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CM Computations

Cm Computations

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Marc Andrei Rivera
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9 views

CM Computations

Cm Computations

Uploaded by

Marc Andrei Rivera
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem Solving: Equity - Dividends

AZ Corporation was authorized to issue 400,000 common shares with P1 par value per share and
8% preferred shares, 100,000 shares with P20 par value per share. AZ Corp. had the following issuance:
200,000 common shares issued at P2 per share
50,000 preferred shares issued at P50 per share
In the past year, the corporation has not declared any dividends.
This year, the corporation declares a total dividend of P350,000 and recorded a P850,000 net income.
Determine the total amount of dividends to be paid to the shareholders using the following assumptions:

a. non-cumulative, non-participating PS
b. non-cumulative, participating PS
c. cumulative, non-participating PS
d. cumulative, participating PS
2. Prepare the Shareholder's Equity section of the corporation.

A. NON-CUMULATIVE, NON-PARTICIPATING PS
Preferred Dividend = 8% x P20 par value = P1.60 per share.
Total dividend for 50,000 preferred shares = 50,000 x P1.60 = P80,000.
Remaining dividends for common shareholders = P350,000 - P80,000 = P270,000.
Answer:
Preferred Shares: P80,000.
Common Shares: P270,000.

B. NON-CUMULATIVE, PARTICIPATING PS
Preferred Dividend = 8% x P20 par value = P1.60 per share.
Total dividend for 50,000 preferred shares = 50,000 x P1.60 = P80,000.
Remaining dividends for common shareholders = P350,000 - P80,000 = P270,000.
Ratio:
PS = P 20 x 50,000 = 1,000,000
CS = P 1 x 200,000 = 200,000
Total = 1,200,000
Answer:
PS = 1,000,000/1,200,000 x 270,000 = 225,000
CS = 200,000/1,200,000x270,000 = 45,000

C. CUMULATIVE, NON-PARTICIPATING PS
Preferred Dividend = 8% x P20 par value = P1.60 per share.
Total dividend for 50,000 preferred shares = 50,000 x P1.60 = P80,000.
No dividends were declared in the previous year, so the preferred shareholders are entitled to the dividend
for that year as well.
Cumulative Dividend = 2 years * P1.60 * 50,000 = P160,000.
Remaining dividends for common shareholders = P350,000 - P160,000 = P190,000.
Answer:
Preferred Shares: P160,000.
Common Shares: P190,000.

D. CUMULATIVE, PARTICIPATING PS
Preferred Dividend = 8% x P20 par value = P1.60 per share.
Total dividend for 50,000 preferred shares = 50,000 x P1.60 = P80,000.
No dividends were declared in the previous year, so the preferred shareholders are entitled to the dividend
for that year as well.
Cumulative Dividend = 2 years * P1.60 * 50,000 = P160,000.
Remaining dividends for common shareholders = P350,000 - P160,000 = P190,000.

Ratio:
PS = P 20 x 50,000 = 1,000,000
CS = P 1 x 200,000 = 200,000
Total = 1,200,000
Answer:
PS = 1,000,000/1,200,000 x 190,000 = 158,333.33 + 160,000 = 318,333.33
CS = 200,000/1,200,000x190,000 = 31,666.67
2. Prepare the Shareholder's Equity section of the corporation.

AZ Corporation
Balance Sheet (as of Year-End)
Capital Stock
Common Stock (200,000 shares issued at P1 par) 200,000
Preferred Stock (50,000 shares issued at P20 par) 1,000,000
Additional Paid -in Capital
Additional Paid-in Capital - Common (200,000 x (P 50 - P 20) 200,000
Additional Paid-in Capital - Preferred (50,000 x (P 2 - P 1) 1,500,000
Total Paid-in Capital 2,900,000
Retained Earnings (850,000 net income - 350,000 dividends declared) 500,000
Total Share Holders’ Equity 3,400,000

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