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Chapter 16
Accounting for Dividends
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE – date of declaration
3. FALSE
4. FALSE
5. FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solution:
⮚ The outstanding shares are computed as follows:

100,00
Shares issued (₱1M ÷ ₱10 par)
0
Shares subscribed (₱200,000 ÷ ₱10 par) 20,000
Treasury shares (₱150,000 ÷ ₱15 cost) (10,000)
110,00
Outstanding shares
0

⮚ The cash dividends payable is computed as follows:

Outstanding shares 110,000

Multiply by: Dividends per share ₱2
Total cash dividends ₱220,000

Sept. 15, 20x1 Retained earnings 220,000

(Date of
Cash dividends payable 220,000
declaration)
Sept. 21, 20x1
(Date of record)
No entry
Sept. 30, 20x1 Cash dividends payable 220,000
(Date of
Cash 220,000
distribution)

2. Solution:
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⮚ 1/20 = 5%. Therefore, the share dividends declared as

considered “small.”
⮚ The stock dividends payable is computed as follows:

Outstanding shares (see ‘Case 1’ above) 110,000

Multiply by: Dividends declared 1/20
Number of shares declared as dividends 5,500
Multiply by: Fair value per share on Sept. 15 14
Total share dividends 77,000

Sept. 15, 20x1 Retained earnings 77,000

(Date of
Stock dividends payable 55,000
declaration)
(5,500 sh. x ₱10 par value)
Share premium 22,000
Sept. 21, 20x1
(Date of record)
No entry
Sept. 30, 20x1 Stock dividends payable 55,000
(Date of
Share capital 55,000
distribution)

3. Solution:
⮚ 1/4 = 25%. Therefore, the share dividends declared as
considered “large.”
⮚ The stock dividends payable is computed as follows:

Outstanding shares (see ‘Case 1’ above) 110,000

Multiply by: Dividends declared ¼
Number of shares declared as dividends 27,500
Multiply by: Par value per share 10
Total share dividends 275,000

Sept. 15, 20x1 Retained earnings 275,000

(Date of
Stock dividends payable 275,00
declaration)
0

Sept. 21, 20x1

(Date of record)
No entry
Sept. 30, 20x1 Stock dividends payable 275,000
(Date of
Share capital 275,00
distribution)
0
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4. Solution:

Outstanding shares (see ‘Case 1’ above) 110,000

Multiply by: Dividends declared 1/20
Number of shares declared as dividends 5,500
Multiply by: Cost per share 15
Total share dividends 82,500

Sept. 15, 20x1 Retained earnings 82,500

(Date of
Stock dividends payable 82,500
declaration)

Sept. 21, 20x1

(Date of record)
No entry
Sept. 30, 20x1 Stock dividends payable 82,500
(Date of
Treasury shares 82,500
distribution)
Sept. 30, 20x1 Retained earnings – appropriated 82,500
Retained earnings – unrestricted 82,500

5. Solution:
Total dividends declared 600,000
Allocation:
① Allocation to preference shares (₱.5M par x 10% x 1 yr.) 50,000
② Excess allocated to ordinary shares (₱.6M - ₱50K) 550,000
As allocated -

6. Solution:
Total dividends declared 600,000
Allocation:

① Allocation to preference shares (₱.5M par x 10% x 3 yrs.) 150,000

② Excess allocated to ordinary shares (₱.6M - ₱150K) 450,000
As allocated -

7. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par x 10% x 1 yr.) 50,000
② Basic allocation to ordinary sh. (₱1M par x 10%) 100,000
Excess subject to participation 450,000
③ Participation of preference sh. (₱450K x .5M par ÷ 1.5M par) 150,000
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③ Participation of ordinary sh. (₱450K x 1M par ÷ 1.5M par) 300,000

As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱50,000 basic + ₱150,000 participation) 200,000

Ordinary shares: (₱100,000 basic + ₱300,000 participation) 400,000

Total dividends 600,000

8. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par x 10% x 3 yrs.) 150,000
② Basic allocation to ordinary sh. (₱1M par x 10%) 100,000
Excess subject to participation 350,000
③ Participation of preference sh. (₱350K x .5M par ÷ 1.5M par) 116,667
③ Participation of ordinary sh. (₱350K x 1M par ÷ 1.5M par) 233,333
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱150,000 basic + ₱116,667 participation) 266,667

Ordinary shares: (₱100,000 basic + ₱233,333 participation) 333,333

Total dividends 600,000

9. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par x 10% x 3 yrs.) 150,000
② Basic allocation to ordinary sh. (₱1M par x 10%) 100,000
Excess subject to participation 350,000
③ Participation of preference sh. [(18% - 10%) x ₱.5M par] 40,000
③ Excess allocated to ordinary sh. (₱350K - ₱40K) 310,000
As allocated -
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❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱150,000 basic + ₱40,000 participation) 190,000

Ordinary shares: (₱100,000 basic + ₱310,000 participation) 410,000

Total dividends 600,000

10. Solution:

Total dividends declared 1,200,000

Allocation:

① Basic allocation to 10% PS (₱.5M par x 10% x 3 yrs.) 150,000

① Basic allocation to 14% PS (₱.3M par x 14% x 1 yr.) 42,000
② Basic allocation to ordinary sh. (₱1M par x 10%) 100,000
Excess subject to participation 908,000
③ Participation of 10% PS (₱.908M x .5M par ÷ 1.8M par) 252,222
③ Participation of 14% PS (₱.908M x .3M par ÷ 1.8M par) 151,333
③ Participation of ordinary sh. (₱.908M x 1M par ÷ 1.8M par) 504,444
As allocated -

❖ The total dividends received by each class of shares are as

follows:

10% PS: (₱150,000 basic + ₱252,222 participation) 402,222

14% PS: (₱42,000 basic + ₱151,333 participation) 193,333
Ordinary shares: (₱100,000 basic + ₱504,444 participation) 604,444

Total dividends 1,999,999*

*Difference of ₱1 is due to rounding-off.

11. Solution:
Dec. 31, 20x1 Capital liquidated (.5M x 75%) 375,000
Retained earnings (.5M x 25%) 125,000
Cash dividends payable 500,000
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PROBLEM 3: COMPUTATIONS
1. Solution:
⮚ The outstanding shares are computed as follows:

140,00
Shares issued (₱2.8M ÷ ₱20 par)
0
Shares subscribed (₱400,000 ÷ ₱20 par) 20,000
Treasury shares (₱350,000 ÷ ₱25 cost) (14,000)
146,00
Outstanding shares
0

⮚ The cash dividends payable is computed as follows:

Outstanding shares 146,000

Multiply by: Dividends per share ₱5
Total cash dividends ₱730,000

May. 15, 20x1 Retained earnings 730,000

(Date of
Cash dividends payable 730,000
declaration)
May. 21, 20x1
(Date of record)
No entry
May. 31, 20x1 Cash dividends payable 730,000
(Date of
Cash 730,000
distribution)

2. Solution:
⮚ 1/10 = 10%. Therefore, the share dividends declared as
considered “small.”
⮚ The stock dividends payable is computed as follows:

Outstanding shares (see ‘Case 1’ above) 146,000

Multiply by: Dividends declared 1/10
Number of shares declared as dividends 14,600
Multiply by: Fair value per share on Sept. 15 24
Total share dividends 350,400

May 15, 20x1 Retained earnings 350,400

(Date of
Stock dividends payable 292,00
declaration)
(14,600 sh. x ₱20 par value) 0
Share premium
58,400
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May 21, 20x1

(Date of record)
No entry
May 31, 20x1 Stock dividends payable 292,000
(Date of
Share capital 292,00
distribution)
0

3. Solution:
⮚ 1/5 = 20%. Therefore, the share dividends declared as
considered “large.”
⮚ The stock dividends payable is computed as follows:

Outstanding shares (see ‘Case 1’ above) 146,000

Multiply by: Dividends declared 1/5
Number of shares declared as dividends 29,200
Multiply by: Par value per share 20
Total share dividends 584,000

May 15, 20x1 Retained earnings 584,000

(Date of
Stock dividends payable 584,00
declaration)
0

May 21, 20x1

(Date of record)
No entry
May 31, 20x1 Stock dividends payable 584,000
(Date of
Share capital 584,00
distribution)
0

4. Solution:

May 15, 20x1 Retained earnings 350,000

(Date of
Stock dividends payable 350,00
declaration)
0

May 21, 20x1

(Date of record)
No entry
May 31, 20x1 Stock dividends payable 350,000
(Date of
Treasury shares 350,00
distribution)
0
May 31, 20x1 Retained earnings – appropriated 350,000
Ret. earnings – unrestricted
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350,00
0

5. Solution:
Total dividends declared 1,200,000
Allocation:

① Allocation to preference shares (₱1M par x 10% x 1 yr.) 100,000

② Excess allocated to ordinary shares (₱1.2M - ₱100K) 1,100,000

As allocated -

6. Solution:
Total dividends declared 1,200,000
Allocation:

① Allocation to preference shares (₱1M par x 10% x 3 yrs.) 300,000

② Excess allocated to ordinary shares (₱1.2M - ₱300K) 900,000
As allocated -

7. Solution:
Total dividends declared 1,200,000
Allocation:
① Basic allocation to preference sh. (₱1M par x 10% x 1 yr.) 100,000
② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 900,000
③ Participation of preference sh. (₱900K x 1M par ÷ 3M par) 300,000
③ Participation of ordinary sh. (₱900K x 2M par ÷ 3M par) 600,000
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱100,000 basic + ₱300,000 participation) 400,000

Ordinary shares: (₱200,000 basic + ₱600,000 participation) 800,000

Total dividends 1,200,000

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8. Solution:
Total dividends declared 1,200,000
Allocation:
① Basic allocation to preference sh. (₱1M par x 10% x 3 yrs.) 300,000
② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 700,000
③ Participation of preference sh. (₱700K x 1M par ÷ 3M par) 233,333
③ Participation of ordinary sh. (₱700K x 2M par ÷ 3M par) 466,667
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱300,000 basic + ₱233,333 participation) 533,333

Ordinary shares: (₱200,000 basic + ₱466,667 participation) 666,667

Total dividends 1,200,000

9. Solution:
Total dividends declared 1,200,000
Allocation:
① Basic allocation to preference sh. (₱1M par x 10% x 3 yrs.) 300,000
② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 700,000
③ Participation of preference sh. [(15% - 10%) x ₱1M par] 50,000
③ Excess allocated to ordinary sh. (₱700K - ₱50K) 650,000
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱300,000 basic + ₱50,000 participation) 350,000

Ordinary shares: (₱200,000 basic + ₱650,000 participation) 850,000

Total dividends 1,200,000

10. Solution:
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Total dividends declared 2,400,000

Allocation:

① Basic allocation to 10% PS (₱1M par x 10% x 3 yrs.) 300,000

① Basic allocation to 12% PS (₱1M par x 12% x 1 yr.) 120,000

② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 1,780,000
③ Participation of 10% PS (₱1.780M x 1M par ÷ 4M par) 445,000
③ Participation of 12% PS (₱1.780M x 1M par ÷ 4M par) 445,000
③ Participation of ordinary sh. (₱1.780M x 2M par ÷ 4M par) 890,000
As allocated -

❖ The total dividends received by each class of shares are as

follows:

10% PS: (₱300,000 basic + ₱445,000 participation) 745,000

14% PS: (₱120,000 basic + ₱445,000 participation) 565,000
Ordinary shares: (₱200,000 basic + ₱890,000 participation) 1,090,000

Total dividends 2,400,000

11. Solution:
Dec. 31, 20x1 Capital liquidated (100K – 90K) 10,000
Retained earnings 90,000
Cash dividends payable 100,000

PROBLEM 4: MULTIPLE CHOICE

1. A
2. C
3. C
4. C
5. D
6. A
7. D
8. A
9. C
Solution:
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Shares issued (₱880,000 ÷ ₱100 par) 8,800

Shares subscribed (₱120,000 ÷ ₱100 par) 1,200
Treasury shares (₱390,000 ÷ ₱130 cost) (3,000)
Outstanding shares 7,000

10. D
Solution:
Outstanding shares: (10,000 x 25%) + 1,000 = 3,500;
Cash dividends payable: 3,500 x 200 = 700,000

PROBLEM 5: MULTIPLE CHOICE

1. A
Solution:
- Outstanding shares: (80,000 – 10,000 + 1,000) = 71,000;
- 15,000 ÷ 71,000 = 21.13% ….. large
- Cash dividends payable: 15,000 x 10 par value = 150,000

2. B
Solution:
- Outstanding shares: (80,000 – 10,000 + 1,000) = 71,000;
- 1 ÷ 10 = 10% ….. small
- Cash dividends payable: 71,000 x 10% x 650 fair value =
4,615,000

3. A
Solution:
10,000 sh. x ½ x ₱120 cost = 600,000

4. A
Solution:
Total dividends declared 12,000,000
Allocation:
① Allocation to preference shares (₱1M par x 10% x 1 yr.) 100,000

② Excess allocated to ordinary shares (₱1.2M - ₱100K) 11,900,000

As allocated -

Outstanding shares:
10% PS: 1M ÷ 200 = 5,000 shares
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OS: 2M ÷ 1 = 2,000,000 shares

You: 100,000 x 1,000 ÷ 5,000 = 20,000

Me: 11.9M x 1,000 ÷ 2,000,000 = 5,950

5. B
Solution:
Total dividends declared 12,000,000
Allocation:
① Allocation to preference shares (₱1M par x 10% x 5 yrs.) 500,000

② Excess allocated to ordinary shares (₱12M - ₱300K) 11,500,000

As allocated -

You: 500,000 x 1,000 ÷ 5,000 = 100,000

Me: 11.5M x 1,000 ÷ 2,000,000 = 5,750

6. D
Solution:
Total dividends declared 12,000,000
Allocation:
① Basic allocation to preference sh. (₱1M par x 10% x 1 yr.) 100,000
② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 11,700,000
③ Participation of preference sh. (₱11.7K x 1M par ÷ 3M par) 3,900,000
③ Participation of ordinary sh. (₱11.7M x 2M par ÷ 3M par) 7,800,000
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱100,000 basic + ₱3,900,000 participation) 4,000,000

Ordinary shares: (₱200,000 basic + ₱7,800,000 participation) 8,000,000

Total dividends 12,000,000

You: 4,000,000 x 1,000 ÷ 5,000 = 800,000

Me: 8M x 1,000 ÷ 2,000,000 = 4,000
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7. B
Solution:
Total dividends declared 12,000,000
Allocation:
① Basic allocation to preference sh. (₱1M par x 10% x 5 yrs.) 500,000
② Basic allocation to ordinary sh. (₱2M par x 10%) 200,000
Excess subject to participation 11,300,000
③ Participation of preference sh. (₱11.3M x 1M par ÷ 3M par) 3,766,667
③ Participation of ordinary sh. (₱11.3M x 2M par ÷ 3M par) 7,533,333
As allocated -

❖ The total dividends received by each class of shares are as

follows:

Preference shares: (₱500,000 basic + ₱3,766,667

participation) 4,266,667
Ordinary shares: (₱200,000 basic + ₱7,533,333 participation) 7,733,333

Total dividends 12,000,000

You: 4,266,667 x 1,000 ÷ 5,000 = 853,333

Me: 7,733,333 x 1,000 ÷ 2,000,000 = 3,867

8. B
Solution:
Total dividends declared 6,000,000
Allocation:

① Basic allocation to 10% PS (₱2M par x 10% x 4 yrs.) 800,000

① Basic allocation to 12% PS (₱4M par x 12% x 1 yr.) 480,000

② Basic allocation to ordinary sh. (₱6M par x 10%) 600,000
Excess subject to participation 4,120,000
③ Participation of 10% PS (₱4.120M x 2M par ÷ 8M par) 1,030,000
③ Participation of ordinary sh. (₱4.120M x 6M par ÷ 8M par) 3,090,000
As allocated -
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❖ The total dividends received by each class of shares are as

follows:

10% PS: (₱800,000 basic + ₱1,030,000 participation) 1,830,000

12% PS: (₱480,000 basic + ₱0 participation) 480,000
Ordinary shares: (₱600,000 basic + ₱3,090,000 participation) 3,690,000

Total dividends 6,000,000

Outstanding shares:
10% PS: 2M ÷ 100 = 20,000 shares
12% PS: 4M ÷ 200 = 20,000 shares
OS: 6M ÷ 10 = 600,000 shares

You: 1,830,000 x 1,000 ÷ 20,000 = 91,500

Friend: 480,000 x 1,000 ÷ 20,000 = 24,000
Me: 3,690,000 x 5,000 ÷ 600,000 = 30,750

9. A
Outstanding shares: 75,000 – 5,000 + (20,000 ÷ 10) = 72,000

10. D 600,000 dividends declared – 500,000 retained earnings =

100,000 liquidating dividends