MORILLA, ROGELYN A.
BSA-1 FINACCT
E07 Answers
Retained Earnings
1. ENTRIES FOR SHARE DIVIDENDS
Ruiz Med-care Inc., is a health insurance company. The following account balances appear on
the statement of financial position of Ruiz Med-care Inc.:
Ordinary Shares (50,000 shares authorized), P10 par, P400,000;
Share Premium-ordinary, P42,500;
Retained Earnings, P299,500.
The board of directors declared a 4% share dividend when the market price of the stock was
P15 as share.
Required: Before After Increase
Dividends Dividends (Decrease)
Ordinary Shares (50,000 shares authorized), 400,000 416,000 16,000
P10 par,
Share Premium-ordinary, 42,000 50,500 8,000
Total Capital 442,500 466,500 24,000
Retained Earnings, 299,500 275,000 (24,000)
Total Shareholder’s Equity 742,000 742,000
Shares Issued and Outstanding 40,000 41,600 1,600
1. Journalize the entries to record
a. The declaration of the dividend
Retained Earnings 24,000
Share Dividends Distributable 16,000
Share Premium – Ordinary Shares 8,000
b. The issuance of the shares
Share Dividends Distributable 16,000
Ordinary Shares 16,000
2. Determine the following amounts before the share dividend was declared:
a. Total share capital - P442,500
b. Total retained earnings - P299,500
c. Total shareholders’ equity - P742,000
3. Determine the following amounts after the share dividend was declared:
a. Total share capital – P466,500
b. Total retained earnings - P275,000
c. Total shareholders’ equity - P742,000
DIVIDENDS ON PREFERENCE AND ORDINARY SHARES
Rosario Corporation has outstanding 60,000 shares of 5% preference shares with a P50 par
value and 300,000 shares of P30 par ordinary shares. During the current year, the company
declared and paid a total cash dividend of P900,000.
Required: For each of the followings independent cases, compute the total dividends to be
received by each class of stock.
1. The preference share is non-cumulative and non-participating 2.
Preference Share Dividends = P150,000
Ordinary Share Dividends = P750,000
2. The preference share is cumulative and non-participating with one-year dividends to
be arrears.
Preference Share Dividends = P300,000
Ordinary Share Dividends = P600,000
3. The preference share is non-cumulative and participating.
Preference Share Dividends = P225,000
Ordinary Share Dividends = P675,000
4. The preference share is cumulative and participating with no dividends in arrears.
Preference Share Dividends = P337,500
Ordinary Share Dividends = P562,500
5. The preference share is cumulative and participating with 3 years dividends in
arrears.
Preference Share Dividends = P562,500
Ordinary Share Dividends = P337,500
Answers:
5% Preferences shares, P50 par
60,000 issued and outstanding 3,000,000
Ordinary Shares, P30 par
300,000 issued and outstanding 9,000,000
1. Non-cumulative & non-participating shares
Preferences Ordinary Total
Outstanding Share Capital P3,000,000 P9,000,000 P12,000,000
Current Preference Dividends:
3,000,000 x 5% = 150,000 P150,000 P150,000
Remainder to Ordinary:
900,000 -150,000 = 750,000 P750,000 P750,000
Total: P150,000 P750,000 P900,000
Dividends per share P2.5 P2.5
2. Cumulative & non-participating shares
Preferences Ordinary Total
Outstanding Share Capital P3,000,000 P9,000,000 P12,000,000
Preference and dividends in arrears
3,000,000 x 5% x 1 year = 150,000 P150,000 P150,000
Current Performance Dividends:
3,000,000 x 5% = 150,000 P150,000 P150,000
Remainder for Participation:
900,000 – 150,000 – 150,000 = 600,000 P600,000 P600,000
Total P300,000 P600,000 P900,000
Dividends per Share: P5.00 P2.00
3. Non-cumulative & Participating
Preferences Ordinary Total
Outstanding Share Capital P3,000,000 P9,000,000 P12,000,000
Current Preference Dividends:
3,000,000 x 5% = 150,000 P150,000 P150,000
Current Ordinary Dividends
at Preference rate:
9,000,000 x 5% = 450,000 P450,000 P450,000
Remainder for Participation:
P900,000 – 150,000 – 450,000 = 300,000
Preference: ¼ x P300,000 P75,000 P75,000
Ordinary: ¾ x P300,000 P225,000 P225,000
Total: P225,000 P675,000 P900,000
Dividends per share: P3.75 P2.25
4. Cumulative & Participating (no dividends and arrears)
Preferences Ordinary Total
Outstanding Share Capital P3,000,000 P9,000,000 P12,000,000
Current Preference Dividends:
3,000,000 x 5% = 150,000 P150,000 P150,000
Current Ordinary Dividends
at Preference rate:
9,000,000 x 5% = 450,000 P450,000 P450,000
Remainder for Participation:
P900,000 – 150,000 – 450,000 = 300,000
Preference: ¼ x P300,000 P75,000 P75,000
Ordinary: ¾ x P300,000 P225,000 P225,000
Total: P225,000 P675,000 P900,000
Dividends per share: P3.75 P2.25
5. Cumulative & Participating
Preference Ordinary Total
Outstanding Share Capital P3,000,000 P9,000,000 P12,000,000
Preference Dividends in arrears:
3,000,000 x 5% x 3 years P450,000 P450,000
Current Preferences Dividends:
3,000,000 x 5% P150,000 P150,000
Current Ordinary Dividends
At Preference rate:
9,000,000 x 5% =450,000
Remainder to ordinary:
P900,000 – 450,000 – 150,000 P300,000 P300,000
= 300,000)
Total: P600,000 P300,000 P900,000
Dividends per share P10.00 P1.00
