Date of Record: December 1, 2019 December 27, 2019

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DIVIDENDS -are distribution of corporate earnings to its shareholders.

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)

Assume that the board of directors of Nixon Corporation, at its meeting on


December 1, 2019, declares a dividend of P3.00 per share, payable on February 1,
2020, to shareholders of record on December 27, 2019. The corporation has 100,000
ordinary shares outstanding.
December 1, 2019 -
Retained earnings 300,000
Cash dividends payable 300,000
(100,000 x P3 = P300,000)
February 1, 2020
Cash dividends payable 300,000
Cash 300,000

2. Property dividend – (asset) payable in form of property. This property dividend


may be distributed in the form of equity or debt securities held in other companies in
order to facilitate the divisibility and delivery of the assets to the shareholder. This
also may be in form of other non-cash assets. Retained earnings should be recoded at
the fair market value of non-cash assets.

Assume the following information


On October 31, 2019, Borax Corporation declared dividends to its 100,000
ordinary shares payable in the form of Tax Company ordinary. One share of Tax
Corporation ordinary is distributable for each 10, shares of Borax Corporation
ordinary. The dividends are distributable on February 28, 2020. The market
value of Tax Corporation ordinary share was P15 on October 31 2019, P17 (P14)
on December 31, 2019, and P20 on February 28, 2020. (Carrying value of the date
of declaration)
Required. Give the entries to record the foregoing, including any adjustments at
December 31, 2019. The Tax Corporation was carried in the books of Borax on
October 31, 2019 at P14 per share.

October 31, 2019


Investment in Tax Company 10,000
Unrealized gain 10,000
100,000/10 = 10,000shares
(10,000 x P15 = P150,000)
(10,000 x P14 = 140,000)
P 10,000 (kailangan munang i-adjust to fmv)
========

Retained earnings 150,000


Property dividends payable 150,000
*Adjust the investment at its fair market value

December 31, 2019


Investment in Tax Company 20,000
Unrealized gain 20,000

Retained earnings 20,000


Property Dividends Payable 20,000

(10,000 x P17 = P170,000)

(10,000 x P15 = 150,000)

P 20,000

=======
*Adjust the investment at its fair market value

(Unrealised Loss 10 000


Investment in Tax Company 10 000

Property Dividends Payable 10 000


Retained Earnings 10 000)

February 26, 2020

Retained earnings 30,000


Property dividends payable 30,000

(10,000 shares x P20 = P200,000)


(10,000 shares x P17 = 170,000)
P 30,000
========
Property dividends payable 200,000 (130 000)
Investment in Tax Company 170,000 (140 000)
Gain on disposal 30,000

*the difference is no longer treated as unrealized gain, there is already an actual


disposal so the difference is treated as realized gain (realised gain = actual disposal)

Property Dividends Payable 130 000

Loss on Disposal 10 000

Investment in Tax Company 140 000

3. STOCK DIVIDEND/SHARE BONUS/BONUS ISSUE – (stockholder's equity) a


bonus issue usually consists of the same class of shares; that is, ordinary share
dividend is declared to ordinary shares outstanding. When the number of shares of the
bonus issue represents less than 20% of the shares previously outstanding , referred to
as small bonus issue, (the retained earnings should be capitalised at fmv) the current
market value of the additional shares should be transferred from retained earnings to
paid=in capital accounts. When the proportion of the additional shares is large in
relation of the shares previously outstanding (20% or more), (the retained earnings
should be capitalsied at par value) the amount capitalized is equal to the par value or
stated value of the share capital (payable by shares of stock; no effect on shareholders'
equity)

Assume that the corporation has the following capital accounts


Ordinary share capital, P10 par, 200,000
shares issued and outstanding P2,000,000 (a. 2 200 000) (b. 1
400 000)
Share premium 1,000,000 (a. 1 200 000)
(b. 1 000 000)
Retained earnings 3,000,000 (a. 2 600 000)
(b. 3 600 00)
The company’s ordinary shares are currently selling at P20

Prepare entries to record the following independent assumptions


a. A 10% bonus issue is declared and paid
Date of declaration
Retained earnings 400,000
Stock dividend distributable 200,000 (osc)
Share premium 200,000
(200,000 x 10% x P20 = P400,000)
(200,000 x 10% x P10 = 200,000)
P200,000
========

Date of payment

Stock dividends distributable 200,000


Share capital 200,000

b. A 30% bonus issue is declared and paid (large = capitalised at par)


Date of declaration
Retained earnings 600,000
Stock dividend distributable 600,000
(200,000 x 30% x P10 = P600,000)

Date of payment
Stock dividend distributable 600,000
Share capital 600,000
(Nililipat lang sa contributed capital, whether small or large)

4. SCRIP DIVIDEND - this dividend is payable in form of cash, a corporation may


have enough retained earnings to meet legal dividend requirements but have
insufficient fund to meet the current cash dividends. At the date of declaration,
corporation may issue notes payable requiring the corporation to pay dividend at
some future date with corresponding interest . (Enough retained earnings but
insufficient cash; credit liability in entry; with interest)
Assume that ELWOOD corporation declares a 10% scrip dividend on February 1,
2019 payable on February 1, 2020 with interest at the rate of 12% (Assuption of
per annum). The total par value of the outstanding shares of Elwood is
P5,000,000. Journal entries to record the declaration of scrip dividend, accrual of
interest and payment of scrip dividend

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

5. Liquidating dividends – represent return of contributed capital than a distribution of


earnings. In this case, the company have enough cash but have insufficient retained
earnings. (Payable in form of cash) (enough cash but insufficient retained earnings)
Assume that on December 31, 2019, the board of directors of Collins Corporation
declares P600,000 to its ordinary shareholders. The balance of retained earnings
on this date is P400,000, and as such, P200,000 of dividends are liquidating. The
entry for the declaration is:
Retained earnings 400,000
Share premium 200,000
Dividends payable 600,000

Date of Payment:
Dividends Payable 600 000
Cash 600 000

ALLOCATION OF CASH DIVIDENDS BETWEEN PREFERENCE SHARES AND


ORDINARY SHARES
Assume the following information:
The corporation started its operation in 2017 and had the following capital structure
(cumulative - entitled to the shares of unpaid dividend; non-cumulative - current dividend lang
ang babayaran; participating - kapag may natira, makikihati pa; non-participating - pag may
natira, hindi na makikihati. Lahat na sa ordinary shares; c,nc,p,np - preference shares only)
9% Preference shares, P100 par value, 40,000 shares issued
and outstanding P4,000,000
Ordinary share, P10 par value, 500,000 shares issued
and outstanding 5,000,000
The corporation declares dividend as follows:
2017 - P300,000, 2018- P600,000, 2019- P1,000,000
Compute the amount of dividends and dividend per share at the end of 2017, 2018 and 2019
on both preference and ordinary share under each of the following assumptions:
Annual dividend: Preference share – 40,000 x P100 x 9% = P360,000
Ordinary share - 500,000 x P10 x 9% = P450,000
a. Preference share is non-cumulative and non-participating (current dividend lang
babayaran; hindi makikihati)
2017 = P300,000 dividends paid
Preference Ordinary
To preference share P 300,000
To ordinary share P - .
Total dividend P 300,000
========= ========
Dividend/share P300,000/40,000 P7.50

2018 – P600,000 dividends paid


Preference Ordinary
To preference share p 360,000
To ordinary share .. 240,000
Total dividend P 360,000 P 240,000
========= ========
Dividend/share P360,000/40,000 P 9.00
P240,000/500,000 P0.48

2019 – P1,000,000 dividends paid


Preference Ordinary
TO preference P 360,000
To ordinary P 450,000
Balance P1,000,000 -810,000 190,000 (hindi makikihati
si Preference)
Total P 360,000 P 640,000
========= ========
Dividend/share P360,000/40,000 P 9.00
P640,000/500,000 P1.28

b. Preference share is cumulative, non participating (babayaran ang past dividend;


hindi makikihati)
2017 = P300,000 dividends paid
Preference Ordinary
To preference share P 300,000
To ordinary share P - .
Total dividend P 300,000
========= ========
Dividend/share P300,000/40,000 P7.50

2018 – P600,000 dividends paid


Preference Ordinary
To preference share-arrears P 60,000
-current 360,000
To ordinary share .. 180,000
Total dividend P 420,000 P 180,000
========= ========
Dividend/share P420,000/40,000 P 10.50
P180,000/500,000 P0.36

2019 – P1,000,000 dividends paid


Preference Ordinary
TO preference P 360,000
To ordinary P 450,000
Balance P1,000,000 -810,000 190,000
Total P 360,000 P 640,000
========= ========
Dividend/share P360,000/40,000 P 9.00
P640,000/500,000 P1.28

c. Preference share is non-cumulative, fully participating (current dividend ang


babayaran; makikihati)
2017 = P300,000 dividends paid
Preference Ordinary
To preference share P 300,000
To ordinary share P - .
Total dividend P 300,000
========= ========
Dividend/share P300,000/40,000 P7.50

2018 – P600,000 dividends paid


Preference Ordinary
To preference share p 360,000
To ordinary share .. 240,000
Total dividend P 360,000 P 240,000
========= ========
Dividend/share P360,000/40,000 P 9.00
P240,000/500,000 P0.48

2019 – P1,000,000 dividends paid


Preference Ordinary
TO preference P 360,000
To ordinary P 450,000
Balance P1,000,000 -810,000
=P190,000
To preference 190,00x 4/9; 84,444 105,556
To ordinary 190 000×5/9
Total P 444,444 P 555,556
========= ========
Dividend/share P444,444/40,000 P11.11
P555,556/500,000 P1.11

d. Preference share is cumulative, fully participating (past dividend ay babayaran;


makikihati)
2017 = P300,000 dividends paid
Preference Ordinary
To preference share P 300,000
To ordinary share P - .
Total dividend P 300,000
========= ========
Dividend/share P300,000/40,000 P7.50

2018 – P600,000 dividends paid


Preference Ordinary
To preference share-arrears P 60,000
-current 360,000
To ordinary share .. 180,000
Total dividend P 420,000 P 180,000
========= ========
Dividend/share P420,000/40,000 P 10.50
P180,000/500,000 P0.36

2019 – P1,000,000 dividends paid


Preference Ordinary
TO preference P 360,000
To ordinary P 450,000
Balance P1,000,000 -810,000
=P190,000
To preference 190,00x 4/9 84,444 105,556
Total P 444,444 P 555,556
========= ========
Dividend/share P444,444/40,000 P11.11
P555,556/500,000 P1.11

Assume preference share is participating up to 12% (partial participating)

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
========= =========
 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.

BOOK VALUE PER SHARE


Book value per share represents the equity that an ordinary shareholder has in the net
assets of the corporation from owning one share of capital stock. In case of liquidation, and that
assts are sold at their carrying amount, it is the amount that would be paid to ordinary
shareholder
if there is only one class of stock issued by the corporation, book value per share can be
determined by:
Total shareholders’ equity
Number off outstanding shares
Assume the following information::

At December 31, 2020, the Christoff Corporation’s capital account were as


follows:
Ordinary share capital, P10 par, 2,000,000
authorized, 1,600,000 issued and outstanding P16,000,000
Share premium 1,500,000
Retained earnings
2,500,000
Total stockholders’ equity P 20,000,000
===========
Book value per share = P20,000,000/1,600,000 = P12.5
======

Shareholder will be receiving P11.875 for every one share he owns

If there are two classes of stock issued by the corporation, book value per share can be
determined by:

Total shareholder’s equity – equity identified with preference


Number of ordinary shares outstanding

Equity identified with preference shares consist of liquidation value and


dividends.
Assume the following information:

At December 31, 2020, the company’s capital accounts were as follows:


10% preference share capital, P100 par, 200,000
authorized, 120,000 shares issued and outstanding P 12,000,000
Ordinary share capital P10 par, 2,000,000
Authorized, 1,600,00 shares issued and outstanding 16,000,000
Retained earnings 6,000,000
Total shareholders’ equity P34,000,000
==========
The corporation declared dividend on December 25, 2020.

Total shareholder’s equity P32,000,000


Less: equity identified with preference share
Liquidation value (at par) P12,000,000
Dividend (12,000,000 x 10%) 1,200,000 13,200,000
Equity identified with ordinary share P18,800,000

==========
If preference share has no liquidation value, par value is considered to be
liquidation value

Book value per share:


Preference share = P13,200,000/120,000 = P110
====
Ordinary share = P18,800,000/1,600,000 = P11.75
=====

(Kung non-cumulative and wala pang declaration during the year, di siya lalagyan ng
dividend)

Assume that preference share has liquidation value of P120.

Total shareholder’s equity P32,000,000


Less: equity identified with preference share
Liquidation value (120,000 x P120) P14,4000,000
Dividend (12,000,000 x 10%) 1,200,000 15,600,000
Equity identified with ordinary share P16,400,000
==========
Book value per share:
Preference share = P15,600,000/ 120,000 = P130
====
Ordinary share = P16,400,000/1,600,000 = P10.250
======

BASIC EARNINGS PER SHARE


-is the measure of interests of each ordinary share in the performance of the entity over
the reporting period
If there is only one class of stock issued by the corporation It is determined by :
Net income or loss
Number of ordinary shares outstanding

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

Assume the company has only one class of stock issued:

Roaster Company had 120,000 of ordinary shares outstanding at January 1. Profit for
the year. P600,000

Earnings per share = P600,000/120,000 = P5.00

Assume that the company has two classes of stock


Roaster Company had 120,000 of ordinary shares outstanding at January 1.
Outstanding all year were 30,000 shares of non-convertible preference share on which
a dividend of P4 per share was paid in December Profit for the year. P600,000

Earnings per share = P600,000 – 120,000* P4.00


120,000 =====

 30,000 shares x P4 = P120,000


========

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
==========
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
==========
Book value per preference share = P6,400,000/60,000 P 106.667
=========

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
=========
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
=========
Book value per preference share P1,200,000/10,000 P 120.
=======

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
=========
Dividends for preference share have been paid up to December 31, 2020.

Total shareholders’ equity P9,900,000


Less equity identified with preference share
(20,000 x P105 2,100,000
Equity identified with preference share P7,800,000
Divide by the number of share outstanding 60,000
Book value per ordinary share P 130.
=========
Book value per preference share P2,100,000/20,000) P 105
=======
Problem 4
England Corporation’s shareholders’ equity at December 3, 2020 consisted of the
following 8% cumulative preference share, P50 par, liquidation value,
P55 per share, issued and outstanding, 20,000 shares P1,000,000
Ordinary share, P25 par, 100,000 shares issued
And outstanding 2,500,000
Retained Earnings 400,000
Total shareholders’ equity P3,900,000
=========
Dividends on preference share have been paid through 2019, but have not been
declared for 2020. At December 31, 2020, how much is the book value per ordinary
and preference share.
Total shareholders’ equity P3,900,000
Less: equity identified with preference share
Liquidation value (20,000 x P55) P1,100,000
Dividends (20,000 x P50 x 8%) 80,000 1,180,000
Equity identified with ordinary share P2,720,000
Divide by ordinary shares outstanding 100,000
Book value per ordinary share P 27.20
=========
Book value per preference share P1,180,000/20,000 P 59.00
========

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
========

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
========

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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