M par ÷ P3M) 233,333.33
(4) Participation of ordinary sh. (P700K x P2M par ÷ P3M) 466,666.67
As allocated -

Preference shares: (P300K basic + P233,333.33 participation) 533,333.33

Ordinary shares: (P200K basic + P466,666,67 participation) 666,666.67
Total dividends 1,200,000

9. Cumulative and participating up to 15%

Total dividends declared 1,200,000

Allocation:
(1) Basic allocation to preference sh. (P1M par x 10% x 3yrs.) 300,000
(2) Basic allocation to ordinary sh. (P2M par x 10%) 200,000
Excess subject to participation (P1.2M – 300K – 200K) 700,000
(3) Participation of preference sh. [(15% - 10%) x P1M par] 50,000
(4) Excess allocated to ordinary sh. (P700K – P50K) 650,000
As allocated --

Preference shares: (P300,000 basic + P50,000 participation) 350,000

Ordinary shares: (P200,000 basic + P650,000 participation) 850,000
Total dividends 1,200,000
 10. More than one class of preference shares

Total dividends declared 2,400,000

Allocation:
(1) Basic allocation to 10% of PS (P1M par x 10% x 3yrs.) 300,000
(2) Basic allocation to 12% of PS (P1M par x 12% x 1yr.) 120,000
(3) Basic allocation to ordinary sh. (P2M par x 10%) 200,000
Excess subject to allocation (1.2M – 300K – 120K – 200K) 1,780,000
(4) Participation of 10% PS (P580K x P1M par ÷ 4M par) 445,000
(5) Participation of 12% PS (P580K x P1M par ÷ 4M par) 445,000
(6) Participation or ordinary sh. (P580K x P2M par ÷ 4M par) 890,000
As allocated -

10% PS: (P300,000 basic + 445,000 participation) 745,000

12% PS: (P120,000 basic + 445,000 participation) 565,000
Ordinary shares: (200,000 basic + 890,000 participation) 1,090,000
Total dividends 2,400,000

11.
Dec. 31, 20x1 Capital liquidated (P100K – P90K) 10,000
(date of declaration) Retained earnings 90,000
Cash dividends payable 100,000

Problem 4:
1. A
2. C
3. C
4. C
5. D
6. A
7. D
8. A
9. C
10. D

Problem 5:
1. A
2. B
3. A
4. A
5. B
6. D
7. B
8. B
9. A
10. D