CHAPTER 18

BOOK VALUE PER SHARE

TECHNICAL KNOWLEDGE

 To define book value per share.

 To know the formula in the computation of book value per share.

 To understand the noncumulative, cumulative, nonparticipating and

participating feature of a preference share.

 To distinguish preference as to assets and preference as to dividends.

BOOK VALUE PER SHARE

Book value per share is the amount that would be paid on each share
assuming the entity is liquidated and the amount available to shareholders is
exactly the amount reported as shareholders' equity.

Where there is only one class of share capital, the formula for the computation
for the computation off book value per share is:

Book value per share == Total shareholder’s equity____

Number of Shares Outstanding

Where there are two classes of share capital, it is necessary to apportion the
shareholder’s equity between the preference share and ordinary share.

The book value per share should then be computed as follows:

Book value per preference share= Preference shareholder' equity____

Number of preference shares outstanding

Book value per ordinary share= Ordinary shareholder’s equity______

Number of outstanding shares

Accounting procedures

For purposes of apportionment between the preference share and ordinary

share, the following procedures should be observed:

1. An amount equal to the par or stated value is allocated to the preference

share and ordinary share.
2. Any balance of the shareholders' equity in excess of the par or stated value
is then apportioned taking into account the liquidation value and dividend
rights of the preference shareholders.

For book value purposes, the following are assumed to be available for
dividends:

a) Retained earnings
b) Share premium
c) Revaluation surplus

Where there are treasury shares and subscribed share capital, the amount of
par or stated value to be assigned to the pertinent share capital is computed
as follows:

Shares Amount

Share capital issued X X X X

Add: Share capital subscribed X X X X
Total X X X X
Less: Treasury shares at par X X X X
Amount and shares outstanding X X X X

For purposes of book value computation, treasury shares shall be treated as

retired.

Accordingly, any gain on retirement is credited to share premium, and any

loss on retirement is charged first to share premium and then to retained
earnings.

Liquidation value of preference share

The liquidation value is the amount which the preference shareholders

normally receive upon the liquidation of the corporation. The liquidation value
may be more than the par value.

In the absence of a liquidation value, the preference shareholders shall

receive an amount equal to the par or stated value.

However, if there is a deficit the preference shareholders would share on a

pro rata basis with the ordinary shareholders.

The preference share may have a call price but this is ignored for book value
computation.

The call price is the amount paid to preference shareholders upon redemption
of preference share during the lifetime of the corporation.
Preference as to assets

When preference as to assets, the preference shareholders are entitled to

payment not only for the liquidation value but also for dividends in arrears.

Preference as to dividends

Preference as to dividends does not mean that the preference shareholders

have an absolute right to dividends.

The preference simply means that if dividends are declared, the preference
shareholders have the right to receive dividends first before the ordinary
shareholders are paid a dividend.

In the absence of any statement to the contrary, the preference share has
preference as to dividends.

When preference share has preference as to dividends, the dividend right

may be:

a. Noncumulative
b. Cumulative
c. Nonparticipating
d. Participating

Definitions

A noncumulative preference share is one on which the right to receive

dividends is forfeited in any one year in which the dividends are not declared.
Thus, the preference share is entitled only to current year dividends.

A cumulative preference share is one on which any undeclared dividends

accumulate each year until paid. Thus, the cumulative preference share is
entitled to all dividends in arrears.

A nonparticipating preference share is one that is entitled to receive only the

dividends equal to the fixed rate.

A participating preference share is one which is entitled to receive dividends

in excess of the basic or fixed rate.

Participating preference share may be fully participating with ordinary share

on a pro data basis or participating only to a certain amount or percentage.

However, before the preference share can participate, the ordinary share
should receive first an amount equal to the basic preference rate, meaning
preference rate times the par value of the ordinary share outstanding.
Special notes

a. In the absence of specific designation, preference share is assumed to be

noncumulative and nonparticipating.

b. Dividends in arrears usually include current dividends. Dividends in arrears

in prior years shall be specifically disclosed, otherwise, there are no
arrearages.

c. In case where there are two classes of preference share with different
dividend rates and both are participating, the lower rate shall be the basis
for allocation to the ordinary share.

If only one preference share is participating, the rate of the participating

preference share shall be used as basis for ordinary share dividend.

Illustration 1

The shareholders' equity in the statement of financial position at year-end

showed the following:

Share capital, P100 par, 50,000 shares 5,000,000

Share premium 1,000,000
Retained earnings 2,000,000
Revaluation surplus 1,500,000
Total shareholders' equity 9,500,000

Book value per share == Total shareholder’s equity____

Number of Shares Outstanding
= 9,500,000
50,000 shares
= P190

Illustration 2

The shareholders' equity in the statement of financial position on December

31, 2019 showed the following:

Preference share capital, 12% P 100 par, 25,000 shares 2,500,000

Ordinary share capital, P10O par, 50,000 shares 5,000,000
Share premium 600,000
Retained earnings 3,000,000
Total shareholders' equity 11,100,000
Dividends have been paid on the preference share up to December 31,
2017.

The book value per preference share and per ordinary share is computed as
follows under each of the cases stated:

Case 1 — Preference share is noncumulative and nonparticipating

Excess over par Preference Ordinary

Balances 3,600,000 2,500,000 5,000,000

Preference dividend (300,000) 300,000
Balance to common 3,300,000 3,300,000
Total shareholders' equity 2,800,000 8,300,000
Divide by shares outstanding 25,000 50,000
Book value per share 112 166

The preference shareholders get only dividends for the current year because
it is noncumulative.

The current year preference dividend is computed by multiplying 12% by

P2,500,000 or P300,000.

The balance of P3,300,000 goes to the ordinary share because the

preference share is nonparticipating.

The "excess over par" is the sum of the shareholders' equity accounts other
than the par or stated value of share capital.

Share premium 600,000

Retained earnings 3,000,000
Excess over par 3,600,000

Case 2 — Preference share is cumulative and nonparticipating

Excess over par Preference Ordinary

Balances 3,600,000 2,500,000 5,000,000

Preference dividend (600,000) 600,000
Balance to common 3,000,000 3,000,000
Total shareholders' equity 3,100,000 8,000,000
Divide by shares outstanding 25,000 50,000
Book value per share 124 160

The preference shareholders get dividends for two years, 2018 and 2019
because it is cumulative.

The preference dividend equals 12% x P2,500,000 x 2 years or P600,000

 The balance of P 3,000,000 goes to ordinary share because the preference
share is nonparticipating.

Case 3 - Preference share is cumulative and participating

Excess over par Preference Ordinary

Balances 3,600,000 2,500,000 5,000,000
Preference dividend (600,000) 600,000
Ordinary dividend
(12% × 5,000,000) (600,000) 600,000
Balance for participation 2,400,000
Preference (1/3×2,400,000) 800,000
Ordinary (2/3×2,400,000) 1,600,000
Total Shareholder's 3,900,000 7,200,000
Divide by shares outstanding 25,000 50,000
Book value per share 166 144

In as much as the preference shareholders are participating, the ordinary

shareholders get the current year dividend using the preference rate in
the absence of an ordinary dividend rate.

The balance of P 2,400,000 is allocated to the preference and ordinary share

on a pro rata basis.

The fractions are developed from the aggregate par value of share capital.

Preference share capital 2,500,000 1/3

Ordinary share capital 5,000,000 2/3
7,500,000

Case 4 —Preference share is cumulative and participating up to 14%

Excess over par Preference Ordinary

Balances 3,600,000 2,500,000 5,000,000
Preference dividend (600,000) 600,000
Ordinary dividend (600,000) 600,000
Balance for participation 2,400,000
Preference (2%×2,500,000) 50,000
Ordinary (balance to common) 2,350,000
Total Shareholder's 3,150,000 7,950,000
Divide by shares outstanding 25,000 50,000
Book value per share 126 159

The phrase "participating up to 14%" means that the preference share shall
receive for the current year a maximum of 14% on the par value.
Thus, since the preference share already receives 12% as basic dividend for
the current year, then it participates only to the extent of 2% on the par of
P2,500,000 or P50,000

The balance of P2,350,000 goes to the ordinary share.

Case 5 - Preference share is cumulative, nonparticipating and with

liquidation value of P 106 per share

Excess over par Preference Ordinary

Balances 3,600,000 2,500,000 5,000,000
Liquidation premium
(25,000 shares × P6) (150,000) 150,000
Preference dividend (600,000) 600,000
Balance to common 2,850,000 2,850,000
Total Shareholder's 3,250,000 7,850,000
Divide by shares outstanding 25,000 50,000
Book value per share 130 157

The "liquidation premium" is the excess of the liquidation value of P106 over
the P100 par value of the preference share•

Illustration 3

The shareholders' equity on December 31, 2019 showed the following:

Preference share capital, 12% P100 par, 25,000

shares, cumulative 2,500,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
Retained earnings (deficit) ( 900,000)
Total shareholders' equity 6,600,000

No dividends have been paid on preference share since 2016.

Case 1 —Preference share has preference as to assets

(Excess over par Preference Ordinary

Balances ( 900,000 ) 2,500,000 5,000,000

Preference dividend (1,200,000) 300,000
Balance to common (2,100,000) 2,100,000
Total 3,700,000 2,900,000
Divide by shares outstanding 25,000 50,000
Book value per share 148 58
The preference dividend is for four years, 2016,2017,2018 and 2019.

Thus, P2,500,000× 12%× 4 equals P1,2000,000.

Note that if the preference share has preference as to assets, the dividends in
arrears are fully payable.

Case 2 — Preference share has preference as to dividends

Excess over par Preference Ordinary

Balances ( 900,000) 2,500,000 5,000,000

Share in deficit:
Preference – 1/3 300,000
( 300,000 )
Ordinary – 2/3 600,000 (
600,000 )
Total 2,200,000 4,400,000

Divide by shares outstanding 25,000 50,000

Book value per share 88 88

Note that the deficit is apportioned on a pro rata basis between the
ordinary share and preference share notwithstanding the fact that the
preference share has preference as to dividends.

As stated earlier, preference as to dividends does not mean absolute right to

dividends.

The preference simply means that the preference shareholders will receive
first dividends if and when dividends are declared.

But no dividends can be declared because there is a deficit.

The right therefore becomes academic.

Comprehensive illustration

The shareholders' equity on December 31, 2019 revealed the following:

Preference share capital, 12% cumulative, participating,
P100 par, 50,000 shares authorized, 25,000 shares issued,
of which 5,000 shares are in treasury 2,500,000
Treasury preference shares, at cost 400,000
Subscribed preference share capital, 10,000 shares 1,000,000
Subscription receivable — preference 300,000
Ordinary share capital, P50 par, 200,000 shares authorized,
90,000 shares issued, of which 10,000 shares are in treasury 4,500,000
Treasury ordinary shares, at cost 550,000

Subscribed ordinary share capital, 20,000 shares 1,000,000

Subscription receivable — ordinary 200,000

Share premium 1,250,000

Retained earnings unappropriated 1,000,000

Retained earnings appropriated 2,500,000

Last dividend payment December 31, 2014

Computation of share capital outstanding

Preference Ordinary
Amount Shares Amount Shares
Issued 2,500,000 25,000 4,500,000 90,000
Subscribed 1,000,000 10,000 1,000,000 20,000
Total 3,500,000 25,000 5,500,000 110,000
Less: Treasury at par 500,000 5,000, 500,000 10,000
Outstanding 3,000,000 20,000 5,000,000 100,000

Note that the subscription receivable should not be deducted from subscribed
share capital.

As stated earlier, the treasury shares for book value purposes are treated as
retired.

Accordingly, the following adjustments are made.

1. Preference share capital (5,000 x 100) 500,000

Treasury preference shares 400,000
Share premium 100,000
2. Ordinary share capital (10,000 x 50) 500,000
Share premium 50,000
Treasury ordinary shares 550,000

Computation of "excess over par"

Share premium 1,300,000

Retained earnings unappropriated 1,000,000
Retained earnings appropriated 2,500,000
Total 4,800,000
Share premium per book 1,250,000
Credit adjustment 100,000
Debit adjustment ( 50,000 )
Adjusted share premium 1,300,000

Preference dividends in arrears

Annual dividend (12% x P 3,000,000) 360,000

2015 360,000
2016 360,000
2017 360,000
2018 360,000
2019 360,000
Total 1,800,000
Ordinary dividend for current year
(12% x P 5,000,000) 600,000

Excess over par Preference Ordinary

Balances 4,800,000 3,000,000 5,000,000
Preference dividend (1,800,000) 1,800,000
Ordinary current dividend ( 600,000 ) 600,000
Balance for participation 2,400,000
Preference (3/8×2,400,000) 900,000
Ordinary (5/8×2,400,000) 1,500,000
Total 5,700,000 7,100,000
Divide by shares outstanding 30,000 100,000
Book value per share 190 71

The participation is determined as follows:

Preference share capital 3,000,000

Ordinary share capital 5,000,000
Note that in the absence of an ordinary dividend rate, the ordinary
shareholders get the current year dividend using the preference rate if the
preference share is fully participating.

Illustration - Maximum dividend

An entity showed the following shareholders' equity on December 31, 2019:

Preference share capital, P 100 par, 50,000 shares 5,000,000

Ordinary share capital, P50 par, 150,000 shares 7,500,000
Retained earnings 4,000,000

The preference rate is 12% and the share is cumulative and fully
participating.

Dividends on the preference share are in arrears for 2018 and 2019.

On December 31, 2019, the board of directors of the entity would like to pay
the ordinary shareholders a dividend of P10 per share.

Query

To attain the dividend objective of the entity, how much maximum dividend
would be declared on the preference and ordinary shares?

Ordinary dividend for 2019 (150,000 x P 10) 1,500,000

Percentage of ordinary dividend (1,500,000 / 7,500,000) 20%

This means that the preference share shall also receive 20% for the current
year 2019 because the preference share is fully participating.

Computation of maximum dividend

Ordinary dividend 1,500,000

Preference dividend:
2018 (12% x 5,000,000) 600,000
2019 (20% x 5,000,000) 1,000,000
Maximum dividend 3,100,000

Note that the preference dividend of P 1,000,000 for 2019 already includes
the basic rate of 12% or P 600,000.

Actually, the participation of the preference share for 2019 is P 1,000,000

minus the basic dividend of P 600,000 or P400,000.
Proof 

Dividend Preference Ordinary

Maximum dividend 3,100,000

Preference dividend:

2018 ( 600,000 ) 600,000

2019 ( 600,000 ) 600,000

Ordinary dividend for 2018 using

preference rate (12% x 7,500,000) ( 900,000 ) 900,000

Balance for participation 1,000,000

Preference (50/ 125 x 1,000,000) 400,000

Ordinary (75/ 125 x 1,000,000) 600,000

Maximum dividend 1,600,000 1,500,000

Capital Fraction

Preference share 5,000,000 50/125

Ordinary share 7,500,000 75/125

12,500,000
QUESTIONS

1. What is the meaning of book value per share?

2. What is the basic formula in the computation of book value per share?

3. Distinguish between liquidation price and call price in connection with

preference share. Which price is considered for book value purposes?

4. What is the meaning of "preference as to assets" and "preference as to

dividends"?

5 Explain the preferential rights of the preference share with respect to

dividends.

a. Cumulative
b. Noncumulative
c. Participating
d. Nonparticipating

PROBLEMS

Problem 18-1 (ACP)

Evergreen Company provided the following shareholders' equity at year-end:

Share capital, P100 5,000,000

Share premium 1,000,000
Retained earnings unappropriated 1,500,000
Retained earnings appropriated for contingencies 500,000
Revaluation surplus 800,000
8,800,000

Required:

Compute the book value per share.

Problem 18-2 (ACP)

Endless Company provided the following shareholders' equity on December

31, 2019:

Preference share capital, 12% P100 par 1,000,000

Ordinary share capital, P100 4,000,000
Share premium 2,000,000
Retained earnings 1,000,000

Dividends have been paid on the preference share up to December 31, 2017.

Required:

Compute the book value per ordinary share and per preference share under
each of the following conditions with respect to preference share:

a. Cumulative and fully participating

b. Cumulative and fully participating after ordinary share receives 15%

c. Cumulative and participating up to 16%

d. Cumulative and nonparticipating

e. Noncumulative and nonparticipating

Problem 18-3 (ACP)

Aroma Company reported the following shareholders' equity on December 31,

2019:

Preference share capital, 12% P50 par 2,000,000

Ordinary share capital, P 100 par 4,000,000
Retained earnings (deficit) ( 900,000 )

No dividends have been paid on the preference share since 2017.

Required:

Determine the book value per preference share and per ordinary share under
the following conditions with respect to preference share:

a. Preference as to assets

b. Preference as to dividends
Problem 18-4 (IAA)

Fair Company reported the following capital balances on December 31, 2019:

Preference share capital, 12% 40,000 shares P 50 par 2,000,000

Ordinary share capital, 100,000 shares P 50 par 5,000,000

Share premium 2,000,000

Retained earnings 2,000,000

Required:

Calculate the book value per preference share and per ordinary share
assuming preference share has a call price of 55, a liquidation price of 53 and
dividends are unpaid since December 31, 2014.

Problem 18-5 (ACP)

Forever Company showed the following shareholders' equity on December

31, 2019:

Ordinary share capital, P 100 par 5,000,000

Preference share capital, 6% P 100 par,

cumulative and participating 3,000,000

Preference share capital, 8% P 100 par,

noncumulative and participating 2,000,000

Retained earnings 530,000

Required:

Compute the book value per share for each class of share capital assuming
dividends in arrears are for 3 years, preference share has preference as to
assets or preference share has preference as to dividend.
Problem 18-6 (ACP)

Sunrise Company reported the following shareholders' equity on December

31, 2019:

Preference share capital, 12% cumulative and

fully participating P 100 par, authorized 20,000 shares,
issued 15,000 shares of which 1,000 shares are in
the treasury and the last dividend was in 2014 1,500,000
Treasury Preference Shares at cost 110,000
Subscribed preference share capital 200,000
Subscription receivable- preference 130,000

Ordinary share capital, par value 100,

authorized 50,000 shares, issued 30,000 shares
of which 1,000 shares are reacquired 3,000,000
Treasury shares, at cost 70,000
Subscribed ordinary share capital 500,000
Subscription receivable- ordinary 200,000
Share premium 300,000
Retained earnings unappropriated 968,000
Retained earnings appropriated 680,000

Required:

Compute the book value per ordinary share and per Preference share on
December 31, 2019.

Problem 18-7 (AICPA Adapted)

Sunset Company has an authorized share capital of 20,000 P 100 par, 8%

cumulative preference shares and 40,000 ordinary shares with P 100 par
value.

The entity reported the following shareholders' equity on December 31, 2019:

Cumulative preference share capital 1,000,000

Ordinary share capital 2,200,000
Share premium 400,000
Retained earnings 520,000
Treasury ordinary shares -- 2,000 at cost
( 300,000)
3,820,000
Dividends on preference share are in arrears for 2018 and 2019.

Required: Compute book value per preference share and per ordinary
share on December 31, 2019.

Problem 18-8 (ACP)

Susan Company reported the following shareholders' equity at year-end:

Preference share capital, 12% cumulative,

3 years in arrears, and participating, P 100 par,
15,000 shares 1,500,000
Ordinary share capital, P 100 par, 20,000 shares 2,000,000
Subscribed ordinary share capital,
net of subscription receivable of P400,000 600,000
Treasury ordinary shares, 5,000 at cost 400,000
Share premium 300,000
Retained earnings 2,040,000

Required:

Compute book value per preference share and per ordinary share.

Problem 18-9 (ACP)

Tania Company reported the following shareholders' equity at year-end:

Preference share capital, 10% cumulative,

P100 par, 40,000 shares 4,000,000

Ordinary share capital, P50 par, 200,000 shares 10,000,000

Subscribed ordinary share capital,

net of subscription receivable of P1,500,000 2,000,000

Treasury ordinary shares, 20,000 shares at cost 1,200,000

Share premium 3,000,000

Accumulated profits 5,000,000

Preference dividends have not been paid for 3 years and the preference
share has a P110 liquidation price.

Required:
Compute book value per preference share and per ordinary share.

Problem 18-10 (ACP)

Sunrise Company had the following share capital on December 31, 2019:

Ordinary share capital, P100 par, 50,000 shares 5,000,000

Preference share capital, P50 par, 12% cumulative,
40,000 shares 2,000,000

There are no dividends in arrears on December 31, 2017.

Dividends are distributed to shareholders at P200,000 in 2018 and P600,000

in 2019.

Required:

1. How much dividends should the preference shareholders receive in 2019?

2. How much dividends should the ordinary shareholders receive in 2019?

Problem 18-11 (AICPA Adapted)

Aim Company reported the following shareholders' equity on December 31,

2019:

Preference share capital 10%, noncumulative,

participating, P 100 par, issued 5,000 shares 500,000

Preference share capital, 12% cumulative, participating,

P100 par, issued 10,000 shares 1,000,000

Ordinary share capital, P50 par, issued 30,000 shares 1,500,000

The entity for the first time plans to declare cash dividend. The entity has not
paid a cash or share dividend before.

There has been no change in the capital accounts since the entity started
operations.

The entity reported the following net income or loss:

2015 300,000 loss

2016 200,000 loss
2017 100,000 loss
2018 350,000 income
2019 1,256,000 income

Required:

1. What is the maximum dividend that can be declared on December 31,

2019?

2. What is the amount of dividends that each class of share capital shall
receive on December 31, 2019?

Problem 18-12 (IAA)

The directors of Dare Company wish to declare a dividend whereby ordinary

shareholders are to receive a dividend of P5 per share.

The entity reported the following shareholders' equity at year-end:

Preference share capital, P 100, 10%,

participating up to 15%, noncumulative,
100,000 shares authorized, 25,000 shares issued 2,500,000
Ordinary share capital, P 25 par,
250,000 shares authorized, 200,000 shares issued 5,000,000
Share premium 1,000,000
Retained earnings 4,000,000

Required:

Determine the total amount of dividend that must be declared to meet the per
share dividend goal of the directors.

Problem 18-13 (IAA)

Roma Company provided the following shareholders' equity at year-end:

Preference share capital, P100 par,

100,000 shares authorized and 80,000 shares issued 8,000,000
Ordinary share capital, P50 par,
500,000 shares authorized and 200,000 shares issued 10,000,000
Share premium 2,000,000
Retained earnings 5,000,000

The preference dividends are in arrears for two years and the preference rate
is 12%. The preference share is cumulative and fully participating.
The board of directors intended to pay cash dividend of P10 per share to
ordinary shareholders.

Required: Compute the maximum amount of dividend to be declared in order

to meet the dividend objective of the board of directors.

Problem 18-14 (AICPA Adapted)

Hoyt Company reported the following shareholders' equity at year-end:

5% cumulative preference share capital, par value P 100;

25,000 shares issued and outstanding 2,500,000
Ordinary share capital, par value P35,
100,000 shares issued and outstanding 3,500,000
Share premium 1,250,000
Retained earnings 3,000,000

Dividends in arrears on the preference share amount to P250,000. If the entity

were to be liquidated, the preference shareholders would receive par value
plus a premium of P500,000.

What is the book value per ordinary share?

a. 77.50
b. 75.00
c. 72.50
d. 70.00

Problem 18-15 (IAA)

Tarr Company reported the following shareholders' equity on December 31,

2019:

Preference share capital — 12%, P50 par,

20,000 shares issued 1,000,000
Ordinary share capital, P25 par, 100,000 shares issued 2,500,000
Share premium 200,000
Retained earnings 400,000
Retained earnings appropriated 100,000
Revaluation surplus 300,000

Dividends on preference share have not been paid since 2016. The
preference share has a liquidating value of P55 and a call price of P58.

What is the book value per preference share?

 a. 61
b. 56
c. 55
d. 58

Problem 18-16 (AICPA Adapted)

Dix Company reported the following shareholders' equity on December 31,

2019:
8% cumulative preference share capital, P50 par,
liquidating value P55 per share; authorized, issued
and outstanding 20,000 shares 1,000,000
Ordinary share capital, P25 par, 200,000 shares authorized;
100,000 shares issued and outstanding 2,500,000
Retained earnings 400,000

Dividends on preference share have been paid through 2017 but have not
been declared for 2018 and 2019.

What is the book value per ordinary share?

a. 25.00

b. 27.20

c. 26.40

d. 29.00

Problem 18-17 (AICPA Adapted)

Boe Company revealed the following shareholders' equity on December 31,

2019:
6% noncumulative preference share capital, P 100 par
(liquidation value P 105 per share) 1,000,000
Ordinary share capital, P 100 par 3,000,000
Retained earnings 950,000

Preference dividends have been paid up to December 31, 2019.

What is the book value per ordinary share?

a. 131.70

b. 130.00
 c. 129.70

d. 128.00

Problem 18-18 (AICPA Adapted)

Gaza Company has an authorized share capital of 10,000 80/0 cumulative

preference shares with P 100 par value and 100,000 ordinary shares with PIO
par value.

The entity reported the following shareholders' equity at year-end:

Preference share capital 500,000

Ordinary share capital 900,000
Share premium 90,000
Retained earnings 138,000
Treasury ordinary shares — 1,000 at cost ( 20,000)
1,608,000

Dividends on preference shares are in arrears for the current year.

What is the book value per ordinary share?

a. 12.00
b. 11.87
c. 18.08
d. 12.45

Problem 18-19 (AICPA Adapted)

Nova Company has an authorized capital of 10,000 8% cumulative preference

shares with P 100 par value, and 20,000 ordinary shares with P 100 par
value.

The entity reported the following shareholders' equity on December 31, 2019:
Cumulative preference share capital 500,000
Ordinary share capital 1,100,000
Share premium 200,000
Retained earnings 260,000
Treasury ordinary shares — 1,000 at cost ( 150,000 )
1,910,000

Dividends on preference shares are in arrears for 2018 and 2019.

What is the book value of an ordinary share?

a. 125
b. 191
c. 133
d. 141

Problem 18-20 (ACP)

Retro Company reported the following shareholders' equity at year-end:

12% Preference share capital, 20,000 shares, P100 par value 2,000,000
14% Preference share capital, 10,000 shares, P300 par value 3,000,000
Ordinary share capital, 50,000 shares, P 100 par value 5,000,000
Retained earnings 2,240,000
Share premium 1,500,000

The 12% preference share is cumulative and fully participating. The 14%
preference share is noncumulative and fully participating. Dividends have not
been paid for 3 years.

What is the book value per ordinary share?

a. 132
b. 126
c. 100
d. 112

Problem 18-21 (ACP)

Simplex Company reported the following shareholders' equity on December

31, 2019:

Preference share capital, 10% cumulative and nonparticipating,

P 100 par, 20,000 shares 2,000,000
Ordinary share capital, P 100 par, 40,000 shares 4,000,000
Subscribed ordinary share capital, 20,000 shares 2,000,000
Subscription receivable 500,000
Share premium 1,000,000
Retained earnings 2,400,000
Treasury ordinary shares, 10,000 at cost 800,000

The preference dividends are in arrears for 2017, 2018 and 2019.
What is the book value per ordinary share?

a. 172
b. 200
c. 160
d. 150

Problem 18-22 (AICPA Adapted)

On December 31, 2018 and 2019, Carr Company had outstanding 40,000
preference shares with P100 par value and 6% cumulative, and 200,000
ordinary shares with P10 par value.

On December 31, 2019, dividends in arrears on the preference shares

amounted to P 120,000. Cash dividends declared in 2019 totaled P440,000.

What is the dividend payable on each class of share capital in 2019?

Preference Ordinary

a. 440,000 0
b. 360,000 80,000
c. 320,000 120,000
d. 240,000 200,000

Problem 18-23 (AICPA Adapted)

The directors of Lora Company wish to declare a dividend whereby ordinary

shareholders are to receive a total per share dividend of P4.

The entity provided the following shareholders' equity at year-end:

Preference share capital, P 100 par,

7% participating up to 10%, noncumulative,
100,000 shares authorized, 25,000 shares issued 2,500,000
Ordinary share capital, P25 par,
250,000 shares authorized and issued 6,250,000
Share premium 1,250,000
Retained earnings 5,000,000

What is the total amount of the dividend that must be declared to meet the per
share goal of the board of directors?

a. 1,175,000

b. 1,700,000
 c. 1,000,000

d. 1,250,000

Problem 18-24 (AICPA Adapted)

Zebra Company reported the following outstanding share capital at year-end:

 30,000 shares of 10% cumulative preference share, par value P 100

per share, fully participating as to dividends. No dividends were in
arrears in prior years.

 200,000 ordinary shares with par value of P 10.

The entity declared dividends of P 1,000,000 at year-end.

What was the amount of dividends payable to ordinary shareholders?

a. 200,000
b. 700,000
c. 400,000
d. 600,000

Problem 18-25 (AICPA Adapted)

Culture Company reported the following share capital outstanding on

December 31, 2019:

Ordinary share capital, P20 par value,

200,000 shares outstanding 4,000,000
Preference share capital, 6% P100 par value,
cumulative and fully participating,
10,000 shares outstanding 1,000,000

Preference dividends have been in arrears for 2017, 2018 and 2019. On
December 31, 2019, a total cash dividend of P900,000 was declared.

What amount should be recognized as dividend payable on the preference

and ordinary shareholders, respectively?

a. 324,000 and 576,000

 b. 220,000 and 672,000

c. 276,000 and 624,000

d. 180,000 and 720,000

Problem 18-26 (IAA)

The shareholders' equity of High Company included 3,000,000 of P10 par

ordinary share capital and P6,000,000 of 6% P50 par cumulative preference
share capital. The board of directors declared cash dividends of P900,000 in
2019 after paying P300,000 cash dividends in 2018 and P500,000 in 2017.

1. What amount of cash dividends was received by preference

shareholders in 2019?

a. 360,000
b. 420,000
c. 600,000
d. 450,000

2. What amount of cash dividends was received by ordinary shareholders

in 2019?

a. 480,000
b. 540,000
c. 300,000
d. 450,000

Problem 18-27 (IAA)

Crystal Company provided the following shareholders' equity on December

31, 2019:

Ordinary share capital, P10 par 50,000,000

Preference share capital, P 100 par, 5% cumulative 100,000,000

There were no changes in share capital outstanding since the first year of
operations in 2017. The entity paid cash dividends of P3,000,000 in 2017,
P4,000,000 in 2018 and P12,000,000 in 2019.
 1. What amount was received as cash dividends by preference
shareholders in 2019?

a. 8,000,000

b. 5,000,000

c. 3,000,000

d. 4,000,000

2. What amount was received as cash dividends by ordinary shareholders

in 2019?

a. 7,000,000
b. 4,000,000
c. 5,000,000
d. 6,000,000

Problem 18-28 (AICPA Adapted)

Tunn Company revealed the following shareholders' equity on December 31,

2019:
12% nonparticipating, noncumulative preference share capital,
par value of P100, 10,000 shares 1,000,000
10% fully participating, cumulative preference share capital,
par value of P 100, 25,000 shares 2,500,000
Ordinary share capital, par value of P 100, 75,000 shares 7,500,000

The entity has not paid a cash or a stock dividend before. There was no
change in the capital balances since the entity started operations five years
ago.

The entity reported net loss for 2015, 2016 and 2017 at P1,500,000
P1,000,000 and P500,000, respectively, and net income for 2018 and 2019 at
P 1,750,000 and P 6,250,000 respectively.

The maximum amount available for dividend on December 31, 2019 is

declared and paid.

What amount of dividend should be distributed to

1. Ordinary shareholders?

a. 3,750,000
b. 2,910,000
c. 500,000
d. 750,000
 2. 12% Preference shareholders?

a. 120,000
b. 600,000
c. 300,000
d. 0

3. 10% Preference shareholders?

a. 1,250,000
b. 1,970,000
c. 720,000
d. 250,000

Problem 18-29 Multiple choice (IAA)

1. Which of the following shareholder rights is commonly enhanced in an

issue of preference shares?
a. The right to vote for the board of directors.
b. The right to maintain one's proportional interest.
c. The right to receive a full cash dividend before dividends are paid to
other classes of share capital.
d. The right to vote on major corporate issues.

2. Preference shares participate ratably with the ordinary shareholders in any

profit distribution beyond the prescribed preference rate.
a. Cumulative feature
b. Participating feature
c. Callable feature
d. Redeemable feature

3. Which feature of preference share would most likely be opposed by

ordinary shareholders?
a. Convertible
b. Callable
c. Redeemable
d. Participating

4. Noncumulative preference dividends in arrears

a. Are not paid and not disclosed.

b. Must be paid before any other cash dividends can be distributed.
c. Are disclosed as liability until paid.
 d. Are paid to preference shareholders if sufficient funds remain after
payment of ordinary dividend.

5. How should cumulative preference dividends in arrears be reported?

a. Note disclosure
b. Increase in shareholders' equity
c. Increase in current liabilities
d. Increase in noncurrent liabilities