Date of Record: December 1, 2019 December 27, 2019
Date of Record: December 1, 2019 December 27, 2019
Date of Record: December 1, 2019 December 27, 2019
They are
recorded as a charge to retained earnings, except liquidating dividends, which are noted
in a formal dividend announcement charged to share premium. Dividends, except bonus
issue, decreases total shareholders’ equity and are recorded as a credit to a liability
account at the date of declaration. Bonus issue require a transfer of amount from retained
earnings to contributed.
The power to declare dividends is vested upon the board of directors of the corporation.
Three important dates
o Date of declaration – this is the date when the board of directors formally
approves and announces the dividend. It is on this date that the reduction in
retained earnings is recognized in the account.
o Date of record – the list of current shareholders who will be entitled to the
dividend is prepared and the dividends is based on this list.
o Date of payment or distribution -on this date an entry is made in the books to
record the settlement of the dividend either by payment of cash or distribution of
non-cash assets or the company’s own share.
Classes of dividends
1. Cash dividend – simplest form of dividend, payable in form of cash. The
corporation must have enough retained earnings and cash. (Enough cash and enough
retained earnings)
P 20,000
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*Adjust the investment at its fair market value
Date of payment
Date of payment
Stock dividend distributable 600,000
Share capital 600,000
(Nililipat lang sa contributed capital, whether small or large)
February 1, 2019
Retained earnings 500,000
Scrip dividends payable 500,000
(P5,000,000 x 10% = P500,000)
December 31, 2019
Interest expense 55,000
Interest payable 55,000
(P500,000 x 12% x 11/12)
February 1, 2020
Scrip dividends payable 500,000
Interest payable 55,000 (chargeable to 2019
operation)
Interest expense 5,000 (chargeable in 2020
operation) (500000×12%×1/12)
Cash 560,000
Date of Payment:
Dividends Payable 600 000
Cash 600 000
Preference Ordinary
TO preference P 360,000
To ordinary P 450,000
Additional for preference
P4,000,000 (12%-9%) 120,000
Balance P1,000,000 -810,000
=P190,000
To preference 190,00x 4/9 70,000
Total P 480,000 P 520,000
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If the dividend to be received by the preference is higher if preference share is partial
participating than if they are fully participating, the amount to be received by preference
share should be the lower between fully and partial participating so the preference
should received P444,444 instead of P480,000. (Kung ano ang mas maliit between the
amount of partial and fully participating, iyon ang ibibigay sa preference)
1. The Aroma Company paid dividends at the end of each year as follows:
2018 – P6,000,000 2019 – P9,600,000 2020- P22,400,000
The corporation has 1,000,000 shares of P10 par value ordinary share and 80,000shares of
9%, P100 par value preference share outstanding.
Instructions: Compute the amount of total dividends and dividend per share on both
preference share and ordinary share under each of the following assumptions.
a. preference share is non cumulative and non participating
b. preference share is cumulative and non participating. There are 2 years dividends in
arrears at the beginning of 2018
c. preference share is cumulative and fully participating. There are no dividends in arrears
at the beginning of 2018
d. preference share is non cumulative and fully participating.
If there are two classes of stock issued by the corporation, book value per share can be
determined by:
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If preference share has no liquidation value, par value is considered to be
liquidation value
(Kung non-cumulative and wala pang declaration during the year, di siya lalagyan ng
dividend)
If there are two classes of stock issued by the corporation: basic earnings per share can
be determined by
Net income- earnings allocated to preference
Number of ordinary shares outstanding
Roaster Company had 120,000 of ordinary shares outstanding at January 1. Profit for
the year. P600,000
Problem 1
Below is the shareholders’ equity section of Riyadh Company on December 31, 2020:
Preferences share, 7%, P100 par value, 60,000 shares
issued total liquidation value, P6.4M P 6,000,000
Ordinary share, no par, 100,000 shares
issued 3,000,000
Donated Capital 1,000,000
Retained Earnings 9,000,000
P19,000,000
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All preference dividends have been fully paid
How much is the book value per ordinary share and per preference share.
Total stockholders’ equity P19,000,000
Equity identified with preference share 6,400,000
Equity identified with ordinary share P12,600,000
Divide by number of ordinary shares outstanding 100,000
Book Value per ordinary share P 126.00
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Book value per preference share = P6,400,000/60,000 P 106.667
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Problem 2
Dubai Corporation’s statement of financial position reports the following
shareholders’ equity.
5% cumulative preference share, P100 par,
10,000 shares issued and outstanding P1,000,000
Ordinary share, P10 par value, 100,000
shares issued and outstanding 1,000,000
share premium 600,000
Retained Earnings 1,400,000
Total shareholders’ equity P4,000,000
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Dividends in arrears on the preference share amount to P100,000, liquidation value of
P110.
Total shareholders’ equity P4,000,000
Equity identified with preference share
Liquidation value (10 ,000 X P110) P1,100,000
Dividends 100,000 1,200,000
Equity identified with ordinary share P 2,800,000
Divide by number of shares outstanding 100,000
Book value per ordinary share P 28.00
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Book value per preference share P1,200,000/10,000 P 120.
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Problem 3
Alaska Corporation’s shareholders’ equity at December 31, 2020 is shown below:
6% non-cumulative preference share, P100 par
(liquidation value P105 per share) P2,000,000
Ordinary share, P100 par 6,000,000
Retained Earnings P1,900,000
Total shareholders’ equity P9,900,000
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Dividends for preference share have been paid up to December 31, 2020.
Problem 5
Poland Company’s capital structure at December 31, 2019 is shown below:
Shares issued and outstanding
Ordinary share 200,000
Nonconvertible preference share 50,000
On October 1, 2020, the company issued 10% share dividend on its ordinary shares, and
paid P200,000 cash dividends on the preference shares. Net income for the year ended
December 31, 2020 was P1,920,000
How much should be the 2020 earnings per share of Poland Company
Net income P1,920,000
Less: Preference dividend 200,000
Earnings allocated to ordinary share P1,720,000
Divide by ordinary shares outstanding 220,000
Earnings per ordinary share P 7.82
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Problem 6
Netherland Company had 500,000 ordinary shares issued and outstanding at
December 31, 2019. During 2020, no additional ordinary shares was issued. On
January 1, 2020, Netherland issued 400,000 nonconvertible preference shares.
During 2020, Netherland declared and paid P180,000 dividends on the ordinary
shares and P150,000 on the preference shares. Net income for the year ended
December 31, 2020 was P960,000. What should be the 2020 earnings per ordinary
share
Net income P960,000
Less: Preference dividend 150,000
Earnings allocated to ordinary P810,000
Divide by ordinary shares outstanding 500,000
Earnings per ordinary share P 1.62
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Problem 7
Mandarin Company had 120,000 of ordinary shares issued and outstanding at
January 1, 2020. On January 2 of the same year, the company issued 80,000
preference shares. During the year, the company declared and paid P420,000 cash
dividend on the ordinary shares and P240,000 on the preference shares. Net income
for the year was P1,500,000. What should be the basic earnings per share?
Net income P1,500,000
Less: Preference dividend 240,000
Earnings allocated to ordinary share P 1,260,000
Divide by ordinary shares outstanding 120,000
Earnings per share P 10.50
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