Se a a ec y True or False 10. 11 Share diviciends increase the proporbonate interests of the shareholders because of the increase in thew shareholdings. For most companies, the amount and timing of dividend deciarations are Getermined by the shareholders at their annual meeting. Retained earnings consist of a poo! of funds to be distributed to shareholders. A liquidating dividend is usually paid when a corporation is going out of business or reducing its operations. Dividends are contractual obligations of the corporation which must be paid at regular intervals. im case of liquidation, the claims of the preference shareholders are given preference over the claims of creditors. Retained earnings represent cash readily available for dividends. Devidiends in arrears refer to passed preference dividends which must be satisfied before any dividends may be paid on ordinary shares. im most cases, corporations pay out dividends equal to profit unless specific restrictions, either legal or financial, are stated in the annual report. The date on a statement of changes in shareholders’ equity is for a period of time rather than for a specific point in time. Cash dividends are deciared by the board of directors with the concurrence of the shareholders of the corporation. Dividends are expenses since they decrease shareholders’ equity. Liquidating dividends are paid when a corporation is permanently reducing its size oF gotng out of business.19 20. a a a a a5 A share dividend will Cause an increase in total share capital at the date the dividend is declared. in a Share split, the par value of all shares in the issued class is increased in proportion to the additional shares issued. Dividends in arrears pertain to non-curnulative preference shares. A restriction on fetained earnings is recorded with a debit. A property dividend is often referred to as a dividend in kind. Curnulative preference shares entitle the holder to receive all current and previously postponed dividends after the ordinary share dividends are distributed. A person owning stock on the date of record will receive share dividends that have been declared. fetained earnings represent cash generated from profitable operations that have been retained in the business. A restriction on retained earnings leaves total retained earnings unchanged. dividends, the shareholders have @ greater After the declaration of share f the corporation than before. proportional interest in the asset 0! in amount A possible reason to restrict retained earnings would be to reserve @ certal for dividends on ordinary shares. jability of the Dividends on Cumulative preference shares do not become 2 liability corporation until they are declared by the board of directors.True or False 10. 11, 12. 13. 14. The purchase of treasury stock does not affect shareholders’ equity. ents a return to the shareholders of a part of their share A dividend that repres¢ arnings is called a liquidating capital rather than a distribution out of retained e: dividend. A debit balance in the Retained Earnings account is referred to as a deficit. A share dividend will cause an increase in the total number of shares issued and outstanding. Correction of errors and prior period adjustments both result in either a debit or a credit to Retained Earnings. Dividends in arrears are liabilities of the corporation. Ashare dividend does not affect the total amount of shareholders' equity. No entry is required on the date of record for a cash dividend. Property dividends are charged to retained earnings at cost or book value of the non-cash assets distributed. Ashare dividend is a pro rata distribution of cash to a corporation's shareholders. A 2-for-| share split will have the same effect on the number of shares outstanding as a 200% share dividend. Dividends usually cannot be paid on ordinary shares unless the regular dividend has been paid to preference shareholders. A share split normally increases total shareholders’ equity. Cumulati ‘umulative preference shares entitle the holders to participate with the holders of ordinary shares pro-rata in th ; received thelr initial share. @ remainder after the ordinary shareholders have15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 2s. The declaration of a cash dividend causes an increa: se i o tht the date of record. e in a corporation's liabilities at Ashare dividend reduces the retained earnin| : gs balance and permanent itali: the reduced portion of the retained earnings. oo A share split results in a transfer of the market value of the share from retained earnings to share capital. A retained earnings appropriation reduces the total shareholder’s equity shown on the statement of financial position. Share splits and share dividends are accounted for differently. Prior period adjustments are corrections of errors made in financial statements of the prior periods. These should be shown in the current year’s statement of recognized income and expense. : Dividends are declared by the shareholders. Cash Dividends Payable is closed to Retained Earnings at the end of the period. The retained earnings balance of a corporation is part of its share capital. Ashare dividend exceeding 25% is properly treated as a share split. gs isa component of contributed capital. Retained earniniMultiple Choice 1. The book value of ordinary shares is the same as a. par value. b. liquidation value. c. net worth, d. net tangible asset value per share. 2. NMB Corporation has 5,000,000 ordinary shares and 1,000,000 shares of 6% P100 par value cumulative preference shares. During the recession of the past two years, NMB suspended all dividend payments. This year NMB returned to profitability, and the board of directors declared a P1 per share ordinary shares dividend to be paid at the end of the year. How much would NMB have to pay in dividends this year? a. P5,000,000 b. P11,000,000 c. P17,000,000 d. 23,000,000 participating preference shares issue, along with 2 3. APL Corporation has a 6% f the following statements is true? ordinary shares issue. Which o' a. Participating preference shareholders receive a minimum dividend payment of 6%. b. Parti 6%. Participating preference shi d. Participating preference sh 6%. cipating preference shareholders receive an average dividend payment of areholders receive only 6% in dividends. areholders receive a maximum dividend paym 9 ent of hen the corporation plit, GDM's stock was in will IM Corporation wl Before the share s| what ownership positio' 4. An investor owns 1,000 shares of GD! announces a 1-for-4 reverse share split. trading at P1.50 per share. After the share split, investor have? 4,000 shares at PO.37 per share 1,000 shares at P6.00 per share 250 shares at P1.50 per share 250 shares at P6.00 per share % aoce 5, Acorporation has 6% participating preference shares. What does the 6% mean?Maximum dividend payment Minimum dividend payment Actual dividend payment None of the above aoow Which of the following Corporation accounts are not affected by the payment of a cash dividend? Shareholder's Equity . Total Assets Il, Long-Term Liabilities IV. Retained Earnings a. LMll,andiv b. 1,ll,and iit c. I, Ill, and iv d. 1,1, I, andiv Which of the following transactions does not decrease working capital? |. Paying a cash dividend ll. Declaring a cash dividend ll, Purchasing the corporation's own stock long-term debt using the proceeds from newly issued 'V. Leasing long-term equipment, which is transacted as a capital lease a. 11, and iv b. Il, Ill, and iv c. Il and ill d. 1,11, 1 andiv A share split by a corporation affects which account on the statement of financial Position? a. Retained Earnings b. Shareholder's Equity ¢. Share Premium d. Par Value A corporation has 800,000 ordinary shares outstanding. Recently, the sopporaton bought 100,000 shares of its own stock. At the end of the year, the corporation has P320,000 available to distribute to ordinary shareholders. What are the dividends Paid per share? a. P0.40 b. P0.46 c. P2.19 d. P2.50Multiple Choice 1. Manaloto Trade, Inc. has 10,000 shares of 7% PSO par preference shares, and 100,000 shares of P4 par ordinary shares outstanding. Two years’ preference dividends are in arrears. Manaloto Trade declared a cash dividend large enough to pay the preference dividends in arrears, the preference dividends for the current period, and a P1.50 dividend to ordinary. What is the total amount of the dividend? P105,000 P150,000 P220,000 P255,000 aege On Jan. 5, 2019, Sanchez Minerals Corp. declared a cash dividend of P6,000,000 to shareholders of record on Jan. 21, 2019. It was payable on Feb. 11, 2019. The following data pertained to 2018: Profit for year ended 12/31/2018 P 1,900,000 Share Premium, 12/31/2018 6,750,000 Retained Earnings, 1/1/2019 4,250,000 The P6,000,000 dividend included a liquidating dividend of P4,850,000. 4,100,000. P1,750,000. P-0-. aoce Estrada Corporation has 5,000 shares of 6% cumulative, P100 par value, preference shares outstanding and 175,000 ordinary shares outstanding. The corporation has Paid no dividends since May 31, 2018. For the year ended May 31, 2020, Estrada had profit of P1,450,000 and wishes to Pay ordinary shareholders a dividend equivalent to 25% of profit. The total amount of dividends to be paid by Estrada Corporation at May 31, 2020 is P422,500. P407,500. P392,500. P362,500. acoo4, Pangan Corp. acquired 4,000 shares of Agustin, for P660,000. On Nov. 30, 2020, Agustin distri when the market price of the stock was P250 per share. On Dec, 20, 2020, Pangan sold 400 shares of its Agustin stock for P4i 06,000. For the ye how much should Pangan report as dividend revenues? Teese weak P-0- P106,000 P100,000 P 46,000 Inc. ordinary shares on Oct, 20, 2018 buted a 10% ordinary share dividend eaege 5. Malit Corporation has a total shareholders’ equity of P1,000,000, including retained earnings of P190,000. The cash balance is P350,000. The maximum cash dividend the corporation can declare and pay is a. P1,000,000. b. 650,000. c. P350,000. d. P190,000. 6. At Dec. 31, 2018 and 2019, L. Pestano Corp. had outstanding 2,000 shares of P1,000 par value, 6% cumulative preference shares and 10,000 shares of P100 par value ordinary shares. At Dec. 31, 2018, dividends in arrears on the preference shares were P60,000. Cash dividends declared in 2019 totaled P220,000. What amounts were payable on each class of stock? Preference Shares Ordinary Shares a P120,000 P100,000 b. P160,000 P 60,000 ‘ 180,000 P 40,000 a. P220,000 P-0- 7. On Dec. 31, 2018, the shareholders’ equity section of A. Pacis, Inc. was as follows: Ordinary Shares, par value P100, authorized 30,000 shares, issued and outstanding 9,000 shares ro peed . Share Premium 11460,000 Retained Earnings — 000 Total Shareholders’ Equity nd, Accordingly, 900 shares are. For the three months On March 31, 2019, A. Pacis declared a 10% share divider 000. The balance of A. were issued when the fair market value was P160 per sh ed a loss of P320, ended March 31, 2019, A. Pacis sustaine® Or Pacis's retained earnings as of March 31, 2019 shou!a. P 996,000. b. P1,050,000. ¢ P1,086,000. d P1,140,000 . Effective April 27, 2019, the shareholders of Fernando Corp. approved a 2-for-1 split an increase in authorized ordinary shares ordinary shares, and 200,000 shares. Fernando's shareholders’ equity accounts ince of the share $1 cof the corporation's from 100,000 shares to immediately before issue plit shares were as follows. ordinary Shares, P20 par value, 100,000 shares authorized, 90,000 shares outstanding P'1,000,000 Share Premium 150,000 Retained Earnings 1,350,000 2019. In Fernando's June 30, 2019 were issued on June 30, he balances of share premium and The share split shares hareholders' equity, t statement of changes ins! retained earnings are Share Premium Retained Earnings a. Po P 500,000 b. 150,000 P 350,000 © 150,000. P1,350,000 4. *P1,150,000 P 350,000 cash dividend of P10,000 on Jan. 17. This dividend f record on Feb. 10 and payment was made on March ) on Ranga Corporation declared a was payable to shareholders o! 2. As aresult of this cash dividend, liabilities will increase (decrease Jan. 17 Feb. 10 a P-0- P-0- b 10,000 P-0- c (10,000) P-0- 4 10,000 (10,000) On 7 one ete camera Corp. split its ordinary shares S-for-1 when the market eae rasan ped a rior to the split, Samoza had 10,000 shares of P10 par share ued and outstanding. After the split, the par value of the @ remained at P10. b. was reduced to PB c. was reduced to PS. d. was reduced to P211. 12. 13. Pascual Corp. owned 20,000 ordinary share: for P1,800,000. On Dec. 15, 2020, Pascual devine nn, cor? Purchased in 2018 Alegrado Corp. shares on the basis of oon cece a eeceeett dividend of all its Pascual ordinary shares held by its shareholders. nl lad every 10 shares of distributed on Jan, 15, 2021. On the declaration date, the serenn naan cee the Alegrado shares held by Pascual was P3,000,000. the erty ve resoarane declaration of the dividend should include a debit to retained each the a. 3,000,000. 1,800,000. 1,200,000. P-0-. The following data are extracted from the shareholders’ equity section of the statement of financial position of Dela Cruz Corporation: 12/31/2018 12/31/2019 Ordinary Shares, P2 par value 1,000,000 1,020,000 500,000 580,000 Share Premium Retained Earnings 1,000,090 1,046,000 gogo During 2019, the corporation declared and paid cash dividends of P150,000 and also declared and issued a share dividend. There were no other changes in shares issued and outstanding during 2019. Profit for 2019 was a. P 46,000. b. P196,000. c. P216,000. d. P296,000. On May 1, 2019, Chavez Corp. declared and issued a 10% ordinary share dividend. rdinary shares Prior to this dividend, Chavez had 100,000 shares of P1 par value 0! a issued and outstanding. The fair market value of Chavez's ordinary shares wes Pp: ult of the share dividend, Chavez's total per share on May 1, 2019. As a resi shareholders’ equity increased by P300,000. decreased by P300,000. decreased by P10,000. did not change. angeM4, 15. Lozada Corp. has 100,000 shares of P20 par ordinary shares outstanding, The stock's market value is P37 per share, Lozada’s board of directors declared and distributed a 10% ordinary share dividend, Which of the following entries showed the full effect of declaring and distributing the dividend? a Retained Earnings 370,000 Ordinary Shares Distributable 200,000 Share Premium-Ordinary 170,000 b, Retained Earnings 200,000 Ordinary Shares 200,000 ¢ Retained Earnings 170,000 Share Premium-Ordinary 170,000 4. Retained Earnings 370,000 Ordinary Shares 200,000 Share Premium-Ordinary 170,000 The following information was abstracted from the accounts of David Corporation at year-end: Total income since incorporation P840,000 Total cash dividends paid 260,000 Proceeds from sale of donated shares 90,000 Total value of share dividends distributed 60,000 Excess of proceeds over cost of treasury stock sold 140,000 What should be the current balance of retained earnings? 520,000 P580,000 610,000 670,000 aooe