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Chapter 11
Shareholders’ Equity (Part 2)

PROBLEM 1: TRUE OR FALSE

1. FALSE
2. FALSE
3. FALSE
4. TRUE
5. FALSE
6. FALSE – fair value
7. FALSE
8. TRUE
9. TRUE
10. FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. B
3. A
4. B
5. D
6. D
7. C
8. C
9. C
10. A
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PROBLEM 3: EXERCISES
1. Solution:
Shares issued (1,600,000 ÷ 100 par) 16,000
Shares subscribed (440,000 ÷ 100 par) 4,400
Treasury shares (288,000 ÷ 120 cost) ( 2,400)
Outstanding shares 18,000
Multiply by: Dividends per share 50
Total cash dividends declared 900,000

(Date of Retained earnings 900,000

declaration)
Cash dividends payable 900,000
(Date of
record)
No entry
(Date of Cash dividends payable 900,000
distribution)
Cash 900,000

2. Solution:
 Date of declaration:
Retained earnings 1,600,000
Property dividends payable 1,600,000
NCA held for distribution to owners 1,600,000
Impairment loss 400,000
Investment in associate 2,000,000

 End of reporting period:

Retained earnings 600,000
Property dividends payable 600,000
NCA held for distribution to owners 400,000
Gain on impairment recovery 400,000

 Date of distribution:
Property dividends payable 300,000
Retained earnings 300,000
Property dividends payable 1,900,000
Loss on distribution of property dividend 100,000
NCA held for distribution to owners 2,000,000
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3. Solution:
 Date of declaration:
Retained earnings 1,600,000
Property dividends payable 1,600,000
Impairment loss 400,000
Inventory 400,000

 Date of distribution:
Retained earnings 600,000
Property dividends payable 600,000
Property dividends payable 2,200,000
Inventory 1,600,000
Gain on distribution of property dividend 600,000

4. Solution:
Requirement (a):
(Date of Retained earnings (18,000 x 1/10 x ₱120) 216,000
declaration)
Share dividends distributable 180,000
(18,000 x 1/10 x ₱100)
Share premium 36,000
(Date of
record)
No entry
(Date of Share dividends distributable 180,000
distribution)
Share capital 180,000

Requirement (b):
(Date of Retained earnings (18,000 x 1/5 x ₱100) 360,000
declaration)
Share dividends distributable 360,000
(18,000 x 1/5 x ₱100)
(Date of
record)
No entry
(Date of Share dividends distributable 360,000
distribution)
Share capital 360,000
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5. Solutions:
Requirement (a): Noncumulative and non-participating
Total dividends declared 3,600,000
Allocation:
PS (20,000 x 200 x 10% x 1 yr.) 400,000
OS (3,600,000 - 400,000) 3,200,000
Balance -

Requirement (b): Cumulative and non-participating

Total dividends declared 3,600,000
Allocation:
PS (20,000 x 200 x 10% x 3 yrs.) 1,200,000
OS (3,600,000 – 1,200,000) 2,400,000
Balance -

Requirement (c): Noncumulative and fully participating

Total dividends declared 3,600,000
Allocation:
PS (20,000 x 200 x 10% x 1 yr.) 400,000
OS (160,000 x 100 x 10%) 1,600,000
Excess subject to participation (3.6M – 400K - 1.6M) 1,600,000
PS (1,600,000 x 4M par/ 20M par) 320,000
OS (1,600,000 x 16M par/ 20M par) 1,280,000
Balance -

PS (400K basic + 320K participation) 720,000

OS (1.6M basic + 1.28M participation) 2,880,000
Total dividends declared 3,600,000

Requirement (d): Cumulative and fully participating

Total dividends declared 3,600,000
Allocation:
PS (20,000 x 200 x 10% x 3 yrs.) 1,200,000
OS (160,000 x 100 x 10%) 1,600,000
Excess subject to participation (3.6M – 1.2M - 1.6M) 800,000
PS (800,000 x 4M/20M) 160,000
OS (800,000 x 16M/20M) 640,000
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Balance -

PS (1.2M basic + 160K participation) 1,360,000

OS (1.6M basic + 640K participation) 2,240,000
Total dividends declared 3,600,000

Requirement (e): Cumulative and participating up to 16%

Total dividends declared 3,600,000
Allocation:
PS (20,000 x 200 x 10% x 3 yrs.) 1,200,000
OS (160,000 x 100 x 10%) 1,600,000
Excess subject to participation (3.6M – 1.2M - 1.6M) 800,000
PS [20,000 x 200 x (16% - 10%)] 240,000
Excess allocated to ordinary shares (800,000 - 240,000) 560,000
Balance -

PS (1.2M basic + 240K participation) 1,440,000

OS (1.6M basic + 560K participation) 2,160,000
Total dividends declared 3,600,000

6. Solution:
Date Share capital 2,000,000
Share premium 400,000
Share capital [(2M ÷ ₱100) x ₱80] 1,600,000
Share premium – recapitalization 800,000

Shareholders' equity, ₱80 par 1,600,000

Share premium 800,000
Retained earnings 600,000
Total shareholders’ equity 3,000,000
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7. Solution:
1 Building (3M – 1.6M) 1,400,000
Revaluation surplus 1,400,000
to record revaluation of building
2 Retained earnings 1,200,000
Receivables (4,000,000 x 30%) 1,200,000
to record write-off of receivables
3 Retained earnings 1,100,000
Inventory (3.1M – 2M) 1,100,000
to record write-down of inventory
4 Retained earnings 100,000
Goodwill 100,000
to record write-down of goodwill
5 Retained earnings 60,000
Estimated liability on pending 60,000
lawsuit
to recognize provision for probable loss on
pending lawsuit
6 Share capital 5,000,000
Share premium 5,000,000
to record recapitalization effected through
reduction of share capital
7 Revaluation surplus 1,400,000
Share premium 5,000,000
Retained earnings 6,400,000
to wipe out deficit

ASSETS LIABILITIES & EQUITY

Cash 200,000 Liabilities (2.94M + 60K) 3,000,000
Receivables 2,800,000 Share capital, ₱100 par 5,000,000
Inventory 2,000,000 Retained earnings (deficit) -
Building - net 3,000,000
Goodwill -
Total 8,000,000 Total 8,000,000
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PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. C
Retained earnings, Jan. 1 1,780,000
Profit 2,260,000
Cash dividends (260,000 x 8) (2,080,000)
Share dividends (260,000 x 1/20 x 22) (286,000)
Retained earnings, Dec. 31 1,674,000

 The treasury shares do not affect retained earnings because

they were reissued above cost. Also, the treasury shares do not
affect the outstanding shares because all of them were
reissued before the dividends were declared.
 The share dividends are accounted for at fair value because
they are considered “small” (i.e., 1/20 = 5%).

2. A
Outstanding shares, Jan. 1 100,000
May. 21, 20x1 (2,000)
July 20, 20x1 30,000
Total 128,000
Multiply by: 2
Sept. 21, 20x1 256,000
Oct. 5, 20x1 1,000
Outstanding shares, Dec. 19 257,000

Outstanding shares, Dec. 19 257,000

Multiply by: Cash dividends per share 3 771,000

Outstanding shares, Dec. 19 257,000

Multiply by: Share dividends 2/5
Multiply by: Revised par after stock split 5 514,000
Total debit to retained earnings 1,285,000
 Page |8

3. B
Outstanding shares 18,000
Multiply by: Par 100
Aggregate par 1,800,000
Multiply by: Scrip dividends 50%
Total dividends 900,000
Add: Interest (900K x 10% x 5/12) 37,500
Total cash payment on Aug. 31 937,500

4. A
2.4M fair value on distribution date – 2M carrying amount of
inventories = 400,000 gain

Supporting journal entries:

Date of Retained earnings 2,200,000
declaration
Property dividends payable 2,200,000

The inventories are not written-up above the ₱2,000,000 cost.

Date of Retained earnings (2.4M – 2.2M) 200,000

distribution
Property dividends payable 200,000
Date of Property dividends payable 2,400,000
distribution
Inventory 2,000,000
Gain on distribution 400,000

5. B
Retained earnings 1,650,000
Property dividends payable 1,650,000

NCA held for distribution to owners 1,650,000

Impairment loss 150,000
Investment in associate 1,800,000
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6. C
Retained earnings 300,000
Property dividends payable 300,000

NCA held for distribution to owners 150,000

Impairment gain 150,000

7. C
Retained earnings 100,000
Property dividends payable 100,000

Property dividends payable 2,050,000

NCA held for distribution to owners 1,800,000
Gain on distribution 250,000

Alternative solution: 2,050,000 fair value on Jan. 15, 20x2 – 1,800,000

carrying amount of investment on Jan. 15, 20x2 = 250,000 gain

8. A – a net debit equal to the carrying amount of the non-cash

asset as at the date of declaration.

9. B
Dr. to ret. earnings
Outstanding shares, beg. 10,000
July 1 (2-for-10) 20%
2,000
Multiply by: Par value 100 200,000
Outstanding sh., Dec. 31 (10,000 + 2,000) 12,000
Dec. 31 (1-for-20) 5%
600
Multiply by: Fair value 120 72,000
272,000
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10. C
SHE, beg. 3,670,000
Jan. 7 - cost of retirement (3,000 x 10) (30,000)
June 30 - semi-annual profit 2,080,000
July 20 - reverse split -
Sept. 21 - cost of treasury shares (500 x 25) (12,500)
Oct. 20 - reissuance price of TS (300 x 30) 9,000
Nov. 23 - issuance price (1,000 x 32) 32,000
Dec. 31 - (4.260M annual profit - 2.08M first half) 2,180,000
Dec. 31 - Dividends (1) (3,672,000)
SHE, end. 4,256,500

(1) Outstanding OS after reverse split (180K ÷ 2) 90,000

Sept. 21 treasury shares (500)
Oct. 20 reissuance 300
Nov. 23 issuance 1,000
Outstanding ordinary shares on Dec. 31 90,800
Multiply by: 40
Dividends to OS 3,632,000
Dividends to PS (50K x 10% x 8 par x 1 yr.) 40,000
Total dividends 3,672,000

Only one-year dividend is paid to the PS because the PS is

noncumulative.

Supporting journal entries:

Jan. 7 Ordinary share capital 15,000
Retained earnings 15,000
Cash 30,000

June 30 Income summary 2,080,000

Retained earnings 2,080,000

July 20 Memo entry (90,000 new sh. @ ₱10 new par)

 P a g e | 11

Sept. 21 Treasury shares (500 x 25) 12,500

Cash 12,500

Oct. 20 Cash (300 x 30) 9,000

Treasury shares (300 x 25) 7,500
Share premium – T/S 1,500

Nov. 23 Cash (1,000 x 32) 32,000

Ordinary share capital (1,000 x 10) 10,000
Share premium 22,000

Dec. 31 Inc. summary (4.26M – 2.08M) 2,180,000

Retained earnings 2,180,000

Dec, 31 Retained earnings (1) 3,672,000

Cash 3,672,000

11. D
Total cash dividends declared 1,000,000
Dividends to PS
(1,000,000)
(100,000 sh. x ₱100 par x 6% x 2 years = 1.2M)
Dividends to OS 0

12. B
Total dividends declared 75,000
Allocation:
① Allocation to preference shares (a) 60,000
② Excess allocated to ordinary shares 15,000
As allocated -

100,000 x ₱10 par x 5% = 50,000 entitlement per year x 3 years (i.e.,

(a)

20x0 to 20x2) = 150,000 total – previous payments (40,000 + 50,000) =

60,000
 P a g e | 12

② Excess allocated to ordinary shares 15,000

Divided by: Outstanding OS 300,000
Cash dividends per OS 0.05

13. D

(1) Noncumulative and non-participating

Total dividends declared 3,500,000

Allocation:
① Preference shares (100,000 x ₱50 x 10% x 1 year) 500,000
② Ordinary shares (₱3.5M - ₱.5M) 3,000,000
As allocated -

(2) Cumulative and non-participating

Total dividends declared 3,500,000

Allocation:
① Preference shares (100,000 x ₱50 x 10% x 2 years) 1,000,000
② Ordinary shares (₱3.5M - ₱1M) 2,500,000
As allocated -

(3) Noncumulative and participating

Total dividends declared 3,500,000

Allocation:
① Basic allocation to PS (100,000 x ₱50 x 10% x 1 year) 500,000
② Basic allocation to OS (500,000 x ₱40 par x 10%) 2,000,000
Excess subject to participation (3.5M – 500K – 2M) 1,000,000
③ Participation of preference sh. (1M x 5M par ÷ 25M par) (d) 200,000
③ Participation of ordinary sh. (1M x 20M par ÷ 25M par) 800,000
As allocated -
 P a g e | 13

PS: 100,000 x ₱50 = 5M;

(d)

OS: 500,000 x ₱40 = 20M;

5M + 20M = 25M

Preference shares: (₱500,000 basic + ₱200,000 participation) 700,000

Ordinary shares: (₱2,000,000 basic + ₱800,000 participation) 2,800,000
Total dividends 3,500,000

(4) Cumulative and participating

Total dividends declared 3,500,000
Allocation:

① Basic allocation to PS (100,000 x ₱50 x 10% x 2 years) 1,000,000

② Basic allocation to OS (500,000 x ₱40 par x 10%) 2,000,000
Excess subject to participation (3.5M – 1M – 2M) 500,000
③ Participation of preference sh. (500K x 5M par ÷ 25M par) 100,000
③ Participation of ordinary sh. (500K x 20M par ÷ 25M par) 400,000
As allocated -

Preference shares: (₱1,000,000 basic + ₱100,000 participation) 1,100,000

Ordinary shares: (₱2,000,000 basic + ₱400,000 participation) 2,400,000
Total dividends 3,500,000

14. B
Total dividends declared 4,000,000
Allocation:
① Basic allocation to 6% PS (100,000 x ₱50 x 10% x 3 years) 1,500,000
① Basic allocation to 3% PS (50,000 x ₱60 x 5% x 1 year) 150,000
② Basic allocation to ordinary sh. (250,000 x ₱40 par x 5%) 500,000
Excess subject to participation (4M – 1.5M – 150K – 500K) 1,850,000
③ Participation of 6% PS (₱1.85M x 5M par ÷ 18M par) 513,889
③ Participation of 3% PS (₱1.85M x 3M par ÷ 18M par) 308,333
③ Participation of ordinary sh. (₱1.85M x 10M par ÷ 18M par) 1,027,778
As allocated -
 P a g e | 14

(a) 10% PS: 100,000 x ₱50 = 5M;

5% PS: 50,000 x ₱60 = 3M;
OS: 250,000 x ₱40 = 10M;
5M + 3M + 10M = 18M

10% PS: (₱1,500,000 basic + ₱513,889 participation) 2,013,889

5% PS: (₱150,000 basic + ₱308,333 participation) 458,333
Ordinary shares: (₱500,000 basic + ₱1,027,778 participation) 1,527,778
Total dividends 4,000,000

15. B
Step 1:
Total dividends declared ?
Allocation:
PS (20,000 x 200 x 10% x 3 yrs.) 1,200,000
OS (160,000 x 100 x 10%) 1,600,000
Excess subject to participation ?
PS ?
OS ?
Balance -

Step 2:
Total dividends to OS (160,000 sh. x 14 per share) 2,240,000
Basic dividend of OS (1,600,000)
Participation of OS 640,000

 Participation of OS = Excess subject to participation x 16M/20M*

* PS total par: 20,000 x 200 = 4M;
OS total par: 160,000 x 100 = 16M;
4M + 16M = 20M

 640,000 = Excess subject to participation x 16M/20M

 Excess subject to participation = 640,000 x 20/16 = 800,000
 P a g e | 15

Step 3:
Total dividends declared (squeeze) 800K + 1.6M + 1.2M 3,600,000
Allocation:
PS 1,200,000
OS 1,600,000
Excess subject to participation 800,000
PS (800,000 x 4M/20M) 160,000
OS 640,000
Balance -

PS (1.2M basic + 160K participation) 1,360,000

OS (160,000 x 14) 2,240,000
Total dividends declared 3,600,000

PS 1,360,000
Divide by: outstanding PS 20,000
Cash dividend per PS 68

16. D – Dividends on redeemable preference shares are recognized

as interest expense.
Supporting journal entries:
Date of Interest expense (100,000 x 10 x 6%) 60,000
declaration Interest payable 60,000
Date of
No entry
record
Date of Interest payable 60,000
distribution Cash 60,000

17. C
18. D
Dividends declared after the reporting period but before the
financial statements are authorized for issue are not recognized as
a liability at the end of the reporting period because no obligation
exists at that time. The dividends are disclosed only in the notes.
The ₱100,000 dividend in arrears on the preference shares
are also only disclosed and are not accrued as liability.
 P a g e | 16

19. B
1 Assets (770,000 – 400,000) 370,000
Revaluation surplus 370,000
2 Share capital (2,600,000 x ½) 1,300,000
Share premium 1,300,000
3 Revaluation surplus 370,000
Share premium 1,300,000
Retained earnings 1,670,000

Ordinary share capital (2,600,000 – 1,300,000) 1,300,000

Retained earnings (-1,670,000 + 1,670,000) 0
Total shareholders’ equity 1,300,000

20. C
Total SHE (before and after recapitalization & share dividend) 10,000,000
Retirement price of PS - Sept. 30, 20x1 (5,000 x 440) (2,200,000)
Dividends on retired - Sept. 30, 20x1 (5,000x 400 x 10% x 3/12) (50,000)
Proceeds from issuance of OS on Oct. 31, 20x1 (3,000 x 600) 1,800,000
Profit for the 6 months ended Dec. 31, 20x1 4,400,000
Dividends to PS - Dec. 31, 20x1 (1) (100,000)
Dividends to OS - Dec. 31, 20x1 (1) (36,000)
Total shareholders' equity - Dec. 31, 20x1 13,814,000

(1) Preference Ordinary

Outstanding shares as of June 30, 20x1 10,000 20,000
Recapitalization on July 1, 20x1 (10,000)
Share dividends on July 1, 20x1 5,000
a - Retired on Sept. 30, 20x1 (5,000)
Issuance on Oct. 31, 20x1 3,000
Outstanding shares as of Dec. 31, 20x1 5,000 18,000
Dividends (PS: ₱400 par x 10% x 1/2 semi-annual) ₱20.00 ₱2.00
Dividends payable 100,000 36,000

Supporting journal entries:

 P a g e | 17

July Ordinary share capital – old 8,000,000

1,
OS capital – new (8M ÷ 2) 4,000,000
20x1
Share premium 4,000,000
to record the recapitalization
July Retained earnings [(4M ÷ 400) x ½ x ₱400) 2,000,000
1,
Ordinary share capital – new 2,000,000
20x1
to record the ordinary shares issued as
dividend to preference shareholders
July Share premium 4,000,000
1,
Retained earnings 4,000,000
20x1
to wipe out the deficit
Sept Preference shares (5,000 x ₱400 par value) 2,000,000
30,
Retained earnings 200,000
20x1
Cash [5,000 x (₱400 par + ₱40 premium)] 2,200,000
to record the retirement of preference shares
Sept Retained earnings 50,000
30,
Cash (5,000 x ₱400 x 10% x 3/12) 50,000
20x1
to record the dividends on shares retired
Oct. Cash (3,000 x ₱600) 1,800,000
31,
OS capital – new (3,000 x ₱400) 1,200,000
20x1
Share premium 600,000
to record the issuance of ordinary shares
Dec. Income summary 4,400,000
31,
Retained earnings 4,400,000
20x1
to close the profit to retained earnings
Dec. Retained earnings 4,000,000
31,
Retained earnings –appropriated 4,000,000
20x1
to restrict retained earnings for the deficit
wiped out on the quasi-reorganization on July 1
Dec. Retained earnings 136,000
31,
Dividends payable – PS (1) 100,000
20x1
Dividends payable – OS (1) 26,000
to record the dividend declaration

Alternative solution using the journal entries

10% Preference shares (4M – 2M) 2,000,000
Ordinary shares (8M – 8M + 4M + 2M + 1.2M) 7,200,000
Share premium (0 + 4M – 4M + 600K) 600,000
Retained earnings (-2M - 2M + 4M – 200K – 50K + 4.4M – 136K) 4,014,000
Total shareholders’ equity, Dec. 31, 20x1 13,814,000
 P a g e | 18

PROBLEM 5: FOR CLASSROOM DISCUSSION

1. Solution:
 Outstanding shares:
Issued shares 10,000
Shares subscribed 2,000
Treasury shares (1,200)
Outstanding shares 10,800

(Date of Retained earnings (10,800 x ₱60) 648,000

declaration)
Cash dividends payable 648,000
(Date of
record)
No entry
(Date of Cash dividends payable 648,000
distribution)
Cash 648,000

2. Solution:
 Dec. 1, 20x1: Date of declaration
Dec. Retained earnings 1,100,000
1,
Property dividends payable 1,100,000
20x1
Dec. NCA held for distribution to owners 1,100,000
1,
Impairment loss 100,000
20x1
Investment in associate 1,200,000

 Dec. 31, 20x1: End of reporting period

Dec. Retained earnings 150,000
31,
Property dividends payable (1.250 – 1.1M) 150,000
20x1
Dec. NCA held for distribution to owners 100,000
31,
Gain on impairment recovery 100,000
20x1

 Feb. 1, 20x2: Date of distribution

Jan. Property dividends payable 250,000
15,
Retained earnings (1.1M – 950K) 250,000
20x2
Jan.. Property dividends payable 1,000,000
15,
Loss on distribution of property dividend 200,000
20x2
NCA held for distribution to owners 1,200,000
 P a g e | 19

3. Solutions:
Case 1:
(Date of Retained earnings 2,400,000
declaration) (600,000 sh. x 2/5 x ₱10 par)
Stock dividends payable 2,400,000
(600,000 sh. x 2/5 x ₱10 par)
(Date of record) No entry
(Date of Stock dividends payable 2,400,000
distribution)
Share capital 2,400,000

Case 2:
(Date of Retained earnings 2,500,000
declaration) (600,000 sh. x 1/6 x ₱25 fair value)
Stock dividends payable 1,000,000
(600,000 sh. x 1/6 x ₱10 par)
Share premium 1,500,000
(Date of record) No entry
(Date of Stock dividends payable 1,000,000
distribution)
Share capital 1,000,000

4. Solutions:
a) Noncumulative and non-participating
Total dividends declared 2,000,000
Allocation:
① Preference shares (100,000 x ₱50 x 6% x 1 year) 300,000
② Ordinary shares (₱2M - ₱300K) 1,700,000
As allocated -

b) Cumulative and non-participating

Total dividends declared 2,000,000
Allocation:
① Preference shares (100,000 x ₱50 x 6% x 3 years) 900,000
② Ordinary shares (₱2M - ₱900K) 1,100,000
As allocated -
 P a g e | 20

c) Noncumulative and participating

Total dividends declared 2,000,000

Allocation:
① Basic allocation to PS (100,000 x ₱50 x 6% x 1 year) 300,000
② Basic allocation to OS (250,000 x ₱40 par x 6%) 600,000
Excess subject to participation (2M – 300K – 600K) 1,100,000
③ Participation of preference sh. (1.1M x 5M par ÷ 15M par) (d) 366,667
③ Participation of ordinary sh. (1.1M x 10M par ÷ 15M par) 733,333
As allocated -

PS: 100,000 x ₱50 = 5M;

(d)

OS: 250,000 x ₱40 = 10M;

5M + 10M = 15M

Preference shares: (₱300,000 basic + ₱366,667 participation) 666,667

Ordinary shares: (₱600,000 basic + ₱733,333 participation) 1,333,333
Total dividends 2,000,000

d) Cumulative and participating

Total dividends declared 2,000,000

Allocation:
① Basic allocation to PS (100,000 x ₱50 x 6% x 3 years) 900,000
② Basic allocation to OS (250,000 x ₱40 par x 6%) 600,000
Excess subject to participation (2M – 900K – 600K) 500,000
③ Participation of preference sh. (500K x 5M par ÷ 15M par) 166,667
③ Participation of ordinary sh. (500K x 10M par ÷ 15M par) 333,333
As allocated -

Preference shares: (₱900,000 basic + ₱166,667 participation) 1,066,667

Ordinary shares: (₱600,000 basic + ₱333,333 participation) 933,333
Total dividends 2,000,000
 P a g e | 21

e) Cumulative and participating up to 16%

Total dividends declared 2,000,000

Allocation:
① Basic allocation to PS (100,000 x ₱50 x 6% x 3 years) 900,000
② Basic allocation to OS (250,000 x ₱40 par x 6%) 600,000
Excess subject to participation (2M – 900K – 600K) 500,000
③ Participation of preference sh. [(16% - 6%) x ₱5M par] 500,000
③ Participation of ordinary sh. (500K – 500K) -
As allocated -

Preference shares: (₱900,000 basic + ₱500,000 participation) 1,400,000

Ordinary shares: (₱600,000 basic + ₱0 participation) 600,000
Total dividends 2,000,000

f) Dividends in arrears computation

Total dividends declared 2,000,000

Allocation:
① Allocation to preference shares (a) 720,000
② Excess allocated to ordinary shares (₱2M - ₱720K) 1,280,000
As allocated -

100,000 x 6% x ₱50 par = 300,000 entitlement per year x 3 years (i.e.,

(a)

Years 1 to 3) = 900,000 total – previous payments (100,000 + 80,000) =

720,000
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5. Solution:

Total dividends declared 2,000,000

Allocation:
① Basic allocation to 6% PS (100,000 x ₱50 x 6% x 3 years) 900,000
① Basic allocation to 3% PS (50,000 x ₱60 x 3% x 1 year) 90,000
② Basic allocation to ordinary sh. (250,000 x ₱40 par x 3%) 300,000
Excess subject to participation (2M – 900K – 90K – 300K) 710,000
③ Participation of 6% PS (₱710K x 5M par ÷ 18M par) 197,222
③ Participation of 3% PS (₱710K x 3M par ÷ 18M par) 118,333
③ Participation of ordinary sh. (₱710K x 10M par ÷ 18M par) 394,444
As allocated -

(a) 6% PS: 100,000 x ₱50 = 5M;

3% PS: 50,000 x ₱60 = 3M;
OS: 250,000 x ₱40 = 10M;
5M + 3M + 10M = 18M

6% PS: (₱900,000 basic + ₱197,222 participation) 1,097,222

3% PS: (₱90,000 basic + ₱118,333 participation) 208,333
Ordinary shares: (₱300,000 basic + ₱394,444 participation) 694,444
Total dividends 2,000,000

6. Solution:
(Date of Capital liquidated 15,000
declaration)
Retained earnings 65,000
Cash dividends payable 80,000
(Date of
record)
No entry
(Date of Cash dividends payable 80,000
distribution)
Cash 80,000
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7. Solutions:
Requirement (a):

Date Ordinary share capital 8,000,000

Share premium 2,400,000
Ordinary share capital (400,000 x ₱25) 10,000,000
Share premium 400,000

Ordinary shares (₱25 stated value, 400,000 outstanding shares) 10,000,000

Share premium 400,000
Retained earnings 10,800,000
Total stockholders' equity 21,200,000

Requirement (b):

Memo entry: “Issued 800,000 shares with par value of ₱10 as a result
of a “2-for-1” split of 400,000 old shares with par value of ₱20.”

Same capital structure after stock split:

Ordinary shares (₱10 par, 800,000 outstanding shares) 8,000,000
Share premium 2,400,000
Retained earnings 10,800,000
Total stockholders' equity 21,200,000

8. Solution:
(a) Retained earnings (1) 440,000
Building 440,000
(b) Share capital (@ ₱50 par) 1,600,000
Share premium 320,000
Share capital [(1.6M ÷ 50 par) x 20 par] 640,000
Share premium 1,280,000
(c) Share premium 860,000
Retained earnings (2) 860,000
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(1) Fair value (1.1M x 60%) 660,000

Carrying amt. of building 1,100,000
Impairment loss (440,000)

(2)
Retained earnings (deficit)
Before quasi-reorganization 420,000
(a) 440,000
Before elimination 860,000

ASSETS LIABILITIES & EQUITY

Current assets 400,000 Current liabilities 200,000
Land 200,000 Share capital (₱20 par) 640,000
Building, net 660,000 Share premium (1.28M – 860K) 420,000
Retained earnings -
Total 1,260,000 Total 1,260,000