Intermediate Accounting 3

1. Chapter 2: Shareholders' Equity (Part 2)

4. Assessment Tasks

1. The stockholders' equity section of Jessie Corp. is presented below.

Common stock, P20 par value, authorized 1,000,000 shares, issued and outstanding 400,000 shares P8,000,000
Additional paid-in capital 2,400,000
Retained earnings 10,800,000
Total stockholders' equity P21,200,000

Requirements:
a. Provide the journal entries for each of the following independent transactions.
b. Complete the following table to depict the number of shares of stock and balances in the stockholders'
equity accounts after each of the following independent transactions.

(a) 15 percent stock dividend, fair value P25 per share

(b) 2-for-l stock split
(c) 100 percent stock dividend, fair value P25 per share

TABLE:
Outstanding Additional Paid-ln Total Retained Stockholders’ Shares Common Stock Capital Earnings Equity
(a)
(b)
(c)

2. The following information pertains to Rondo Corp. for the year ended September (30, 2002).

Net income P 75,000

Retained earnings, Oct. 1, 2001 860,000
Cash dividends declared 16,400
Stock dividends declared 41,000
Overstatement of depreciation expense of 1998 and 1999 - pretax 62,000
Tax rate 30%

Requirement: Compute for the retained earnings balance on September 30, 2002.

3. On September 20, 2002, Nozzle Corporation declared the distribution of the following dividend to its
stockholders of record as of September 30, 2002:

• Investment in 100,000 shares of Astro Corporation stock classified as held for trading securities, carrying
amount P1,600,000; fair value on September 20, P1,450,0000; fair value on September 30, P 1,575,000.

Requirement: Provide the entries on dividend declaration date,

Page 1 of 7
Chapter 1 | Intermediate Accounting 3
4. On June 1, 2001, Patriot Corporation declared a stock dividend entitling its stockholders to one additional
share for each share held. At the time the dividend was declared, the fair value of the stock was P10 per share
and the par value was P5 per share. On this date Patriot had 1,000,000 shares of common stock authorized of
which 600,000 shares were outstanding.

Requirement: Provide the entry on dividend declaration date.

5. Bennett Company paid cash dividends totaling P150,000 in 2000 and P75,000 in 2001. In 2002, Bennett
intends to pay cash dividends of P800,000.

Requirements: Compute the amount of cash dividends per share to be received by common stockholders in
2002 under each of the following assumptions. Treat each case independently. There were no dividends in
arrears as of January 1, 2000.

1) 25,000 shares of common; 100,000 shares of 6 percent, P50 par cumulative preferred.
2) 25,000 shares of common; 50,000 shares of 6 percent, P50 par noncumulative preferred. 3)
25,000 shares of common; 70,000 shares of 6 percent, P 100 par cumulative preferred.

6. On January 1, 2002, the records of the Gerrard Corporation showed these balances:

Common stock--authorized 78,000 shares at P100 par; issued 30,800 shares P3,080,000
Paid-In capital in excess of par 264,800
Retained earnings 2,960,000

During 2002 and 2003, these transactions occurred:

July 1, 2002 Declared stock dividend (from unissued stock) of 1 share for each 2 shares outstanding,
issued September 1. (Prior to the declaration, the market value of the unissued stock was
P115 per share.)
June 1, 2003 Declared stock dividend (from unissued stock) of 1 share for each 10 shares outstanding,
issued August 1. (Prior to the declaration, the market value of the unissued stock was P120
per share.)

Requirement: Provide the entries to record the declaration and Payment of the stock dividends during 2002
and 2003.

7. Upon organization on January 1, 2002, Okra Inc. was authorized to issue 200,000 shares of P10 par common
stock in multiples of 100 shares. During 2002, 110,000 shares were sold at P65 per share; 6,000 shares were
later reacquired as treasury stock at P72 per share. A stock split of 2-for-1 on all issued shares was approved
on December 31, 2002.

During 2003, these dividend and treasury stock transactions occurred:

April 12 Declared and paid a 10 percent stock dividend on all outstanding shares.
Oct. 17 All treasury stock was sold at P81 per share.
Dec. 4 Declared and paid these dividends:
• P1 cash dividend per share for common stock outstanding
• Property dividend of 1 share of Hall Co. common stock for each
10 shares of Okra stock held. The cost to the company for 1
share of Hall Co. common stock was P25 with a current market
value of P30.

Requirement: Provide the entries to record the declaration and payment of the dividends on December 4,
2003.

8. During 2002, the following transactions related to the capital stock of the Buffet-Line Corp, occurred:

Page 2 of 7
Chapter 1 | Intermediate Accounting 3
 Jan. 7 Declared a P0.75 cash dividend on 150,000 shares of preferred stock.
Feb. 7 Paid dividends on preferred stock.
March 4 Declared a P0.50 cash dividend on 200,000 shares of common stock with a P20 par value.
Mar. 18 Paid dividends on common stock.
June 30 Split common stock 4-for-1.
July 9 Purchased 12,000 shares of Buffet-Line’s own common stock at P32 per share; acquisition
recorded at cost.
Sept. 10 Declared a cash dividend of P0.40 per share on common stock outstanding.
Sept. 18 Paid dividends on common stock.

Requirement: Provide the entries to record the above transactions.

9. The board of directors of Logan Piano Co. decided that the company should undergo a quasi-reorganization
effective on December 31, 2002. On that date, the company determined the following asset values.

Carrying amount Fair Value

Machinery P 40,000 P 40,000
Building 300,000 175,000
Equipment 95 000 80 000
P435,000 P295,000

The stockholders' equity section at December 31, 2002, is presented below.

Common stock, P25 par, 25,000 shares issued and outstanding P625,000
Additional paid-in capital 250,000
Retained earnings (deficit) (225,000)
Total P650,000

The quasi-reorganization is to be accomplished by reducing the par value of the stock to P20 per share.

Requirements:
1) Prepare the journal entry required to adjust the assets.
2) Prepare the journal entry to record the recapitalization.
3) Prepare the journal entry to record the elimination of the deficit.

10. SUCCOR HELP AID RELIEF co. declared P3,600,000 cash dividends to its preference and ordinary
shareholders out of its Profits in 20x3. No dividends have been declared since 20x1. SUCCOR's shareholders'
equity immediately before dividend declaration is as follows:

10% Preference share capital, P200 par 4,000,000

Ordinary share capital, P100 par 16,000,000
Retained earnings 10,000,000
Total shareholders' equity 30,000,000

Requirements: Compute for the dividends to (1) Preference shareholders and (2) Ordinary shareholders under
each of the following scenarios: 1) Preference share is noncumulative
2) Preference share is cumulative
3) Preference share is noncumulative and fully participating
4) Preference share is cumulative and fully participating
5) Preference share is cumulative and participating up to 16% '

11. Olivia Company was formed on July 1, 2017. It was authorized to issue 500,000 shares of P10 par value
common stock and 100,000 shares of 8%, P25 par value, cumulative and nonparticipating preferred stock.
Olivia Company has a July 1–June 30 fiscal year. The following information relates to the stockholders’ equity
accounts of Olivia Company.

Common Stock: Prior to the 2019–2020 fiscal year, Olivia Company had 110,000 shares of outstanding
common stock issued as follows.
Page 3 of 7
Chapter 1 | Intermediate Accounting 3
 1. 95,000 shares were issued for cash on July 1, 2017, at P31 per share.
2. On July 24, 2017, 5,000 shares were exchanged for a plot of land which cost the seller P70,000 in 2011
and had an estimated fair value of P220,000 on July 24, 2017.
3. 10,000 shares were issued on March 1, 2019, for P42 per share.

During the 2019–2020 fiscal year, the following transactions regarding common stock took place.

November 30, Olivia purchased 2,000 shares of its own stock on the open market at P39 per share.
Olivia 2019 uses the cost method for treasury stock.
December 15, Olivia declared a 5% stock dividend for stockholders of record on January 15, 2020, to
be
2019 issued on January 31, 2020. Olivia was having a liquidity problem and could not afford a
cash dividend at the time. Olivia’s common stock was selling at P52 per share on December
15, 2019.
June 20, Olivia sold 500 shares of its own common stock that it had purchased on November 30,
2019,
2020 for P21,000.

Preferred Stock: Olivia issued 100,000 shares of preferred stock at P44 per share on July 1, 2018.

Cash Dividends: Olivia has followed a schedule of declaring cash dividends in December and June, with
payment being made to stockholders of record in the following month. The cash dividends which have been
declared since inception of the company through June 30, 2020, are shown below.

Declaration Date Common Stock Preferred Stock

12/15/18 P0.30 per share P0.50 per share
6/15/19 P0.30 per share P0.50 per share
12/15/19 - P0.50 per share

No cash dividends were declared during June 2020 due to the company’s liquidity problems.

Retained Earnings: As of June 30, 2019, Olivia retained earnings account had a balance of P550,000. For
the fiscal year ending June 30, 2020, Olivia reported net income of P120,000.

Requirement: Prepare the stockholders’ equity section of the balance sheet for Olivia Company as of June 30,
2020 using the template below.

Olivia Company
Stockholder’s Equity
June 30, 2020

Capital stock
4% preferred stock, P25 par value, cumulative and nonparticipating, 100,000
shares authorized, 100,000 shares issued and outstanding Common stock, P10 par
value, 500,000 shares authorized, 115,400 shares issued, with 1,500 shares held in
the treasury
Additional paid-in capital
On preferred stock
On common stock
On treasury stock _________ _________
Total paid-in capital
Retained earnings _________
Total paid-in capital and retained earnings
Less: Treasury stock, 1,500 shares at cost _________
Total stockholders’ equity _________

12. The following are selected transactions that may affect stockholders’ equity. 1) Recorded
accrued interest earned on a note receivable.
2) Declared a cash dividend.
Page 4 of 7
Chapter 1 | Intermediate Accounting 3
 3) Declared and distributed a stock split.
4) Approved a retained earnings restriction.
5) Recorded the expiration of insurance coverage that was previously recorded as prepaid insurance.
6) Paid the cash dividend declared in item 2 above.
7) Recorded accrued interest expense on a note payable.
8) Declared a stock dividend.
9) Distributed the stock dividend declared in item 8.

Requirement: In the following table, indicate the effect each of the nine transactions has on the financial
statement elements listed. Use the following code: I = Increase, D = Decrease, NE = No effect.

13. Berto Corporation’s post-closing trial balance at December 31, 2020, is shown below.

BERTO CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2020

At December 31, 2020, Berto had the following number of common and preferred shares.

The dividends on preferred stock are P4 cumulative. In addition, the preferred stock has a preference in
liquidation of P50 per share.

Requirement: Prepare the stockholders’ equity section of Berto’s balance sheet at December 31, 2020.
Page 5 of 7
Chapter 1 | Intermediate Accounting 3
 14. Anne Ganda Company reported the following amounts in the stockholders’ equity section of its December 31,
20119, balance sheet.

Preferred stock, 10%, P100 par (10,000 shares authorized, 2,000 shares issued) P200,000
Common stock, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000
Additional paid-in capital 125,000
Retained earnings 450,000
Total P875,000

During 2020, Ganda took part in the following transactions concerning stockholders’ equity.
a. Paid the annual 20119 P10 per share dividend on preferred stock and a P2 per share dividend on
common stock. These dividends had been declared on December 31, 20119.
b. Purchased 1,700 shares of its own outstanding common stock for P40 per share. Ganda uses the cost
method.
c. Reissued 700 treasury shares for land valued at P30,000.
d. Issued 500 shares of preferred stock at P105 per share.
e. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for P45 per
share.
f. Issued the stock dividend.
g. Declared the annual 2020 P10 per share dividend on preferred stock and the P2 per share dividend on
common stock. These dividends are payable in 2015.

Instructions
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2020, stockholders’ equity section. Assume 2020 net income was P330,000.

15. Caja Company has outstanding 2,500 shares of P100 par, 6% preferred stock and 15,000 shares of P10 par
value common. The following schedule shows the amount of dividends paid out over the last 4 years.

Requirements: Allocate the dividends to each type of stock under assumptions (a) and (b). Express your
answers in per share amounts using the format shown below.

5. References
Louwers, T. et al 2015. Auditing & Assurance Services. McGraw-Hill Publishing Salosagcol,
J. et al 2020. Auditing Theory. GIC Enterprises & Co., Inc.

Page 6 of 7
Chapter 1 | Intermediate Accounting 3
ISUE__ __ Syl ___
Revision: 02
Effectivity: August 1, 2020

Page 7 of 7
Chapter 1 | Intermediate Accounting 3