A. On November 27, The Board of Directors of India Star Company Declared A $.35 Per Share

1.
a. On November 27, the board of directors of India Star Company declared a $.35 per share
dividend. The dividend is payable to shareholders of record on December 7 on December
24.India Star has 25,500 shares of $1 par common stock outstanding at November 27. How
much is charged to retained earnings?
a. $8925
b. $9825
c. $8952
d. $9852
Answer. A
Nov. 27 Retained Earnings ............................................................... 8,925
Dividends Payable ................................................... 8,925
(25000 x .35 = 8925)
Dec. 24 Dividends Payable............................................................... 8,925
Cash......................................................................... 8,925
b. On October 10, the board of directors of Pitcher Corporation declared a 5% stock dividend.
On October 10, the company had 10,000 shares of $1 par common stock issued and
outstanding with a market price of $15 per share. The stock dividend will be distributed on
October 31 to shareholders of record on October 25. How much is charged to retained
earnings?
a. $500
b. $7500
c. $8500
d. $9500
Answer. B
Number of shares to be issued: 500 shares (small stock dividend)

Oct. 10 Retained Earnings (500 × $15) ............................................ 7,500
Common Stock Dividends Distributable ................... 500
Paid in Capital in Excess of Par ............................... 7,000
Oct. 31 Common Stock Dividends Distributable............................... 500
Common Stock......................................................... 500
c. The balance in retained earnings on January 1, 2008, for Ettenger Inc, was $600,000. During
theyear, the corporation paid cash dividends of $70,000 and distributed a stock dividend of
$8,000.In addition, the company determined that it had overstated its depreciation expense in
prior years by $50,000. Net income for 2008 was $100,000. What is the balance of retained
earnings on December 31, 2008?
a. $650000
b. $750000
c. $600000
d. $672000
Answer. D
Balance, January 1 as reported $600,000
Correction for understatement of net income
in prior period (depreciation expense error) 50,000
Balance, January 1, as adjusted 650,000
Add: Net income 100,000
750,000
Less: Cash dividends $70,000
Stock dividend 8,000 78,000
Balance, December 31 $672,000
d. The following information is available for Orson Corporation:
Retained Earnings, December 31, 2008 $1,500,000
Net Income for the year ended December 31, 2009 $ 250,000
The company accountant, in preparing financial statements for the year ending December 31,
2009, has discovered the following information: The company's previous bookkeeper, who has
been fired, had recorded depreciation expense on a machine in 2007 and 2008 using the
double-declining-balance method of depreciation. The bookkeeper neglected to use the straight-
line method of depreciation which is the company's policy. The cumulative effects of the error on
prior years was $15,000, ignoring income taxes. Depreciation was computed by the straight-line
method in 2009. What is the adjustment in retained earnings?
a. Dr 15000
b. Cr 15000
c. Dr 25000
d. Cr 25000
e. What is the ending balance of retained earnings?
a. $1500000
b. $1515000
c. $1600000
d. $1765000
Answer. B, D
Accumulated Depreciation............................................................ 15,000
Retained Earnings ............................................................... 15,000
Balance January 1, as reported ................................................................. $1,500,000
Correction for overstatement of depreciation in prior period ..................... 15,000
Balance, January 1, as adjusted ............................................................... 1,515,000
Add: Net income ....................................................................................... 250,000
Balance, December 31 .............................................................................. $1,765,000
2.
a. If the beginning and ending balances in retained earnings are $15,000 and $10,000,
respectively, and dividends during the year are $8,000, then net income for the year is:
a. $10,000.
b. $3,000.
c. $18,000.
d. $32,000.
Answer. B
$15,000 + NI - $8,000 = $10,000

NI = $3,000
b. Below are several accounts from Norel Company’s accounting records.
Total assets, end of year P110,000

Total liabilities, end of year 36,000
Contributed capital, end of year 12,000
Retained earnings, beginning of year 18,000
Dividends for the period 31,000
Net income 75,000
The amount of retained earnings at the end of the year is:

a. $34,000.
b. $40,000.
c. $62,000.
d. $64,000.
Answer. C
$18,000 + 75,000 $31,000 = $62,000
or $110,000 $36,000 $12,000 = $62,000
c. Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000
for the year before considering the dividends received deduction. Hawk Corporation pays Eagle
a dividend of $130,000, which was considered in calculating the $100,000. What amount of
dividends received deduction may Eagle claim if it owns 15% of Hawk’s stock?
a. $0
b. $70,000
c. $91,000
d. $104,000
ANSWER: b
Solution: The dividends received deduction depends upon the percentage of ownership by the
corporate shareholder. Because Eagle Corporation owns 15% of Hawk Corporation, Eagle
would qualify for a 70% deduction, calculated as shown below.
1. Multiply the dividends received by the deduction percentage ($130,000 × 70% =
$91,000).
2. Multiply the taxable income before the dividends received deduction by the
deduction percentage ($100,000 × 70% = $70,000).
3. Limit the deduction to the lesser of step 1 or step 2, unless subtracting the amount
derived in step 1 ($91,000) from taxable income before the dividends received
deduction ($100,000) generates an NOL ($100,000 – $91,000 = $9,000 taxable
income). If so, use the amount derived in step 1 ($91,000). In this case, the NOL
exception to the taxable income limitation does not apply, and the deduction equals
$70,000
d. Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. He also owns
60% of the stock in a C corporation that earned $150,000 during the year. The S
corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000
to Bjorn. How much income must Bjorn report from these businesses?
a. $0 income from the S corporation and $30,000 income from the C corporation.
b. $30,000 income from the S corporation and $30,000 of dividend income from the C
corporation.
c. $90,000 income from the S corporation and $0 income from the C corporation.
d. $90,000 income from the S corporation and $30,000 income from the C corporation.
Answer. D
Bjorn must report his $90,000 share ($150,000 × 60%) of the S corporation’s income on his
individual tax return. He will report $30,000 of dividend income from the C corporation.
e. Devons Company has 24,000 shares of $1 par common stock issued and outstanding. The
company also has 2,000 shares of $100 par 3% cumulative preferred stock outstanding. The
company did not pay the preferred dividends in 2007 or 2008. What amount of dividends must
the company pay the preferred shareholders in 2009 if they wish to pay the common
stockholders a dividend?
a. $6000
b. $12000
c. $18000
d. $24000
Answer C
Annual preferred dividend: 2,000 × $100 × 3% = $6,000

Dividends for 2007, 2008 and 2009: $6,000 × 3 = $18,000
3.
a. On November 1, 2008, Mates Corporation’s stockholders’ equity section is as follows:

Common stock, $10 par value $600,000
Paid-in capital in excess of par value 180,000
Retained earnings 200,000
Total stockholders’ equity $980,000
On November 1, Mates declares and distributes a 10% stock dividend when the market value of
the stock is $14 per share. What is the balance of retained earnings after adjustments?
a. $200000
b. $116000
c. $120000
d. $132000
Answer B
Common Stock $660,000*
Paid-in Capital in Excess of Par Value 204,000**
Retained Earnings 116,000***
Total Stockholders’ Equity $980,000
*$600,000 + (60,000 × .10 × $10)

**$180,000 + (60,000 × .10 × $4)
***$200,000 – (60,000 × .10 × $14)
b. The stockholders' equity section of Ellis Corporation at December 31, 2007, included the
following:
6% preferred stock, $100 par value, cumulative,
10,000 shares authorized, 8,000 shares issued and outstanding....... $ 800,000
Common stock, $10 par value, 250,000 shares authorized,
200,000 shares issued and outstanding ............................................ $2,000,000
Dividends were not declared on the preferred stock in 2007 and are in arrears.
On September 15, 2008, the board of directors of Ellis Corporation declared dividends on the
preferred stock for 2007 and 2008, to stockholders of record on October 1, 2008, payable on
October 15, 2008.
On November 1, 2008, the board of directors declared a $.90 per share dividend on the
common stock, payable November 30, 2008, to stockholders of record on November 15, 2008.
Compute the adjustments for:
Retained Earnings?
a. Dr 276000
b. Cr 276000
c. Dr 267000
d. Cr 267000
c. Preferred Dividends Payable?

a. 0
b. Cr 96000
c. Dr 180000
d. Cr 180000
d. Common Dividends Payable?

a. 0
b. Cr 96000
c. Dr 180000
d. Cr 180000
Answers A A A
9/15/08 Retained Earnings ($800,000 × .06 × 2) .............................. 96,000
Preferred Dividends Payable....................................... 96,000
(To record declaration of dividends in arrears and the current year's preferred dividend)
10/1/08 (No entry required.)
10/15/08 Preferred Dividends Payable................................................ 96,000
Cash ............................................................................ 96,000
(To record payment of cash preferred dividend)
11/1/08 Retained Earnings................................................................ 180,000
Common Dividends Payable ....................................... 180,000
(To record declaration of cash dividend on common
stock)
11/15/08 (No entry required.)
11/30/08 Common Dividends Payable................................................ 180,000
Cash ............................................................................ 180,000
(To record payment of common cash dividends)
RE = (96000 + 180000 = 276000)
e. Richman Corporation has 120,000 shares of $5 par value common stock outstanding. It
declared a 15% stock dividend on June 1 when the market price per share was $12. The shares
were issued on June 30. How much is charged to retained earnings?
a. $200000
b. $208000
c. $216000
d. $224000
Answer C
June 1 Retained Earnings (120,000 × .15 × $12)............................ 216,000

Common Stock Dividends Distributable...................... 90,000
Paid-in Capital in Excess of Par Value ....................... 126,000
June 30 Common Stock Dividends Distributable .............................. 90,000
Common Stock ........................................................... 90,000
a. Derek Corporation was organized on January 1, 2007. During its first year, the corporation
issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value
common stock. At December 31, the company declared the following cash dividends:
2007 $10,000
2008 $30,000
2009 $70,000
Assuming the preferred stock dividend is 8% and cumulative, In 2009, how much is payable to:
Common shareholders?
a. $16000
b. $54000
c. $58000
d. $70000
b. Preferred shareholders?
a. $16000
b. $54000
c. $58000
d. $70000
Answer B A
Preferred Common Total

2007 $10,000 $ -0- $10,000
2008 22,000 8,000 30,000
2009 16,000 54,000 70,000
c. On November 1, 2008, Lambert Corporation's stockholders' equity section is as follows:

Common stock, $10 par value $ 600,000
Paid-in capital in excess of par value 205,000
Total stockholders' equity $1,045,000
On November 1, Lambert declares and distributes a 10% stock dividend when the market value
of the stock is $13 per share. What is the balance of retained earnings after the stock dividend
has been distributed?
a. $240000
b. $160000
c. $162000
d. $146000
Answer C
d. What is the balance of stockholders' equity after the stock dividend has been distributed?
a. $1045000
b. $1000000
c. $1050000
d. $1500000
Answer A
Common Stock $ 660,000

Paid-in Capital in Excess of Par Value 223,000
Retained Earnings 162,000
Total Stockholders' Equity $1,045,000
e. On January 1, 2008, Windom Corporation had Retained Earnings of $378,000. During the
year, Windom had the following selected transactions:
1. Declared stock dividends of $40,000.
2. Declared cash dividends of $90,000.
3. A 2 for 1 stock split involving the issuance of 200,000 shares of $5 par value common stock
for 100,000 shares of $10 par value common stock.
4. Suffered a net loss of $70,000.
5. Corrected understatement of 2007 net income because of an inventory error of $68,000.
What is the ending balance of retained earnings?
a. $446000
b. $246000
c. $376000
d. $130000
Answer B
Balance, January 1, as reported .......................................................... $378,000

Correction for understatement of 2007 net income (inventory error) ... 68,000
Balance, January 1, as adjusted.......................................................... 446,000
Less: Net loss .................................................................................... (70,000)
376,000
Less: Cash dividends......................................................................... $90,000
Stock dividends ........................................................................ 40,000 (130,000)
Balance, December 31 ........................................................................ $246,000
5.
a. On January 1, 2008, Dolan Corporation had 60,000 shares of $1 par value common stock
issued and outstanding. During the year, the following transactions occurred:
Mar. 1 Issued 20,000 shares of common stock for $400,000.
June 1 Declared a cash dividend of $2.00 per share to stockholders of record on
June 15.
June 30 Paid the $2.00 cash dividend.
Dec. 1 Purchased 4,000 shares of common stock for the treasury for $22 per share.
Dec. 15 Declared a cash dividend on outstanding shares of $2.25 per share to
stockholders of record on December 31.
How much is charged to retained earnings as the result of above transactions?

a. $321000
b. $331000
c. $341000
d. $351000
Answer B
b. What is the balance of dividends payable as the result of above transactions?

a. $0
b. $160000
c. $171000
d. $220000
Answer C
Mar. 1 Cash..................................................................................... 400,000

Common Stock............................................................ 20,000
Paid-in Capital in Excess of Par Value ........................ 380,000
June 1 Retained Earnings................................................................ 160,000
Dividends Payable....................................................... 160,000
(80,000 × $2 = $160,000)
June 30 Dividends Payable................................................................ 160,000
Cash ............................................................................ 160,000
Dec. 1 Treasury Stock ..................................................................... 88,000
Cash ............................................................................ 88,000
Dec. 15 Retained Earnings (76,000 × $2.25) .................................... 171,000
Dividends Payable....................................................... 171,000
c. Greentea Corporation earned net income of $95,000 during the year ended December 31,
2010. On December 15, Greentea declared the annual cash dividend on its 6% preferred stock
(11,000 shares with total par value of $110,000) and a $1.00 per share cash dividend on its
common stock (45,000 shares with total par value of $450,000). Greentea then paid the
dividends on January 4, 2011. How much is charged to retained earnings?
a. $51600
b. $45000
c. $110000
d. $210000
Answer A
d. By how much did Retained Earnings increase or decrease during 2010?

a. Increase 44300
b. Decrease 44300
c. Increase 43400
d. Decrease 43400
Answer C
Dec. 15Retained Earnings
($110,000 × .06) + (45,000 × $1.00)… 51,600
Dividends Payable………………… 51,600
Declared a cash dividend
2011
Jan. 4Dividends Payable……………………51,600
Cash…………………………………. 51,600
Paid the cash dividend.
During 2010, Retained Earnings increased by $43,400 (net income of $95,000 − dividends of
$51,600).
e. Maple Tree Mall, Inc., has 2,500 shares of 2%, $25 par cumulative preferred stock and
125,000 shares of $2 par common stock outstanding. At the beginning of the current year,
preferred dividends were four years in arrears. Maple Trees board of directors wants to pay a
$2.50 cash dividend on each share of outstanding common stock in the current year. To
accomplish this, what total amount of dividends must Maple Tree declare?
a. $250,000
b. $255,000
c. $256,250
d $318750
Answer D
[First, annual preferred dividend = $1,250 (2,500 x $25 x .02)]. Five years of preferred
dividends must be paid (four in arrears plus the current year). [($1,250 x 5) + ($125,000 x$2.50
per share common dividend) = $318,750]
6.
a. Access Garde, Inc., has 200,000 shares of $1.80 preferred stock outstanding in addition to its
common stock. The $1.80 designation means that the preferred stockholders receive an annual
cash dividend of $1.80 per share. In 2010, Access Garde declares an annual dividend of
$500,000. The allocation to preferred and common stockholders is:
Preferred dividend, (200,000 shares * $1.80 per share)............ $360,000
Common dividend (remainder: $500,000 * $360,000) ............. 140,000
Total dividend........................................................................... $500,000
How much in dividends must Access Garde declare each year before the common stockholders
receive any cash dividends for the year?
a. $140000
b. $360000
c. $420000
d. $480000
Answer B
$360,000 (200,000 shares × $1.80 per share)
b. Suppose Access Garde, Inc., declares cash dividends of $400,000 for 2010. How much of the
dividends goes to preferred?
a. $40000
b. $48000
c. $360000
d. $380000
Answer C
c.How much goes to common?
a. $40000
b. $48000
c. $360000
d. $380000
Answer A
Preferred: $360,000 Common: $ 40,000
d. Access Garde, Inc., passed the preferred dividend in 2009 and 2010. Then in 2011, Access
Garde declares cash dividends of $1,500,000. How much of the dividends goes to preferred?
a. $1080000
c. $420000
c. $108000
d. $42000
e. How much goes to common?
a. $1080000
c. $420000
c. $108000
d. $42000
Answer A B
Preferred: $1,080,000 ($360,000 × 3)
Common: $ 420,000 ($1,500,000 − $1,080,000)
7.
a. Centerville Bancshares has 13,000 shares of $3 par common stock outstanding. Suppose
Centerville distributes a 15% stock dividend when the market value of its stock is $25 per share.
How much is charged to retained earnings?
a. $58500
b. $13000
c. $48750
d. $42900
Answer C
Retained Earnings (13,000 × .15 × $25.00)…… 48,750
b. Huron Manufacturing, Inc., reported the following:
Preferred stock, cumulative, $0.50 par, 9%, 40,000 shares issued .....$ 20,000
Common stock, $0.10 par, 9,170,000 shares issued..................... 917,000
Huron Manufacturing has paid all preferred dividends through 2007.
How much is the total amounts of dividends to both preferred and common for 2010, if total
dividends are $60,000?
Preferred
a. $60000
b. $54600
c. $5400
d. $1800
c.Common
a. $60000
b. $54600
c. $5400
d. $1800
Answer C B
2010 Total dividend……………. $ 60,000
Preferred dividends in arrears:
2008: 40,000 shares X $1,800
$0.50(par) per share X .09
2009: 40,000 shares X 1,800
Current year — 2010: 40,000 shares X 1,800

Total to preferred………... ($5,400
Remainder to common…. $54,600
d. How much is the total amounts of dividends to both preferred and common for 2011, if total
dividends are $120,000?
Preferred
a. $1800
b. $18000
c. $5400
d. $118200
e. Common
a. $1800
b. $18000
c. $5400
d. $118200
Answer A D
2011 Total dividend……………. $120,000
Preferred dividends:
Current year — 2011: 40,000 shares X
$0.50(par) per share X .09 ($1,800)
Remainder to common…. $118,200
8.
a. D-4 Networking Solutions began operations on January 1, 2010, and immediately issued its
stock, receiving cash. D-4s balance sheet at December 31, 2010, reported the following
stockholders equity:
Common stock, $1 par...................... $ 51,000
Additional paid-in capital.................. 102,000
Retained earnings.............................. 35,000
Treasury stock, 850 shares ................ (7,650)
Total stockholders equity............ $180,350
During 2010,
a. Issued stock for $3 per share.
b. Purchased 950 shares of treasury stock, paying $9 per share.
c. Resold some of the treasury stock.
d. Earned net income of $58,000, and declared and paid cash dividends. Revenues were
$172,000 and expenses totaled $114,000.
How much is the paid dividend?
a. $58000
b. $35000
c. $23000
d. $12500
Answer C
Retained Earnings ($58,000 − $35,000) 23,000
Cash……………………………………. 23,000
Declared and paid dividends.
b. A corporation has 40,000 shares of 10% preferred stock outstanding. Also, there are 40,000
shares of common stock outstanding. Par value for each is $100. If a $500,000 dividend is paid,
how much goes to the preferred stockholders?
a. $400,000
b. $50,000
c. $380,000
d. $500,000
Answer A
40,000 × $100 × .10 = $400,000
c. Good Foods, Inc., is authorized to issue 5,500,000 shares of $5.00 par common stock.
In its initial public offering during 2010, Good issued 475,000 shares of its $5.00 par common
stock for $7.00 per share. Over the next year, Goods stock price increased, and the company
issued 380,000 more shares at an average price of $10.00.
During 2012, the price of Goods common stock dropped to $7.25, and Good purchased 58,000
shares of its common stock for the treasury. After the market price of the common stock rose in
2013, Good sold 41,000 shares of the treasury stock for $10.00 per share.
During the five years 2010 to 2015, Good earned net income of $1,010,000 and declared and
paid cash dividends of $610,000. Stock dividends of $645,570 were distributed to the
stockholders in 2011, with $358,650 credited to common stock and $286,920 credited to
additional paid-in capital. At December 31, 2015, total assets of the company are $14,600,000,
and liabilities add up to $7,085,500.
a. $245570
b. ($245570)
c. $610000
d. ($610000)
Answer B
Retained earnings ($1,010,000 − $610,000 − $645,570) = (245,570)
d. Elegant Outdoor Furniture Company included the following stockholders equity on its year-
end balance sheet at February 28, 2011:
Preferred stock, 6.5% cumulative par value $35 per share;

authorized 110,000 shares in each class .....................
Class A issued 78,000 shares ............................... $ 2,730,000
Class B issued 89,000 shares................................ 3,115,000
Common stock $3 par value:.......................................
authorized 1,200,000 shares,
issued 290,000 shares................................................. 870,000
Additional paid-in capital common ............................. 5,530,000
Retained earnings........................................................... 8,390,000
$20,635,000
Assume that preferred dividends are in arrears for 2010, how much of the $860000 dividend
goes to preferred?
a. $177450
b. $201475
c. $480075
d. $379925
e. How much goes to common?
a. $177450
b. $201475
c. $480075
d. $379925
Answer D C
Class A Preferred: 78,000shares X $35 (par) per share × 0.065 = $177,450
Class B Preferred: 79,000 shares X $35 (par) per share × 0.065 = 202,475
Total preferred dividends………………

$379,925
(860000 - 379925 = 480075)
9.
a. Bell Company has stock outstanding as follows: Common, $10 par value per share, 140,000
shares; Preferred, 5%; $100 par value per share, 8,000 shares. The Preferred is cumulative and
participating up to an additional 4% of par; two years are in arrears (not including the current
year); and the total amount of cash dividends declared for both classes of stock is $230,000.
How much of the dividend goes to preferred?
a. $94000
b. $136000
c. $230000
d. $80000
b. How much of the dividend goes to common?
a. $94000
b. $136000
c. $230000
d. $80000
Answer B A
Arrears—$800,000 × 5% × 2 $80,000 $ 80,000
Preference—$800,000 × 5% 40,000 40,000
Common—$1,400,000 × 5% $ 70,000 70,000

Participating 2%* 16,000 24,000 40,000
$136,000 $ 94,000 $230,000
* [($230,000 – $190,000) ÷ ($600,000 + $1,400,000)]
c. The shareholders’ equity of MLS Enterprises includes $200 million of no par common stock
and $400 million of 6% cumulative preferred stock. The board of directors of MLS declared cash
dividends of $50 million in 2013 after paying $20 million cash dividends in both 2012 and 2011.
What is the amount of dividends common shareholders will receive in 2013?
a. 18M
b. 20M
c. 32M
d. 48M
Answer A
MLS’s common shareholders’ will receive dividends of $18 million as a result of the 2013
distribution.
Preferred Common
2011 $20 million* 0
2012 20 million** 0
2013 32 million*** $18 million (remainder)
* $24 million current preference (6% x $400 million), thus $4 million dividends in arrears.
** $24 million current preference (6% x $400 million), thus another $4 million dividends in
arrears.
*** $8 million dividends in arrears plus the $24 million current preference.
d. On June 13, the board of directors of Siewert Inc. declared a 5% stock dividend on its 60
million, $1 par, common shares, to be distributed on July 1. The market price of Siewert
common stock was $25 on June 13. How much is charged to retained earnings?
a. 60M
b. 72M
c. 75M
d. 80 M
Answer C
Retained earnings (3 million* shares at $25 per share) .............. 75M
Common stock (3 million* shares at $1 par per share) ........ 3M
Paid-in capital—excess of par (remainder) ..................... 72M
* 5% x 60 million shares = 3 million shares
e. The shareholders’ equity of Core Technologies Company on June 30, 2012, included the
following:
Common stock, $1 par; authorized, 8 million shares;
issued and outstanding, 3 million shares $ 3,000,000
Paid-in capital—excess of par 12,000,000
Retained earnings 14,000,000
On April 1, 2013, the board of directors of Core Technologies declared a 10% stock dividend on
common shares, to be distributed on June 1. The market price of Core Technologies’ common
stock was $30 on April 1, 2013, and $40 on June 1, 2013. How much is charged to retained
earnings?
a. $8700000
b. $9000000
c. $9300000
d. $10000000
Answer B
Retained earnings (300,000* shares at $30 per share) ................ 9,000,000
Common stock (300,000* shares at $1 par per share) ......... 300,000

Paid-in capital—excess of par (remainder) ...................... 8,700,000
* 10% x 3 million shares issued and outstanding
10.
a. Long Co. had 100,000 shares of common stock issued and outstanding at January 1, 2013.
During 2013,nLong took the following actions: March 15 Declared a 2-for-1 stock split, when the
fair value of the stock was $80 per share. December 15 Declared a $0.50 per share cash
dividend. In Long’s statement of shareholders’ equity for 2013, what amount should Long report
as dividends?
a. $ 50,000
b. $100,000
c. $850,000
d. $950,000
Answer B
Jan. 1 Shares issued and outstanding 100,000
Mar. 15 2-for-1 stock split x2
Mar. 15 Shares issued and outstanding 200,000
Dec. 15 Cash dividend declared (per share) x $ .50
Dividends for the year $100,000
b. The shareholders’ equity of Kramer Industries includes the data shown below. During 2014,
cash dividends of $150 million were declared. Dividends were not declared in 2012 or 2013. ($
in millions)
Common stock $200
Paid-in capital—excess of par, common 800
Preferred stock, 10%, nonparticipating 100
Paid-in capital—excess of par, preferred 270
Determine the amount of dividends payable to preferred shareholders and to common

shareholders under each of the following two assumptions regarding the characteristics of the
preferred stock.
Assumption A —The preferred stock is noncumulative.
b.Preferred
a. $10
b. $140
c. $150
d. $160
c.Common
a. $10
b. $140
c. $150
d. $160
Answer A B
$150
Current preference $10 (10% x $100) (10)
$140
Remainder to common $140 (140)
Allocation $10 $140
Assumption B —The preferred stock is cumulative
d. Preferred
a. $150
b. $130
c. $120
d. $30
e. Common
a. $150
b. $130
c. $120
d. $30
Answer D C
Preferred Common
Dividends in arrears:
-2012 $10 (10% x $100)
-2013 $10 (10% x $100)
Current preference $10 (10% x $100)
Remainder to common $120
Allocation $30 $120
11.
a. A new CEO was hired to revive the floundering Champion Chemical Corporation. The
company had endured operating losses for several years, but confidence was emerging that
better times were ahead. The board of directors and shareholders approved a quasi
reorganization for the corporation. The reorganization included devaluing inventory for
obsolescence by $105 million and increasing land by $5 million. Immediately prior to the
restatement, at December 31, 2013, Champion Chemical Corporation’s balance sheet appeared
as follows (in condensed form):
CHAMPION CHEMICAL CORPORATION

Balance Sheet
At December 31, 2013
($ in millions)
Cash $ 20
Receivables 40
Inventory 230
Land 40
Buildings and equipment (net) 90
$420
Liabilities $240
Common stock (320 million shares at $1 par) 320
Additional paid-in capital 60
Retained earnings (deficit) (200)
$420
How much is charge to additional paid in capital in eliminating deficit?
a. $40
b. $50
c. $60
d. $70
Answer C
To revalue assets:
Retained earnings ................................................................... 105
Inventory .......................................................................... 105
Land ........................................................................................ 5
Retained earnings ............................................................... 5

To eliminate a portion of the deficit against available additional paid-in
capital:
Additional paid-in capital ...................................................... 60
To eliminate the remainder of the deficit against common stock:
Common stock ....................................................................... 240
RE- ($200 + 105 - 5 - 240= $60)
b. Cash dividends on the $10 par value common stock of Ray Company were as follows:
1st quarter of 2010 $ 800,000
2nd quarter of 2010 900,000
3rd quarter of 2010 1,000,000
4th quarter of 2010 1,100,000
The 4th-quarter cash dividend was declared on December 21, 2010, to stockholders of record
on December 31, 2010. Payment of the 4th-quarter cash dividend was made on
January 18, 2011. In addition, Ray declared a 5% stock dividend on its $10 par value common
stock on December 3, 2010, when there were 300,000 shares issued and outstanding and the
market value of the common stock was $20 per share. The shares were issued on December
24, 2010. What was the effect on the retained earnings of Ray Company as a result of the
preceding transactions?
a. Dr 3800000
b. Dr 3950000
c. Dr 4100000
d. Dr 3800000
Answer C
(300000 x 5% = 15,000 shares x 20 = 300000)
(3800000 + 300000 = 4100000)
c. The following information was abstracted from the accounts of the Oar Corporation at
December 31, 2010:
Total income since incorporation $840,000
Total cash dividends paid 260,000
Proceeds from sale of donated stock 90,000
Total value of stock dividends distributed 60,000
Excess of proceeds over cost of
treasury stock sold 140,000
What should be the current balance of retained earnings?
a. $520,000
b. $580,000
c. $610,000
d. $670,000
Answer A
(840000 - 260000 - 60000 = 520000)
d. On January 1, the company purchased 10,000 shares of Wilsonville Company stock for $20
per share as an available-for-sale investment. In March, the company decided to distribute the
Wilsonville shares as a property dividend to its stockholders. The Wilsonville shares had a
market price of $27 per share on the date the property dividend was declared on March 23. The
Wilsonville property dividend was distributed on April 15. How mush is the gain on distribution?
a. $40000
b. $70000
c. $100000
d. 0
Answer B
Dividends (or Retained Earnings) ...................................... 270,000
Property Dividends Payable (10,000 shares × $20)..... 200,000
Gain on Distribution of Property Dividend .................. 70,000
Gain on distribution of property dividend: 10,000 shares × ($27 – $20) = $70,000
e. The company had 40,000 shares of $1 par common stock outstanding. When each share of
stock had a market value of $44, the company declared and distributed a 10% stock dividend.
After the distribution of the dividend shares, each share of stock had a market value of $40.
a. $ 100000
b. $ 130000
c. $ 160000
d. $ 180000
Answer C
Retained Earnings ............................................................... 160,000
Stock Dividends Distributable (4,000 shares × $1) ..... 4,000
Paid-In Capital in Excess of Par ................................... 156,000
12.
a. Consistent Company has been paying regular quarterly dividends of $2.00 and wants to pay
the same amount in the third quarter of 2013. Given the following information, (1) what is the
total amount that Consistent will have to pay in dividends in the third quarter in order to pay
$2.00 per share?
2013
Jan. 1 Shares outstanding, 800,000; $2 par (1,500,000 shares authorized).
Feb. 15 Issued 50,000 new shares at $10.50.

Mar. 31 Paid quarterly dividends of $2.00 per share.
May 12 Converted $1,000,000 of $1,000 bonds to common stock at the rate of 100 shares of
stock per $1,000 bond.
June 15 Issued an 11% stock dividend.
30 Paid quarterly dividends of $2.00 per share
a. $2109000
b. $2100000
c. $1054000
d. $8027000
Answer A
Calculation of number of shares outstanding:
Jan. 1 800,000 shares
Feb. 15 50,000 shares
May 12 100,000 shares (1,000 × 100)
950,000 shares
June 15 104,500 shares (950,000 × 0.11)
1,054,500 shares outstanding
Amount to be paid in dividends for the third quarter,
1,054,500 × $2.00 = $2,109,000
b. What is the total amount of dividends to be distributed during the year assuming no equity
transactions occur after June 30?
a. $2109000
b. $2100000
c. $1054000
d. $8027000
Answer D
Total dividends for 2013:
Mar. = $2.00 × 850,000 = $1,700,000
June, Sept., and Dec. = 3 × $2,109,000 = 6,327,000
$8,027,000
c. Phelps Company distributed the following dividends to its stockholders:
(a) 450,000 shares of Bedrock Corporation stock, carrying value of investment, $975,000; fair
market value, $1,350,000.
(b) 220,000 shares of Great Basin Company stock, a closely held corporation. The shares were
purchased by Phelps three years ago at $6.25 per share, but no current market price is
available.
a. $975000
b. $1350000
c. $1375000
d. $2725000
Answer D
d. How much is the gain in distribution?
a. $375000
b. $1350000
c. $1375000
d. $2725000
Answer A
Dividends (Retained Earnings)................................ 1,350,000
Property Dividends Payable................................ 975,000
Gain on Distribution of Property Dividends ...... 375,000
Property Dividends Payable .................................... 975,000
Investment in Bedrock Corporation Stock ........ 975,000
Dividends (Retained Earnings) ($6.25 × 220,000

shares)......................................................................... 1,375,000
Property Dividends Payable................................... 1,375,000
Property Dividends Payable ...................................... 1,375,000
Investment in Great Basin Company Stock.......... 1,375,000
RE ( 1350000 + 1375000 = 2725000 )
(1350000 - 975000 = 375000)
e. Gannon, Inc., had 100,000 shares of common stock outstanding. During the current year, the
company distributed a 10 percent stock dividend and subsequently paid a $0.50 per share cash
dividend. Calculate the amount of cash required to fund the cash dividend.
a. $50000
b. $55000
c. $60000
d. $65000
Answer B
Cash required to pay $.50 per stock dividend:
110,000 shares x $.50 = $55,000
13.
a. Gammon, Inc., declared dividends during the current year as follows:
• The current year’s cash dividend on the 6 percent, $100 par value preferred stock. 100,000
shares were outstanding at the time of the declaration.
• A cash dividend of $0.75 per share on the $10 par value common stock. 750,000 shares were
outstanding at the time of the declaration.
How much is the total dividends?
a. $1160000
b. $1062000
c. $1162500
d. $1262000
Answer C
Cash dividend on preference share:
100,000 shares x $100 par x 6% $600,000
Cash dividend on ordinary share: 562,500
750,000 shares x $.75
Total dividends $1,162,500
b. Kosmier Company has outstanding 500,000 shares of $50 par value common stock
that originally sold for $60 per share. During the three most recent years, the company
carried out the following activities in the order presented: declared and distributed a 10
percent stock dividend, declared and paid a cash dividend of $1 per share, declared
and distributed a 2-for-1 stock split, and declared and paid a $0.60 per share cash
dividend. How much is the total cash paid for dividend?
a. $1210000
b. $660000
c. $550000
d. 0
Answer A
$1 cash dividend: 550,000 shares x $1 = $550,000
$.60 cash dividend: 1,100,000 shares x $.60 = $660,000
Total cash paid: $550,000 + $660,000 = $1,210,000
c. At the end of 2008, Washington Corporation reported a $40,000 balance in its

common stock account (par value $1 per share). The treasury stock account showed
$720 (cost $6 per share). No dividends were paid during the first two years. During
2008 the company declared and paid a cash dividend at $1.50 per share. Calculate the
total amount of the 2008 cash dividend.
a. $59820
b. $48820
c. $38820
d. $40000
Answer A
[($40,000/$1 per share) ($720/ $6)] $1.50 = $59,820
d. On January 1, 2009, the accounts of Mac Corporation showed the following: During
2009, the following transactions occurred affecting stockholders' equity (in the order
given):
 Issued a 100% stock dividend when the market price was at $5 per share.
 Purchased treasury stock, 1,000 shares at a total cost of $8,000.

 Declared and paid cash dividends, $15,000.
 Net income for 2009, $25,000.
a. $160000
b. $140000
c. $120000
d. $100000
Answer C
$140,000 (stock dividend, 30,000 shares $1) (cash dividend, $15,000) + net
income, $25,000 = $120,000
e. . On July 1, 2014, Battery company’s board of directors declared 10% share dividend.
The market price of Battery’s 400,000 outstanding ordinary shares, ₱50 par value, was
₱80 per share on the date of declaration. The share dividend was distributed on
September 1, 2014, when the market price of the shares was ₱100 per share.
What amount should be charged to the accumulated Profits or Losses account as a

result of the share of the share dividend?
a . None
b. ₱2,000,000
c. ₱3,200,000
d. ₱4,000,000
answer: c
share dividend (10% x 400,000) 40,000

market value per share on declaration date x ₱80
charged to accumulated profits or losses ₱3,200,000
14.
1. Xavier, Inc. has 5,000 shares of 5%, P100 par value, cumulative preference stock and 50,000 shares of
P50 par value ordinary stock outstanding at December 31, 2010. What is the annual dividend on the
preference stock?
a. P50 per share
b. P25,000 in total
c. P600 in total
d. P0.50 per share
Answer: b.
Solution:
Annual Dividend = 500000 x 5% x 1
= P25000
2. December 31, 2015, the stockholders’ equity of Zenaida, Inc. was as follows: Ordinary Share Capital,
P10 par value, 30,000 shares authorized, 18,000 shares issued and outstanding P180,000; Paid in Capital
in Excess of Par P232,000; Retained Earnings P522,000. On March 31, 2016, Zenaida declared a 10%
share dividend when the fair market value of the share was P27 per share. For three months ended
March 31, 2016 Zenaida sustained a net loss of P96,000. The balance of Zenaida’s retained earnings as of
March 31, 2016, should be
a. P377,400
b. P399,000
c. P404,400
d. P426,000
Answer: a
Solution:
Retained Earnings P522,000
Share Dividend (48,600)
Net Loss (96,000)
Retained Earnings Balance P377,400
3. The following bonus issue were declared and distributed by Johnsons Corporation.
Percentage of Ordinary Share
Outstanding at declaration date Fair Value Par Value
10 P400,000 P300,000
28 700,000 500,000
The total amount of Retained Earnings capitalized for the above share dividends was
a. P1,100,000
b. P1,000,000
c. P900,000
d. P800,000
Answer: c
Solution:
Ordinary Share 10% P400,000
Ordinary Share 28% 500,000
4. The board of directors of Bigbang Corporation, whose P50 par value ordinary share is currently selling
at P70 per share, decided to declare a bonus issue. The company was authorized to issue 250,000
ordinary shares, has issued 100,000 shares of 10,000 shares are held in the treasury. If the board intends
to capitalize P756,000 of Retained Earnings. What percentage of bonus issue must be declared?
a. 10%
b. 12%
c. 15%
d. 20%
Answer: b
Outstanding Shares P 90,000
Percentage of Bonus Issue* x 12%
10,800
Selling Price x P70

5. On September 30, 2015, FinAcc1 Company issued 2,000 shares of its P100 par ordinary shares in
connection with a bonus issue. The market value per share on the date of declaration was P150. The
company’s shareholders’ equity accounts immediately before issuance of the share dividend were as
follows:
Ordinary share capital, P100 par, 50,000 shares authorized,
20,000 shares outstanding P2,000,000
Share Premium 3,000,000
Retained Earnings P1,500,000
What should be the Retained Earnings balance immediately after the bonus issue?
a. P1,100,000
b. P1,200,000
c. P1,300,000
d. P1,500,000
Answer: b
Solution:
Retained Earnings beginning P1,500,000
Bonus (2,000shares x P150) 300,000
Retained Earnings after bonus P1,200,000
15.
a. Hardy corporation’s board of directors declared a cash dividend on January 2, 2014
in the amount of ₱ 1,600,000 to shareholders’ record on January 2, 2014 and payable
on March 15, 2014. Selected information was taken from the balance sheet of the
company on December 31, 2013:
Ordinary shares ₱18,000,000
Share premium 600,000
Accumulated profits – end 1,200,000
Net income for 2013 300,000
Accumulated depletion 1,000,000
Of the total amount dividends paid of ₱1,600,000. How much liquidating dividends were
included?
a. ₱1,000,000
b. ₱400,000
c. ₱600,000
d. ₱1,200,000
answer: b.
amount of dividends paid ₱1,600,000
accumulated profits, December 31, 2013 1,200,000
dividends out of capital/ liquidating dividends ₱ 400,000
b. On January 2, 2013, Mining corporation declared a cash dividend of ₱600,000 to

shareholders of record on January 19, 2013 and payable on February 14, 2013. The
following data pertain to 2012:
Net income for the year ended December 31,2012 ₱190,000
Shares premium, December 31, 2012 675,000
Accumulated profits, December 31, 2012 425,000

The ₱600,000 dividend includes a liquidating dividend of
a. none
b. ₱175,000
c. ₱410,000
d. ₱485,000
answer: b.
Amount of dividends paid ₱600,000
Accumulated profits, December 31, 2012 425,000
Accumulated profits, December 31, 2012 ₱175,000
c. The shareholders’ equity of Diskette corporation’s December 31, 2014 balance sheet
consisted of the following account balances:
Ordinary shares, ₱50 par value, 100,000 shares
Authorized and outstanding ₱5,000,000
Share premium 3,000,000
Accumulated profits and losses (deficit) (2,000,000)
On January 2,2015, the company put into effect a shareholder –approved quasi-
reorganization by reducing the par value of the stock to ₱25 and eliminating the deficit
against share premium.
Immediately after the quasi-reorganization, what amount should the company report as
share premium in its statement of financial position?
a. none
b. ₱3,000,00
c. ₱3,500,000
d. ₱5,500,00
answer: c
share premium prior to quasi-reorganization ₱3,000,000
add: share premium on the reduction of par
(₱50 - ₱25 x 100,000) 2,500,000
Total share premium ₱5,500,000
Deficit (2,000,000)
Share premium, end ₱3,500,000
d. Earth Inc., has 10,000 shares of P10 par common stock outstanding, and 1,000 shares of
P100 par 10% cumulative preferred stock outstanding. The Board of Directors voted on
December 15 of one year one stock dividend and a 10% dividend of common stock. Even
though the company was unable to pay a cash dividend, its common stok was still selling for
P11 per share. The entity had P3,000,000 amount of retained earnings before the declaration of
dividends.
 What is the amount charged to retained earnings for the common stock dividend on
December 15?
a.P20,000 c.P10,000
b.P11,000 d.P31,000
e. What is the balance of the retained earnings at year-end?
a.P279,000 c.P150,000
b.P300,000 d.P179,000
Answer/Computation: B, A
(1,000 x .10 x P100) = P10,000
(10,000 x .10 x P11) = P11,000

(P300,000 – 10,000 – 11,000) = P279,000
16.
A)In 2010, Wukong Crop. Issued 5,000 shares of P10 par value common stock for P100 per share. In
2012, Wukong reacquired 2,000 of its shares at P150 per share from the estate of one of its
deceased officers and immediately canceled these 2,000 shares. Wukong used cost method in
accounting for its treasury stock. What amount should be debited to retained earnings?
a. P280,000
b. P180,000
c. P100,000
d. P0
Answer/ Solution: C. P 100,000
Cash(2000 x 150) P300,000

Common Stock(2000 x 10) (20,000)
APIC(2000 x 90) (180,000)
B)Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, year 1. Plack
received a stock dividend of 2,000 shares on April 30, year 1, when the market value per share was
P35. Ty paid a cash dividend of P2 per share on December 15, year 1. In its year 1 income statement,
what amount should Plack report as dividend income?
a. P20,000
b. P24,000
c. P90,000
d. P94,000
Answer/ Solution: B. P24,000

12,000 × P2.00= P24,000
C)At December 31, year 2 and year 3, Apex Co. Had 3,000 shares of P100 par, 5% cumulative
preferred stock outstanding. No dividends were in arrears as of December 31, year 1. Apex did not
declare a dividend during year 2. During year 3, Apex paid a cash dividend of P10,000 on its
preferred stock. Apex should report dividends in arrears in its year 3 financial statements as:
a. Accrued liability of P15,000.

b. Disclosure of P15,000.
c. Accrued liability of P20,000.
d. Disclosure of P20,000.
Answer/Solution: D. P20,000
Year 2 $300,000 × 5% = P15,000
Year 3 $300,000 × 5% = 15,000
Total cumulative preferred dividends P30,000
Less year 3 dividend payment (10,000)
Balance of dividends in arrears P20,000
Answer (c) is incorrect because dividends in arrears are not considered to be a liability until they
are declared. They should be disclosed parenthetically or in the notes to the financial
statements.
D)Arp Corp.’s outstanding capital stock at December 15, year 1, consisted of the following:
• 30,000 shares of 5% cumulative preferred stock, par value P10 per share, fully participating as
to dividends. No dividends were in arrears.
• 200,000 shares of common stock, par value P1 per share.
On December 15, year 1, Arp declared dividends of P100,000. What was the amount of
dividends payable to Arp’s common stockholders?
a. P10,000
b. P34,000
c. P40,000
d. P47,500
Answer/Solution: C. P40,000
Current year’s dividend:
Preferred, 5% of P300,000 (30,000 shares × P10 Par) P15,000
Common, 5% of P200,000 (200,000 shares × P1 Par) 10,000 P 25,000
Amount available for participation (P100,000 – P25,000) P 75,000

Par value of stock that is to participate (P300,000 + P200,000) P500,000
Proportional share of participating dividend:

Preferred ( P300,000/500,000) x 75,000 = P45,000
Common (P200,000/500, 000) x 75,000 = P 30,000
Thus, the dividends payable to common shareholders is P40,000 (P10,000 + P30,000)
E) On June 27, year 1, Brite Co. distributed to its common stockholders 100,000 outstanding
common shares of its investment in Quik, Inc., an unrelated party. The carrying amount on Brite’s
books of Quik’s P1 par common stock was P2 per share. Immediately after the distribution, the
market price of Quik’s stock was P2.50 per share. In its income statement for the year ended
June 30, year 1, what amount should Brite report as gain before income taxes on disposal of the
stock?
a. P250,000
b. P200,000
c. P50,000
d. P0
Answer/Solution: C. P50,000
Fair Value of Stock (100,000 x P2.50) P250,000

Carrying Amount of Stock(100,000 x P2) (200,000)
Gain on Disposal of Stock P 50,000
17
A)On December 1, year 1, Nilo Corp. declared a property dividend of marketable securities to be
distributed on December 31, year 1, to stockholders of record on December 15, year 1. On
December 1, year 1, the trading securities had a carrying amount of P60,000 and a fair value of
P78,000. What is the effect of this property dividend on Nilo’s year 1 retained earnings, after all
nominal accounts are closed?
a. P0.
b. P18,000 increase.
c. P60,000 decrease.
d. P78,000 decrease.
Answer/Solution: C. P60,000 decrease
FV of Trading Securities P78,000

CA of Trading Securities (60,000)
Gain on Disposition of Securities P18,000
Property Dividends P78,000

Gain on Disposition of Securities (18,000)
Decrease in Retained Earnings P60,000
Gain on disposition of securities will be credited to retained earnings at closing of nominal
accounts.
B)Ramon Inc. Had 300,000 shares of common stock outstanding at July 1, 2017. During year 2017,
the following transactions occured:
September 1 — Declared a 3-for-1 stock split.

December 1 — Declared a P 20 per share cash dividend.
In Long’s statement of stockholders’ equity for year 1, what amount should Long report as
dividends?
a. P5,000,000
b. P3,100,000
c. P4,850,000
d. P6,000,000
Answer/Solution: D
Stock Split(100,000 shares x 2) 300,000

Dividends per share P 20
P 6,000,000
C)The following stock dividends were declared and distributed by Sol Corp.:
Percentage of common share outstanding

at declaration date Fair value Par value
10 P15,000 P10,000
28 40,000 30,800
What aggregate amount should be debited to retained earnings for these stock dividends?
a. P40,800
b. P45,800
c. P50,000
d. P55,000
Answer/Solution: B. P45,800
Fair Value(10%) P15,000

Par Value(28%) 30,800
P45,800
The issuance of a stock dividend less than 20–25% (a “small” stock dividend) requires that the
market value of the stock be transferred from retained earnings, and a dividend greater than 20–
25% (a “large” stock dividend) requires the par value of the stock to be transferred from retained
earnings.
D)Ray Corp. Declared a 5% stock dividend on its 10,000 issued and outstanding shares of P2 par
value common stock, which had a fair value of P5 per share before the stock dividend was declared.
This stock dividend was distributed sixty days after the declaration date. What amount should be
debited to retained earnings?
a. P0 c. P1,000
b. P500 d. P2,500
Answer/Computation: D. P2,500
(10,000 shares x 5% x P5) = P2,500
E)On Dec. 1, the directors of Media General declare a P.50 per share cash dividend on 100,000
shares of P10 par value ordinary shares. The dividend is payable on Jan. 20 to shareholders of record
on Dec. 22.
a.P20,000 c.P50,000
b.P60,000 d.P75,000
Answer/Computation: C. P50,000
(100,000 shares x P.50)= P50,000
18
18
A)Beckham Company has 1,000 shares of 4%, P100 par cumulative preferred stock outstanding
at December 31, 2008. No dividends have been paid on this stock for 2007 or 2008. Dividends in
arrears at December 31, 2008 is
a. P0. c. P4,000.
b. P400. d. P8,000
.
Answer/Computation: D.P8,000
(1,000 shares x .04 x 100 x 2 yrs)= P8,000
B)Ephram Company has 6,000 shares of 5%, P300 par cumulative preferred stock outstanding at
December 31, 2009. No dividends have been paid on this stock for 2007, 2008, and 2009.
Dividends in arrears at December 31, 2008 amounts to
a. P270,000 c. P250,000
b. P300,000 d. P345,000
Answer/Computation: A. P270,000
(6,000 shares x .05 x P300 x 3yrs)= P270,000
C)Triad Corporation’s December 31, 2008 balance sheet showed the following:
8% preferred stock, P20 par value, cumulative, 10,000 shares authorized;
5,000 shares issued P 100,000
Common stock, P10 par value, 1,000,000 shares authorized;
650,000 shares issued, 640,000 shares outstanding 6,500,000
Triad declared and paid a P25,000 cash dividend on December 15, 2008. If the company’s
dividends in arrears prior to that date were P6,000, Triad’s common stockholders received
a. P19,000. c. P11,000.
b. P9,000. d. no dividend.
[P25,000 – (5,000 x.08 x P20)]-P6,000= P11,000
D)On January 2, 2005, Riley Corporation issued 20,000 shares of 6% cumulative preferred stock
at P100 par value. On December 31, 2008, Riley Corporation declared and paid its first dividend.
What dividends are the preferred stockholders entitled to receive in the current year before any
distribution is made to common stockholders?
a. P0 c. P360,000
b. P120,000 d. P480,000
(20,000 Shares x .06 x 100 x 4 years) = P480,000
E)On Dec. 1, 1997, Rip declares a P50 per share cash dividend (80% was a liquidating dividend) on
10,000 shares of common stock. Payable on Feb. 1, 1998 to holders of record on Dec. 31, 1997.
What amount should be charged to retained earnings?
a.P500,000 c.P100,000
b.450,000 d.P400,000
(10,000 x P50) – (10,000 x P50 x .80)= P100,000
19
These are the following data for number A and B:
On Dec. 1, 1997, Jenna Corporation declares a P20 per share dividend (1/4 payable in cash the balance
in scrip) on 10,000 shares of common stock. Distributable on Feb. 1, 1998 to holders of record on
Dec. 31, 1997. The scrip dividend accrues interest at 6% and will be paid Sept. 1, 1998.
A)What is the amount of cash dividends at declaration?

a.P50,000 c.P150,000
b.P200,000 d.P250,000
B)What is the amount of scrip dividends payable at declaration?

a.P50,000 c.P150,000
b.P200,000 d.P250,000
C)What is the total amount charged to retained earnings?
a.P50,000 c.P150,000
b.P200,000 d.P250,000
Answer/Computation: A, 17. C, 18. B

(10, 000 shares x P20 x ¼) = P50,000
(10,000 shares x P20 x ¾) = P150,000
P50,000 +P150,000= P200,000
D)On Dec. 1, 1997, Samantha Smith Inc. declares a 85% stock dividend on 15,000 shares of $35 par
common stock, the stock is selling for $10 per share. Payable on Feb. 1, 1998 to holders of record
on Dec. 31, 1997.
What is the amount of stock dividends payable?
a.P446,250 c. P460,000
b.P447,500 d. P500,000
(15,000 shares x .85 x 35) = P446,250
E)On January 2, 2010, Poi Dog Corporation issued 5,000 shares of 10% cumulative preferred stock at
P100 par value. On December 31, 2015, Poi Dog Corporation declared and paid its first dividend.
What dividends are the preferred stockholders entitled to receive in the current year before any
distribution is made to common stockholders?
a.P0 c.P290,000
b.P300,000 d.P220,000
Answer/Computation: B. P300,000
(5,000 shares x .10 x P100 x 6 years) = P300,000
20
A)Remmers Inc. Declares 10% common stock dividend when it has 20,000 shares of P10 par value
common stock outstanding. If the market value of P24 per share is used, the amounts debited to
Retained Earnings and credited to Paid-in Capital in Excess of Par Value are:
Paid-in Capital in
Retained Earnings Excess of Par
a. P20,000 P0
b. P48,000 P28,000
c. P48,000 P20,000
d. P20,000 P28,000
Answer/Computation: B.
(20,000 x .10 x P24)= P48,000
(20,000 x .10 x P14)= P28,000

Tycho Company started business operations on January 1,2012. On January 1,2013, Tycho has 400,000
shares P10 par value common stock outstanding and P300, 000 of retained earnings. In March 2013,
the enitity reacquired 50,000 treasury shares at P20 per share. Net income for the year amounted to
P800,000.
B)What is the total amount of retained earnings at year-end?

a.P1,100,000 c.P900,000
b.P300,000 d.P 600,000
C)What amount should be reported as appropriated retained earnings?
a.P1,100,000 c.P100,000
b.P600,000 d.P1,000,000
D)What amount should be reported as unappropriated retained earnings?

a.P1,100,000 c.P100,000
b.P600,000 d.P1,000,000
Answer/Computation: 22. A, 23. D, 24. C
P300,000 + 800,000= P1,100,000
50,000 shares x P20= P1,000,000
P1,100,000 – P1,000,000= P100,000
E)Baden Corporation owned 20,000 shares of Terney Corporation’s P5 par value common stock.
These shares were purchased in 2004 for P180,000. On September 15, 2008, Baden declared a
property dividend of one share of Terney for every ten shares of Baden held by a stockholder. On
that date, when the market price of Terney was P14 per share, there were 180,000 shares of
Baden outstanding. What NET reduction in retained earnings would result from this property
dividend?
a. P90,000 c. P72,000
b. P252,000 d. P162,000
(180,000 ÷ 10) × P14 = P252,000 – [P252,000 – (180,000 × 18/20)] = P162,000
21.
A) Diamond’s Corporation has an investment in 5,000 shares of Sigmond Company common stock
with a cost of P218,000. These shares are used in a property dividend to stockholders of
Diamond’s. The property dividend is declared on May 25 and scheduled to be distributed on July
31 to stockholders of record on June 15. The market value per share of Sigmond stock is P63 on
May 25, P66 on June 15, and P68 on July 31. The net effect of this property dividend on retained
earnings is a reduction of a. P340,000. c. P315,000
b. P330,000. d. P218,000
(5,000 × P63) = P315,000 – (P315,000 – P218,000) = $218,000.
B) Gonzalez Company has 350,000 shares of P10 par value common stock outstanding. During the year,
Gonzalez declared a 10% stock dividend when the market price of the stock was P30 per share. Four
months later Gonzalez declared a P.50 per share cash dividend. As a result of the dividends declared
during the year, retained earnings decreased by
a. P1,242,500 c. P192,500.
b. P525,000. d. P175,000.
Answer/Computation: A. P1,242,500
350,000 × .10 × P30 = P1,050,000 + (350,000 × 1.10 × P.50) = P1,242,500.
C) On June 30, 2007, when Vietti Co.'s stock was selling at P65 per share, its capital accounts were as
follows:
Capital stock (par value P50; 60,000 shares issued) P3,000,000
Premium on capital stock P600,000
Retained earnings P4,200,000
If a 100% stock dividend were declared and distributed, capital stock would be
a. P3,000,000. c. P6,000,000
b. P3,600,000. d. P7,800,000.
Answer/Computation: C. P6,000,000
(60,000 × P50) + P3,000,000 = P6,000,000.
D). The stockholders' equity section of Lawton Corporation as of December 31, 2006, was as follows:
Common stock, par value P2; authorized 20,000 shares;
issued and outstanding 10,000 shares P 20,000
Paid-in capital in excess of par 30,000
P125,000
On March 1, 2007, the board of directors declared a 15% stock dividend, and accordingly 1,500
additional shares were issued. On March 1, 2007, the fair market value of the stock was P6 per share.
For the two months ended February 28, 2007, Lawton sustained a net loss of P10,000. What amount
should Lawton report as retained earnings as of March 1, 2007?
a. P56,000. c. P66,000
b. P62,000. d. P72,000.
P75,000 – P10,000 – (1,500 × P6) = P56,000.
E) The stockholders' equity of Benton Company at July 31, 2007 is presented below:
Common stock, par value P20, authorized 400,000 shares;
issued and outstanding 160,000 shares P3,200,000
P4,010,000
22
A) On August 1, 2007, the board of directors of Benton declared a 15% stock dividend on common
stock, to be distributed on September 15th. The market price of Benton's common stock was P35 on
August 1, 2007, and P38 on September 15, 2007. What is the amount of the debit to retained
earnings as a result of the declaration and distribution of this stock dividend?
a. P800,000. c. P912,000
b. P840,000. d. P600,000.
160,000 × .15 × P35 = P840,000.
B) On January 1, 2007, Carl, Inc., declared a 10% stock dividend on its common stock when the market
value of the common stock was P20 per share. Stockholders' equity before the stock dividend was
declared consisted of:
Common stock, P10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares P1,200,000
Additional paid-in capital on common stock 150,000
Total stockholders' equity P2,050,000
What was the effect on Carl’s retained earnings as a result of the above transaction?
a. P120,000 decrease c. P400,000 decrease
b. P240,000 decrease d. P200,000 decrease
120,000 × .10 × P20 = P240,000.
C) On January 1, 2007, Golden Corporation had 110,000 shares of its P5 par value common stock
outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On
December 1, when the market price of the stock was P8, the corporation declared a 10% stock
dividend to be issued to stockholders of record on December 16, 2007. What was the impact of the
10% stock dividend on the balance of the retained earnings account?
a. P50,000 decrease c. P88,000 decrease
b. P80,000 decrease d. No effect
Answer/Computation: B. P80,000 decrease

100,000 × .10 × P8 = P80,000.
D) Kimm, Inc. had net income for 2007 of P2,120,000 and earnings per share on common stock of P5.
Included in the net income was P300,000 of bond interest expense related to its long-term debt. The
income tax rate for 2007 was 30%. Dividends on preferred stock were P400,000. The payout ratio on
common stock was 25%. What were the dividends on common stock in 2007?
a. P430,000. c. P482,500.
b. P530,000 d. P645,000.
X/(P2,120,000 – P400,000)= .25, X= P430,000.
E) Lott Co. has outstanding 50,000 shares of 8% preferred stock with a P10 par value and 125,000 shares
of P3 par value common stock. Dividends have been paid every year except last year and the current
year. If the preferred stock is cumulative and nonparticipating and P250,000 is distributed, the
common stockholders will receive
a. P0. c. P210,000.
b. P170,000. d. P250,000.
P250,000 – (P500,000 × 8% × 2) = P170,000.
23
Use the following information for questions 34 through 36.
Tomlin, Inc. has outstanding 300,000 shares of P2 par common stock and 60,000 shares of nopar 8%
preferred stock with a stated value of P5. The preferred stock is cumulative and nonparticipating.
Dividends have been paid in every year except the past two years and the current year.
A) Assuming that P150,000 will be distributed as a dividend in the current year, how much will the
common stockholders receive?
a. P0. c. P102,000.
b. P78,000. d. P126,000.
B) Assuming that P63,000 will be distributed as a dividend in the current year, how much will the
preferred stockholders receive?
a. P21,000. c. P48,000.
b. P24,000 d. P63,000.
C) Assuming that P183,000 will be distributed, and the preferred stock is also participating, how much
will the common stockholders receive?
a. P111,000. c. P93,000
b. P90,000. d. P48,000.
Answer/Computation: 34. B, 35. D, 36. B
34) P150,000 – (60,000 × $5 × .08 × 3) = P78,000.

35) 60,000 × P5 × .08 × 3 = P72,000 > P63,000.
36) 8% × P600,000 = P48,000 (current year)

7%* × P600,000 = 42,000 (participating)
$90,000
*P135,000 – P30,000 – (P250,000 × 6% × 2) = P75,000
P183,000 – P120,000/ P600,000 + P300,000= 7%
D) Wiley, Inc. has 50,000 shares of P10 par value common stock and 25,000 shares of P10 par value, 6%,
cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year
in arrears. Assuming that Wiley wishes to distribute P135,000 as dividends, the common stockholders
will receive
a. P30,000. c. P80,000.
b. P55,000. d. P105,000.
Common Stock
P500,000 × 6% = P30,000 (current year)
P500,000 × 10%= 50,000 (participating)
P80,000
*P135,000 – P30,000 – (P250,000 × 6% × 2) = P75,000

P75,000/P750,000 = 10%.
E)On December 31, 2006, the stockholders' equity section of Clark, Inc., was as follows:
Common stock, par value P10; authorized 30,000 shares;
issued and outstanding 9,000 shares P90,000
Additional paid-in capital 116,000
Total stockholders' equity P380,000
On March 31, 2007, Clark declared a 10% stock dividend, and accordingly 900 additional shares were
issued, when the fair market value of the stock was P18 per share. For the three months ended March
31, 2007, Clark sustained a net loss of P32,000. The balance of Clark’s retained earnings as of March
31, 2007, should be
a. $125,800. c. P134,800
b. $133,000. d. P142,000
P174,000 – P32,000 – (900 × P18) = P125,800.
24
A) Joseph Corp. owned 90,000 shares P20 par of Janna Corp. On December 15, 2006, the entity declared
a 20% stock dividend. The dividend was distributed on January 15, 2007. The entry to record the
declaration of the dividend would include a debit to Retained Earnings of
a. P0. c. P240,000
b. P360,000. d. P400,000
Answer/Computation: D.
(P90,000 x .20 x P20) = P360,000
B) On May 31, 206, Ball Corporation’s board of directors declared a 10% stock dividend. The market
price of Ball’s 30,000 outstanding shares of P20 par value common stock was P80 per share on that
date. The stock dividend was distributed on July 31, 2006, whn the stock’s market price was P100 per
share. What amount should Ball credit to additional paid in capital for this stock dividend?
a. P0 c. P180,000
b. P240,000 d. P300,000
(30,000 shares x .10 x P60) = P180,000
C) Quebec Corporation, a calendar-year company, had sufficient retained earnings in 2007 as a basis for
dividends, but was temporarily short of cash. Quebec declared a dividend of P100,000 on April 1,
2007, and issued promissory notes to its stockholders in lieu of cash. The notes, which were dated
April 1, 2007, had a maturity date of March 31, 2008, and a 10% interest rate. How should Quebec
account for the scrip dividend and related interest?
a. Debit Retained Earnings for P110,000 on April 1, 2007.
b. Debit Retained Earnings for P110,000 on March 31, 2008.
c. Debit Retained Earnings for P100,000 on April 1, 2007 and debit Interest Expense for P10,000 on
March 31, 2008.
d. Debit Retained Earnings for P100,000 on April 1, 2007 and debit Interest Expense for P7,500 on
December 31, 2007
Answer/Computation: D
(P100, 000 x .10 x 9/12) = P7,500
D) The directors of Pete Corporation, whose P50 par value ordinary share is currently selling at P70 per
share, have decided to issue a stock dividend. Pete has an authorization for 250,000 ordinary shares,
has issued 100,000 shares of which 10,000 shares are now held as treasury, and desires to capitalize
P945,000 of the Retained Earnings balance. To accomplish this, the percentage of stock dividend that
the directors should declare is
a. 18.9% c. 12%
b. 15% d. 9%
Answer/Computation: B. 15%
P945,000/(90,000 shares x P70) = 15%
E) . Sine Co. had outstanding 20,000 shares of P100 par value 8% cumulative preference shares and
30,000 shares of P50 par value ordinary shares on December 31, 2007. At December 31, 2006,
dividends in arrears on the preference shares were P80,000. Cash dividends declared in 2007 totaled
P300,000. The amounts paid to preference shareholders and ordinary shareholders are:
a. P80,000 and P220,000 c. P220,000 and P80,000
b. P160,000 and P140,000 d. P240,000 and P60,000
Answer/Computation: D.
[P80,000+(20,000 shares x .08 x P100)] = P240,000
P300,000 – P240,000 = P60,000
25
A)On January 1, 2004, Loyal Company purchased an equipment for P8, 000,000. The equipment is
depreciated using straight line method based on a useful life of 8 years with no residual value. On
January 1, 2007, after 3 years, the equipment was revalued at a replacement cost of 12,000,000 with
no change in residual value. On June 30, 2007, the equipment was sold for 10,000,000. What is the
effect of the June 30, 2007 transaction to the retained earnings?
a.P2, 500,000 increase c.P 5,000,000 increase
b.P3,250,000 increase d. P5,750,000 increase
Answer/Computation: C
Cost P8,000,000
8,000,000 x 3/8 = (3,000,000)
P5,000,000
12,000,000 x 3/8 = (4,500,000) 7,500,000
Revaluation Surplus P2,500,000
(P10,000,000 – 6,750,000) 3,250,000
Depreciation P5,750,000
(7,500,000/5 x 6/12) (750,000)
P5,000,000
B) Meninqiuz Company provided the following information for the 2008:

Total Assets at December 31 P 4,500,000
Share Capital at December 31 2,000,000
Share Premium at December 31 200,000
Treasury Stock (at cost) 300,000
The debt-to-equity ratio is 25% at December 3, 2008. What is the retained earnings unappropriated
on December 31, 2008?
a.P1, 400,000 c.P2, 300,000
b.P1, 100,000 d.P1, 700,000
Answer/Computation: A
4,500,000/125% = P3,600,000
(2,000,000)
(200,000)
300,000
Total Retained Earnings 1,700,000
R/E Appropriated for T/S (300,000)
P1,400,000
C) Assume the following balances at the end of the current year:

Capital Liquidated P1,800,000
Accumulated Depletion 2,500,000
Retained Earnings 1,500,000
Depletion based on 50,000 units extracted @P20 per unit 1,000,000
Inventory of resource deposit 5,000 units
What is the maximum dividend that can be declared by the company?
a. P2,100,000 c.P2, 200,000
b.P2, 000,000 d.P1, 500,000
Answer/Computation: A.
: Retained Earnings P1,500,000

Accum. Depletion 2,500,000
P4,000,000
Less: Capital Liquidated (1,800,000)
Inventory (15,000 x 20) (100,000)
P2,100,000
D) Henson Company began the year with retained earnings of $175,000. During the year,
the company recorded revenues of $250,000, expenses of $190,000, and paid dividends
of $20,000. What was Henson’s retained earnings at the end of the year?
a. P255,000
b. P215,000
c. P405,000
d. P235,000
Answer/Computation: B
P175,000 + (P250,000 – 190,000 – 20,000) = P215,000
E) Pinson Company began the year with retained earnings of P210,000. During the year, the
company recorded revenues of P300,000, expenses of P228,000, and paid dividends of
P24,000. What was Pinson’s retained earnings at the end of the year?
a. P306,000
b. P258,000
c. P486,000
d. P282,000
P210,000 + (P300,000 – 228,000 – 24,000) = P 258,000
26
A) Finney Company began the year by issuing P20,000 of common stock for cash and a
Retained earnings of P10,000. The company recorded revenues of P185,000, expenses
of P160,000, and paid dividends of P10,000. What was Finney’s Retained Earnings for
the year?
a. P15,000
b. P35,000
c. P25,000
d. P45,000
Answer/Computation: C.
P10,000 + ( P185,000 - 160,000 – 10,000) = P25,000
B) Lankston Company began the year by issuing P30,000 of common stock for cash. The
company recorded revenues of P275,000, expenses of P240,000, and paid dividends of
P15,000. What was Lankston’s retained earnings for the year?
a. P20,000
b. P50,000
c. P35,000
d. P65,000
. Answer/Computation: A
(P275,000 – 240,000 -15,000) = P20,000
C) Gilkey Corporation began the year with retained earnings of P155,000. During the year, the
company issued P210,000 of common stock, recorded expenses of P600,000, and paid
dividends of P40,000. If Gilkey’s net income was P165,000, what was the company’s
retained earnings for the year?
a. P280,000
b. P650,000
c. P820,000
d. P860,000
Answer/Computation:
P155,000 + P165,000 – P40, 000= 280,000
D) Kilmer Corporation began the year with retained earnings of P217,000. During the year,
the company issued P294,000 of common stock, recorded expenses of P840,000, and
paid dividends of P56,000. Revenue for the year amounted to P1,000,000. What was
the company’s retained earnings for the year?
a. P854,000
b. P910,000
c. P321,000
d. P1,204,000
P217,000 + 1,000,000 – 840,000 - 56,000 = P321,000
E) Janu’s Accessory Shop started the year with total assets of P70,000 and total liabilities of
P40,000. During the year the business recorded P110,000 in revenues, P55,000 in expenses, and
dividends of P20,000. Retained earnings at the end of the year was
a. P60,000. c. P65,000
b. P55,000. d. P35,000.
P110,000 – 55,000 – 20,000 = P35,000
27
A) Elston Company compiled the following financial information as of December 31, 2010:
Revenues P140,000
Common stock 30,000
Equipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts payable 20,000
Accounts receivable 15,000
Retained earnings, 1/1/10 75,000
Elston’s retained earnings on December 31, 2010 are:
a. P75,000 c. P80,000
b. P90,000 d. P 5,000
P140,000 + 75,000 – 125,000 – 10,000 = P80,000
B) Benedict Company compiled the following financial information as of December 31, 2010:
Revenues P280,000
Common stock 60,000
Equipment 80,000
Expenses 250,000
Cash 70,000
Dividends 20,000
Supplies 10,000
Accounts receivable 30,000
Retained earnings, 1/1/10 150,000
Benedict’s retained earnings on December 31, 2010 are:
a. P150,000 c. P160,000
b. P180,000 d. P 10,000
P280,000 + 150,000 – 250,000 - 20,000 = P 160,000
C) Jofren Company compiled the following information at year-end:

Revenues P30,000,000
10% Common stock, 200,000 shares issued P10 par 2,000,000
Expenses 22,000,000
Cash 70,000,000
Dividends in arrears 200,000
Supplies 500,000
Accounts receivable 3,000,000
Retained earnings, 1/1/10 1,500,000
On November 1, 2010, Jofren declared a cash dividend.

Jofren’s retained earnings on December 31, 2010 are:
a.P9,100,000 c.P8,000,000
b.P10,000,000 d.P8,100,000
P1,500,000 + 30,000,000 - (200,000 x .10 x 10) - 200,000 -22,000,000 = P9,100,000
D) Revenues were P210,000, expenses were P140,000, and cash dividends were P45,000. What was the
net income and the change in retained earnings for the period?
a) Net income was P70,000; the change in retained earnings was P70,000.
b) Net income was P25,000; the change in retained earnings was P45,000.
c) Net income was P70,000; the change in retained earnings was P25,000.
d) Net income was P45,000; the change in retained earnings was P45,000.
Net income = 210,000 - 140,000 = P70,000
E) Nicko’s Computer Repair Shop started the year with total retained earnings of P300,000 and total
liabilities of P180,000. During the year, the business recorded P450,000 in computer repair revenues,
P270,000 in expenses, and Mofro paid dividends of P45,000. Retained earnings at the end of the year
was
a.P180,000 c.P325,000
b.P435,000 d.P4000,000
Answer/Computation:
P450,000 + 300,000 – 270,000 – 45,000 = P435,000
28
A) Centro-matic Company began the year with retained earnings of P25,000. During the year, Centro-
matic issued additional shares of stock in exchange for cash of P21,000, recorded expenses of
P60,000, and paid dividends of P4,000. If Centro-matic’s net income was P56,000, what was the
company’s retained earnings for the year?
a.P17,000 c.P77,000
b.P56,000 d.P64,000
P25,000 + 56,000 - 4,000 = P77,000
B) Saira’s Service Shop started the year with total assets of P250,000 and total liabilities of P200,000.
During the year, the business recorded P525,000 in revenues, P275,000 in expenses, and paid
dividends of P50,000: Retained earnings at the end of the year was.
a.P275,000 c.P525,000
b.P200,000 d.P300,000
P525,000 -275,000 - 50,000 = P200,000
C) Copper Company’s retained earnings at the beginning of August 2014 was P750,000. During the
month, the company earned net income of P150,000 and paid dividends of P50,000. At the end of
August 2014, what is the amount of retained earnings?
a.P850,000 d.P750,000
b.P600,000 c.P0
P750,000 + 150,000 -50,000 = P850,000
D) On January 1, 2014, Affleck Company reported retained of P470,000. During the year, the company
paid dividends of P20,000. At December 31, 2014, the amount of retained earnings was P520,000.
What amount of net income or net loss would the company report for 2014?
a. Net income of P50,000
b. Net loss of P70,000
c. Net income of P30,000
d. Net income of P70,000
P520,000 – 470,000 + 20,000 = P70,000
E) Stahl Consulting started the year with total assets of P80,000 and total retained earnings of P20,000.
During the year, the business recorded P64,000 in catering revenues and P32,000 in expenses. Stahl
issued ordinary shares of P12,000 and paid dividends of P20,000 during the year.
What is the amount of retained earnings at year-end?
a.P32,000 c.P20,000
b.P40,000 d.P60,000
P20,000 + 64,000 – 32,000 - 20,000 = P32,000
29
A) At October 1, JADINE Enterprises reported equity of P210,000. During October, no capital shares
were issued and the company earned net income of P24,000. If equity at October 31 totals
P192,000, what amount of dividends were paid during the month?
a. P0
b. P6,000
c. P18,000
d. P42,000
P210,000 – 192,000 + 24,000 = P42,000
B). At October 1, Nigga Enterprises reported equity of P228,000. During October, no capital shares
were issued and the company posted a net loss of P18,000. If equity at October 31 totals
a. P0
b. P6,000
c. P18,000
d. P63,000
P228,000 – 192,000 -18,000 = P18,000
C). At October 1, Cross Enterprises reported equity of P210,000. During October, capital shares of
P12,000 were issued and the company earned net income of P36,000. If equity at October 31
totals P240,000, what amount of dividends were paid during the month?
a. P0
b. P18,000
c. P24,000
d. P30,000
P210,000 + 36,000 + 12,000 – 240,000 = P18,000
D.) At October 1, Jameson Enterprises reported equity of P210,000. During October, capital shares of
P30,000 were issued and the company posted a net loss of P18,000. If equity at October 31 totals
a. P0
b. P12,000
c. P18,000
d. P30,000
P210,000 + 30,000 -18,000 – 210,000 = P12,000
E) Mica Inc. began operations in October, 2014. During October, Mica sold ordinary shares for
P600,000, earned revenue of P66,000, incurred expenses of P36,000, and paid dividends of
P3,000. Retained earnings at the end the month is
a. P27,000.
b. P30,000.
c. P627,000.
d. P630,000.
P66,000 – 36,000 – 3,000 = P27,000
30
A)Bruni Corporation began operations on January 1, 2014. During January, Bruni earned revenue of
P90,000, incurred expenses of P44,000, and paid dividends of P6,000. Retained earnings at the
end the month is
a. P40,000.
b. P46,000.
c. P52,000.
d. P90,000.
P90,000 – 44,000 – 6,000= P40,000
B) Sing Tao Inc. began operations on June 2, 2014. During June, Sing Tao sold ordinary shares for
P17,175,000, earned revenue of P3,030,000, incurred expenses of P1,545,000, and paid
dividends of P45,000. Retained earnings at June 30, 2014
a. P1,440,000.
b. P1,485,000.
c. P18,615,000.
d. P20,206,000.
P3,030,000 – 1,545,000 -45,000 = P1,440,000
C) Nigiri Inc. began operations on October 1, 2014. During October, Nigiri sold ordinary shares for
P440,000,000, earned net income of P64,000,000, and paid dividends of P1,978,000. Retained
earnings at the end of October is
a. P504,000,000.
b. P502,022,000.
c. P64,000,000.
d. P62,022,000.
P64,000,000 – 1,978,000 = P62,022,000
D) During July, its first period of operations, Aju Inc. sold ordinary shares for P960,000,000, earned
net income of P130,000,000, and paid dividends of P27,000,000. Retained earnings at the end of
July is
a. P1,090,000,000.
b. P1,063,000,000.
c. P933,000,000.
d. P103,000,000.
P130,000,000 – 27,000,000 = P103,000,000
E) During July, its first period of operations, Jazter Company had 100,000, P100 par ordinary shares
outstanding for P12,000,000., earned a P200,000,000 revenue, suffered a net loss of P130,000,000.
The entity delared and paid 20% stock dividends. Retained Earnings at the end of the year is
a.P70,000,000 c.P68,000,000
b.P78,000,000 d.P200,000,000
P200,000,000 – 130,000,000 – (100,000 x .20 x P100) = P68,000,000
31
a.On January 1,2015, Jiwon Corporation declared a cash dividend of P1,000,000 payable on February
14,2015. The following data pertain to the year 2
Retained Earnings P2,000,000
Revenue for the year ended December 31,2015 190,000
Expenses, December 31,2015 300,000
What is the balance of retained earnings at year-end?

a.P0 c.P1,890,000
b.P1,000,000 d.P890,000
P2,000,000+(P190,000 – 300,000) – 1,000,000 = P890,000
b. Revenues were P210,000, expenses were P140,000, and cash dividends were P45,000.
What was the net income and the change in retained earnings for the period?
A) Net income was P70,000; the change in retained earnings was P70,000.
B) Net income was P25,000; the change in retained earnings was P45,000.
C) Net income was P70,000; the change in retained earnings was P25,000.
D) Net income was P45,000; the change in retained earnings was P45,000.
Net income = P210,000 - 140,000 = P70,000
Retained earnings increased by 70,000 and decreased by 45,000 for dividends for a
change of 25,000
c. The Jacobs Company had the following balances in its stockholders' equity accounts as of
December 31, 2019:
Paid-in Capital P53,000
During the year ended December 31, 2019, the Jacobs Company generated P36,000 in
net income, and declared and paid P16,000 in dividends. The ending balance in the
retained earnings account at December 31, 20X8, was:
a. P51,000. c. P13,000.
b. P26,000. d. P67,000
P31,000 + 36,000 – 16,000 = P51,000
d. On December 31, 2015, the stockholders’ equity of Zenaida Inc. was as follows: Ordinary Share
Capital, P10 par value, 30,000 shares authorized, 18,000 shares issued and outstanding P180,000; Paid-
in-Capital in Excess of Par P232,000; Retained Earnings P522,000. On March 31, 2016, Zenaida declared a
10% share dividend when the fair market value of the share was P27 per share. For the three months
ended March 31, 2016, Zenaida sustained a net loss of P96,000. The balance of Zenaida’s retained
earnings as of March 31, 2016, should be
a. 377,400
b. 399,000
c. 404,400
d. 426,000
Answer: A
Solution:
Share Dividend (48,600)
Net Loss (96,000)
Retained Erning BalanceP377,400
e. Diamond’s Corporation has an investment in 5,000 shares of Sigmond Company common stock with a
cost of $218,000. These shares are used in a property dividend to stockholders of Diamond’s. The
property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of
record on June 15. The market value per share of Sigmond stock is $63 on May 25, $66 on June 15, and
$68 on July 31. The net effect of this property dividend on retained earnings is a reduction of
a. $340,000.
b. $330,000.
c. $315,000.
d. $218,000.
d (5,000 × $63) = $315,000 $315,000 – ($315,000 – $218,000) = $218,000.
32
a. Gonzalez Company has 350,000 shares of $10 par value common stock outstanding. During the year,
Gonzalez declared a 10% stock dividend when the market price of the stock was $30 per share. Four
months later Gonzalez declared a $.50 per share cash dividend. As a result of the dividends declared
a. $1,242,500.
b. $525,000.
c. $192,500.
d. $175,000
Answer: a
350,000 × .10 × $30 = $1,050,000
$1,050,000 + (350,000 × 1.10 × $.50) = $1,242,500
b. The stockholders' equity section of Lawton Corporation as of December 31, 2006, was as follows:
Common stock, par value $2; authorized 20,000 shares;

issued and outstanding 10,000 shares $ 20,000
$125,000
additional shares were issued. On March 1, 2007, the fair market value of the stock was $6 per share. For
the two months ended February 28, 2007, Lawton sustained a net loss of $10,000. What amount should
Lawton report as retained earnings as of March 1, 2007?
a. $56,000.
b. $62,000.
c. $66,000.
d. $72,000.
Answer: a
$75,000 – $10,000 – (1,500 × $6) = $56,000.
c. The stockholders' equity of Benton Company at July 31, 2007 is presented below:
Common stock, par value $20, authorized 400,000 shares;

issued and outstanding 160,000 shares $3,200,000
$4,010,000
On August 1, 2007, the board of directors of Benton declared a 15% stock dividend on common stock, to
be distributed on September 15th. The market price of Benton's common stock was $35 on August 1,
2007, and $38 on September 15, 2007. What is the amount of the debit to retained earnings as a result
of the declaration and distribution of this stock dividend?
a. $800,000.
b. $840,000.
c. $912,000.
d. $600,000.
Answer: b
160,000 × .15 × $35 = $840,000.
d. On January 1, 2007, Golden Corporation had 110,000 shares of its $5 par value common stock
outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On
December 1, when the market price of the stock was $8, the corporation declared a 10% stock dividend
to be issued to stockholders of record on December 16, 2007. What was the impact of the 10% stock
dividend on the balance of the retained earnings account?
a. $50,000 decrease
b. $80,000 decrease
c. $88,000 decrease
d. No effect
Anser: b
100,000 × .10 × $8 = $80,000
e. Kimm, Inc. had net income for 2007 of $2,120,000 and earnings per share on common stock of $5.
Included in the net income was $300,000 of bond interest expense related to its long-term debt. The
income tax rate for 2007 was 30%. Dividends on preferred stock were $400,000. The payout ratio on
common stock was 25%. What were the dividends on common stock in 2007?
a. $430,000.
b. $530,000.
c. $482,500.
d. $645,000.
Answer: a
x/ ($2,120,000 – $400,000)= .25, X = $430,000
33
a. Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On December 15,
2006, Palmer declared a property dividend of all of its Dixon Corp. shares on the basis of one share of
Dixon for every 10 shares of Palmer common stock held by its stockholders. The property dividend was
distributed on January 15, 2007. On the declaration date, the aggregate market price of the Dixon shares
held by Palmer was $400,000. The entry to record the declaration of the dividend would include a debit
to Retained Earnings of
a. $0.
b. $160,000.
c. $240,000.
d. $400,000.
Answer: d
$400,000 (market value)
b. On December 31, 2006, the stockholders' equity section of Clark, Inc., was as follows:

Total stockholders' equity $380,000
On March 31, 2007, Clark declared a 10% stock dividend, and accordingly 900 additional shares were
issued, when the fair market value of the stock was $18 per share. For the three months ended March
31, 2007, Clark sustained a net loss of $32,000. The balance of Clark’s retained earnings as of March 31,
2007, should be
a. $125,800.
b. $133,000.
c. $134,800.
d. $142,000.
Answer: a
$174,000 – $32,000 – (900 × $18) = $125,800.
c. At December 31, 2007 and 2008, Sloan Corp. had outstanding 2,000 shares of $100 par value 8%
cumulative preferred stock and 10,000 shares of $10 par value common stock. At December 31, 2007,
dividends in arrears on the preferred stock were $8,000. Cash dividends declared in 2008 totaled
$30,000. What amounts were payable on each class of stock?
Preferred Stock Common Stock
a. $16,000 $14,000
b. $22,000 $8,000
c. $24,000 $6,000
d. $30,000 $0
Answer: c
($200,000 × .08) + $8,000 = $24,000 $30,000 – $24,000 = $6,000.
d.Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of
$1 par value common stock outstanding at December 31, 2011, and December 31, 2010. The board of
directors declared and paid a $5,000 dividend in 2010. In 2011, $24,000 of dividends are declared and
paid. What are the dividends received by the preferred stockholders in 2011?
a. $17,000
b. $12,000
c. $ 7,000
d. $ 6,000
Answer: c
2,000 $50 .06 = $6,000
($6,000 – $5,000) + $6,000 = $7,000.

e.Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 20,000 shares of
$1 par value common stock outstanding at December 31, 2011. There were no dividends declared in
2009. The board of directors declares and pays a $45,000 dividend in 2010 and in 2011. What is the
amount of dividends received by the common stockholders in 2011?
a. $15,000
b. $25,000
c. $45,000
d. $0
Answer: A 5,000 $100 .05 = $25,000
($45,000 2) – ($25,000 3) = $15,000.
34
1.Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100 par value
cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash
will Colson distribute to the common stockholders?
a.$76,000.
b.$84,000.
c.$118,000.
d.None.
a 6,000 $100 .07 = $42,000

$160,000 – ($42,000 2) = $76,000
2.Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were purchased in
2007 for $90,000. On November 15, 2011, Pierson declared a property dividend of one share of Hunter
for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter was
$14 per share, there were 90,000 shares of Pierson outstanding. What gain and net reduction in retained
earnings would result from this property dividend?
Gain Net Reduction in
Retained Earnings
a. $0 $126,000
b. $0 $ 81,000
c. $45,000 $ 81,000
d. $45,000 $ 36,000
c ($90,000 ÷ $10) $14 = $126,000
[$14 – ($90,000 ÷ 10,000)] 9,000 = $45,000
$126,000 – $45,000 = $81,000.
3. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in
2007 for $270,000. On November 15, 2011, Stinson declared a property dividend of one share of Matile
for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was
$14 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in
retained earnings would result from this property dividend?
Gain Net Reduction in
Retained Earnings
a. $0 $243,000
b. $0 $378,000
c. $135,000 $108,000
d. $135,000 $243,000
d ($270,000 ÷ $10) $14 = $378,000
[$14 – ($270,000 ÷ 30,000)] 27,000 = $135,000
$378,000 – $135,000 = $243,000.

4.Gibbs Corporation owned 20,000 shares of Oliver Corporation’s $5 par value common stock. These
shares were purchased in 2007 for $180,000. On September 15, 2011, Gibbs declared a property
dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when
the market price of Oliver was $14 per share, there were 180,000 shares of Gibbs outstanding. What NET
reduction in retained earnings would result from this property dividend?
a. $90,000
b. $252,000
c. $72,000
d. $162,000
d(180,000 ÷ 10) $14 = $252,000
$252,000 – [$252,000 – (180,000 18/20)] = $162,000.
5.Melvern’s Corporation has an investment in 5,000 shares of Wallace Company common stock with a
cost of $218,000. These shares are used in a property dividend to stockholders of Melvern’s. The
property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of
record on June 15. The market value per share of Wallace stock is $63 on May 25, $66 on June 15, and
$68 on July 31. The net effect of this property dividend on retained earnings is a reduction of
a. $340,000.
b. $330,000.
c. $315,000.
d. $218,000.
D (5,000 $63) = $315,000
$315,000 – ($315,000 – $218,000) = $218,000.

35
1.Hernandez Company has 350,000 shares of $10 par value common stock outstanding. During the year,
Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four
months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared
a. $1,242,500.
b. $525,000.
c. $192,500.
d. $175,000.
a 350,000 .10 × $30 = $1,050,000
$1,050,000 + (350,000 1.10 $.50) = $1,242,500.
2.On June 30, 2010, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as
follows:
Capital stock (par value $50; 60,000 shares issued) $3,000,000
Premium on capital stock 600,000
Retained earnings 4,200,000
If a 100% stock dividend were declared and distributed, capital stock would be
a. $3,000,000.
b. $3,600,000.
c. $6,000,000.
d. $7,800,000.
c (60,000 $50) + $3,000,000 = $6,000,000.
3.The stockholders' equity section of Gunkel Corporation as of December 31, 2010, was as follows:
$125,000
additional shares were issued. On March 1, 2011, the fair market value of the stock was $6 per share. For
the two months ended February 28, 2011, Gunkel sustained a net loss of $10,000.
What amount should Gunkel report as retained earnings as of March 1, 2011?
a. $56,000.
b. $62,000.
c. $66,000.
d. $72,000.
a $75,000 – $10,000 – (1,500 $6) = $56,000.
4.The stockholders' equity of Howell Company at July 31, 2010 is presented below:
Common stock, par value $20, authorized 400,000 shares;
$4,010,000
On August 1, 2010, the board of directors of Howell declared a 15% stock dividend on common stock, to
be distributed on September 15th. The market price of Howell's common stock was $35 on August 1,
2010, and $38 on September 15, 2010. What is the amount of the debit to retained earnings as a result
of the declaration and distribution of this stock dividend?
a. $800,000.
b. $840,000.
c. $912,000.
d. $600,000.
b 160,000 .15 $35 = $840,000.
5. On January 1, 2010, Dodd, Inc., declared a 10% stock dividend on its common stock when the market
value of the common stock was $20 per share. Stockholders' equity before the stock dividend was
declared consisted of:
Common stock, $10 par value, authorized 200,000 shares;
Additional paid-in capital on common stock 150,000
What was the effect on Dodd’s retained earnings as a result of the above transaction?
a. $120,000 decrease
b. $240,000 decrease
c. $400,000 decrease
d. $200,000 decrease
b 120,000 .10 $20 = $240,000.
36
1. At the beginning of 2011, Flaherty Company had retained earnings of $200,000. During the year
Flaherty reported net income of $100,000, sold treasury stock at a “gain” of $36,000, declared a cash
dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value)
when the market value of the stock was $20 per share. The amount of retained earnings available for
dividends at the end of 2011 was
a. $180,000.
b. $210,000.
c. $216,000.
d. $246,000.
a $200,000 + $100,000 – $60,000 – (3,000 $20) = $180,000.
2. Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year
Masterson declared a 5% stock dividend when the market price of the stock was $36 per share. Three
months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared
a. $1,020,600
b. $756,000
c. $264,600
d. $252,000
a($420,000 .05 $36) + ($420,000 1.05 $.60) = $1,020,600.
3.At the beginning of 2011, Hamilton Company had retained earnings of $150,000. During the year
Hamilton reported net income of $75,000, sold treasury stock at a “gain” of $27,000, declared a cash
dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value)
when the market value of the stock was $30 per share. The amount of retained earnings available for
dividends at the end of 2011 was:
a. $184,500.
b. $162,000.
c. $157,500.
d. $135,000.
d $150,000 + $75,000 – $45,000 – (1,500 $30) = $135,000
4.Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year
Mingenback declared a 5% stock dividend when the market price of the stock was $48 per share. Two
months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared
during the year, retained earnings decreased by:
a. $336,000.
b. $352,800.
c. $1,344,000.
d. $1,696,800.
d (560,000 .05 $48) + (560,000 1.05 $.60) = $1,696,800
5.Yoder, Inc. has 50,000 shares of $10 par value common stock and 25,000 shares of $10 par value, 6%,
cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one
year in arrears. Assuming that Yoder wishes to distribute $135,000 as dividends, the common
stockholders will receive
a. $30,000.
b. $55,000.
c. $80,000.
d. $105,000.
c Common Stock
$500,000 6% = $30,000 (current year)

$500,000 10%* = 50,000 (participating)
$80,000
*$135,000 – $30,000 – ($250,000 6% × 2) = $75,000
$75,000
———— = 10%.
$750,000
37
Sealy Corporation had the following information in its financial statements for the years ended 2010 and
2011:
Cash dividends for the year 2011 $ 5,000
Net income for the year ended 2011 72,000
Market price of stock, 12/31/10 10
Market price of stock, 12/31/11 12
Common stockholders’ equity, 12/31/10 1,000,000
Common stockholders’ equity, 12/31/11 1,200,000
Outstanding shares, 12/31/11 100,000
Preferred dividends for the year ended 2011 10,000
1.What is the rate of return on common stock equity for Sealy Corporation for the year ended 2011?
a. 6.5%
b. 6.0%
c. 5.6%
d. 5.2%
c ($72,000 – $10,000) ÷ [($1,000,000 + $1,200,000)] = 5.6%.
2.What is the price-earnings ratio for Sealy Corporation for the year ended 2011?
a. 16.1
b. 16.7
c. 19.4
d. 21.1
c($72,000 – $10,000) ÷ 100,000 = $.62.
$12 ÷ .62 = 19.4
Written, Inc. has outstanding 300,000 shares of $2 par common stock and 60,000 shares of no-par 8%
preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating.
Dividends have been paid in every year except the past two years and the current year.
3. Assuming that $150,000 will be distributed as a dividend in the current year, how much will the
common stockholders receive?
a. Zero.
b. $78,000.
c. $102,000.
d. $126,000.
b $150,000 – (60,000 × $5 × .08 × 3) = $78,000.
4.Assuming that $63,000 will be distributed as a dividend in the current year, how much will the
preferred stockholders receive?
a. $21,000.
b. $24,000.
c. $48,000.
d. $63,000
d 60,000 × $5 × .08 × 3 = $72,000 > $63,000.
5.Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2007 for $240,000. On December 15,
2010, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one
share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The
property dividend was distributed on January 15, 2011. On the declaration date, the aggregate
market price of the Eaton shares held by Farmer was $400,000. The entry to record the
declaration of the dividend would include a debit to Retained Earnings of
a. $0.
b. $160,000.
c. $240,000.
d. $400,000.
d $400,000 (market value).
38
1.On December 31, 2010, the stockholders' equity section of Arndt, Inc., was as follows:

Total stockholders' equity $380,000
On March 31, 2011, Arndt declared a 10% stock dividend, and accordingly 900 additional shares
were issued, when the fair market value of the stock was $18 per share. For the three months
ended March 31, 2011, Arndt sustained a net loss of $32,000. The balance of Arndt’s retained
earnings as of March 31, 2011, should be
a. $125,800.
b. $133,000.
c. $134,800.
d. $142,000.
a $174,000 – $32,000 – (900 $18) = $125,800.
2. Baden Corporation owned 20,000 shares of Terney Corporation’s $5 par value common stock. These
shares were purchased in 2004 for $180,000. On September 15, 2008, Baden declared a property
dividend of one share of Terney for every ten shares of Baden held by a stockholder. On that date, when
the market price of Terney was $14 per share, there were 180,000 shares of Baden outstanding. What
NET reduction in retained earnings would result from this property dividend?
a. $90,000
b. $252,000
c. $72,000
d. $162,000
d (180,000 ÷ 10) × $14 = $252,000 $252,000 – [$252,000 – (180,000 × 18/20)] = $162,000.
3. Wiley, Inc. has 50,000 shares of $10 par value common stock and 25,000 shares of $10 par value, 6%,
cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in
arrears. Assuming that Wiley wishes to distribute $135,000 as dividends, the common stockholders will
receive
a. $30,000.
b. $55,000.
c. $80,000.
d. $105,000.
c Common Stock $500,000 × 6% = $30,000 (current year)

$500,000 × 10%* = 50,000 (participating)
$80,000
*$135,000 – $30,000 – ($250,000 × 6% × 2) = $75,000
$75,000 / $750,000 = 10%.
4. In 2006, Marly Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In
2007, Marly issued 4,000 of these shares at $25 per share. Marly uses the cost method to account for its
treasury stock transactions. What accounts and what amounts should Marly credit in 2007 to record the
issuance of the 4,000 shares?
Treasury Additional Retained Common

Stock Paid-in Capital Earnings Stock
a. $72,000 $70,000
b. $72,000 $28,000
c. $96,000 $4,000
d. $68,000 $28,000 $4,000
b (4,000 × $18) = $72,000; (4,000 × $7) = $28,000
5. On May 1, 2007, Kent Corp. declared and issued a 10% common stock dividend. Prior to this
dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair
value of Kent 's common stock was $20 per share on May 1, 2007. As a result of this stock dividend,
Kent's total stockholders' equity
a. increased by $200,000.
b. decreased by $200,000.
c. decreased by $10,000.
d. did not change.
d
39
1. At December 31, 2007 and 2008, Sloan Corp. had outstanding 2,000 shares of $100 par value 8%
cumulative preferred stock and 10,000 shares of $10 par value common stock. At December 31, 2007,
dividends in arrears on the preferred stock were $8,000. Cash dividends declared in 2008 totaled
$30,000. What amounts were payable on each class of stock?
Preferred Stock Common Stock
a. $16,000 $14,000
b. $22,000 $8,000
c. $24,000 $6,000
d. $30,000 $0
c ($200,000 × .08) + $8,000 = $24,000 $30,000 – $24,000 = $6,000.
2. Below are several accounts from Balsam Company’s accounting records.
Total assets, end of year $100,000

Capital stock, end of year 12,000
Net income 65,000
The amount of retained earnings at the end of the year is

a. $34,000.
b. $40,000.
c. $52,000.
d. $64,000.
Solution: C Objective: M Key Point: 2
$18,000 + 65,000 $31,000 = $52,000
or $100,000 $36,000 $12,000 = $52,000

3. The Fifth Corporation pays annual cash dividends of $.80 per share to its common stockholders.
Calculate the corporation's cash payments for dividends on common stock if it has 20,000,000
shares authorized, $.05 par value per share, 1,000,000 shares outstanding.
a. 600,000
b. 900,000
c. 800,000
d. 850,000
Answer:c
$.80 cash dividends per share x 1,000,000 shares outstanding = $800,000 cash dividends.
4. The Twelfth Corporation had issued 1,000 shares of $100 par value, 6% preferred stock at $105 per
share.
Calculate the total dollar amount of cash the company must have available if it intends to pay
preferred stockholders the full amount of their cash dividends.
a. 5700
b. 3000
c. 7000
d. 6000
Answer: d
1,000 shares outstanding x $100 par value per share x .06 dividends percentage = $6,000
dividends.
5. The Sixteenth Corporation's April 30 balance sheet included the following information.
Stockholders' equity
Contributed capital
6%, cumulative preferred stock, $100 par,
1,000 shares issued $100,000
Common stock, $.10 par, 4,000,000 shares issued $400,000
Additional paid-in capital, common stock $700,000
Total contributed capital $1,200,000
Retained earnings $1,600,000
All preferred stock was issued 16 months ago. All dividends on preferred stock for prior years have
been paid. Total dividends declared and paid in the year ended April 30 were $146,000.
Calculate the total dollar amount of dividends paid to common stockholders in the year ended
April 30.
a. 300000
b. 140000
c. 50000
d. 100000
Answer: b
Total dividends $146,000
Less: Preferred stock dividends: 1,000 shares x $100 par x .06 $6,000
Common stock dividends $140,000
40
1. The Seventeenth Corporation's May 31 balance sheet included the following information.
Stockholders' equity
Contributed capital
6%, cumulative preferred stock, $100 par,
1,000 shares issued $100,000
Common stock, $.10 par, 4,000,000 shares issued $400,000
Additional paid-in capital, common stock $700,000
Retained earnings $1,600,000
All preferred stock was issued 17 months ago. No dividends on preferred stock for prior years have
been paid. Total dividends declared and paid in the year ended May 31 were $192,000.
Calculate the total dollar amount of dividends paid to common stockholders in the year ended
May 31.
a. 300000
b. 180000
c. 150000
d. 50000
Answer: b
Less: Preferred stock dividends
Previous year: 1,000 shares x $100 par x .06 $6,000
Current year: 1,000 shares x $100 par x .06 $6,000 $12,000
2. Calculate the total cash dividends the Eighteenth Corporation will pay each year if it issues 10,000
shares of 8% noncumulative, $100 par preferred stock at a price of $105 per share.
a. 80000
b. 50000
c. 70000
d. 60000
Answer: a
10,000 shares outstanding x $100 par value per share x .08 dividends percentage = $80,000
dividends.
3.The stockholders' equity section of the Twenty-fourth Corporation's December 31 balance sheet
included the following.
Stockholders' Equity
Contributed capital
6% Preferred stock, noncumulative, $100 par, 10,000
shares authorized, 1,000 shares issued $100,000
Common stock, $.01 par, 10,000,000 shares
authorized, 6,000,000 shares issued $60,000
Additional paid-in capital, common stock $4,140,000
Retained earnings $900,000
Less: Treasury stock, 10,000 shares ($150,000)
Total Stockholders' Equity $5,050,000
Calculate the dividends per share to be paid to the company's common stockholders if the
company declares total cash dividends of $305,500.
a. .05
b. 1.8
c. .44
d. .5
Answer: a
Preferred stock dividends: 1,000 shares x $100 par x .06 $6,000
Common shares issued 6,000,000

Less: Treasury shares 10,000
Common shares outstanding 5,990,000
Common stock dividends per share: $299,500 / 5,990,000 $.05
4. Twisters Ltd made a profit for the year ended 31 March 2017 of £30,000. During that year the
company had paid preference dividends on 100,000 5% preference shares. In addition, an
ordinary dividend of 4 pence per share was paid on 200,000 ordinary shares. What was the
retained profit for the year ended 31 March 2017?
a. £17,000
b. £15,000
c. £18,000
d. £20,000
Answer: a.
Retained profit for the year = £30,000 - preference dividend (£5,000) - ordinary dividend
(£8,000) = £17,000.
5. Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, year
1, Cyan’s retained earnings were $300,000. In March year 2, Cyan reacquired 5,000 shares of its
common stock at $20 per share. In June year 2, Cyan sold 1,000 of these shares to its corporate
officers for $25 per share. Cyan uses the cost method to record treasury stock. Net income for the
year ended December 31, year 2, was $60,000. At December 31, year 2, what amount should Cyan
report as retained earnings?
a. 360000
b. 365000
c. 375000
d. 380000
Answer: a
Therefore, 12/31/Y2 retained earnings consists of the 12/31/Y1 balance ($300,000) plus year 2 net
income ($60,000), or $360,000
41
1. Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, year 1. Plack
received a stock dividend of 2,000 shares on April 30, year 1, when the market value per share
was $35. Ty paid a cash dividend of $2 per share on December 15, year 1. In its year 1 income
statement, what amount should Plack report as dividend income
a. 20000
b. 24000
c. 90000
d. 94000
Answer: b
$24,000 = (12,000 × $2.00).
2. At December 31, year 2 and year 3, Apex Co. had 3,000 shares of $100 par, 5% cumulative
preferred stock outstanding. No dividends were in arrears as of December 31, year 1. Apex did
not declare a dividend during year 2. During year 3, Apex paid a cash dividend of $10,000 on its
preferred stock. Apex should report dividends in arrears in its year 3 financial statements as a(n)
a. Accrued liability of 15000
b. Disclosure of 15000
c. Accrued liability of 20000
d. Disclosure of 20000
(d) 12/31/Y3 total $20,000, as computed below. Year 2 $300,000 × 5% = $15,000 Year 3 $300,000 × 5% =
15,000 Total cumulative preferred dividends $30,000 – 15000 = 5000; 15000 + 5000 = 20000
3. On January 2, year 2, Lake Mining Co.’s board of directors declared a cash dividend of $400,000
to stockholders of record on January 18, year 2, payable on February 10, year 2. The dividend is
permissible under law in Lake’s state of incorporation. Selected data from Lake’s December 31,
year 1 balance sheet are as follows:
Accumulated depletion $100,000

Capital stock 500,000
Additionalpaid-in capital 150,000
The $400,000 dividend includes a liquidating dividend of
a. 0
b. 100000
c. 150000
d. 300000
(b) The excess $400,000 dividend – $300,000 RE = $100,000 is considered to be a return of capital or a
liquidating dividend rather than a return on capital.
4. On December 1, year 1, Nilo Corp. declared a property dividend of marketable securities to be

distributed on December 31, year 1, to stockholders of record on December 15, year 1. On
December 1, year 1, the trading securities had a carrying amount of $60,000 and a fair value of
$78,000. What is the effect of this property dividend on Nilo’s year 1 retained earnings, after all
nominal accounts are closed?
a. 0
b. 18000 increase
c. 60000 decrease
d. 78000 decrease
(c) the effect on retained earnings from the above entries would be $60,000 = ($78,000 debit to
retained earnings less $18,000 credit to retained earnings when the “gain on disposition” account is
closed out).
5. In year 1, Rona Corp. issued 5,000 shares of $10 par value common stock for $100 per share. In
year 3, Rona reacquired 2,000 of its shares at $150 per share from the estate of one of its deceased
officers and immediately canceled these 2,000 shares. Rona uses the cost method in accounting for
its treasury stock transactions. In connection with the retirement of these 2,000 shares, Rona should
debit
Additional paid-in capital?
Retained earnings?
a. $ 20,000 $280,000
b. $100,000 $180,000
c. $180,000 $100,000
d. $280,000 $0
(c) The entry in this case is Common stock 20,000 (2,000 × $10) APIC 180,000 (2,000 × $90) Retained
earnings 100,000 (2,000 × $50) Cash 300,000 Therefore, APIC should be debited for $180,000 and
retained earnings should be debited for $100,000.
42
1. If Hegarty Ltd has issued 250,000, £1 ordinary shares and an ordinary dividend of 5% per share is
paid, the dividend paid would be:
a) £12,500
b) £250,000
c) £125,000.
d) £50,000.
Correct answer:
a) £12,500.
Feedback:
Dividend payable = 250,000 x 5%= £12,500.
2.Blanc plc has 200,000 4% £1 preference shares and 600,000 £1 ordinary shares in issue. If the
company pays an ordinary dividend of 6% per share during the year ended 31 December 2017, the
total dividends payable that year would be:
a) £68,000.
b) £36,000
c) £8,000.
d) £44,000.
Correct answer:
d) £44,000.
Feedback:
Preference dividend = 200,000 x 4% = £8,000. Ordinary dividend = 600,000 x 6% =£36,000. Total
dividends = £44,000.
3.Twisters Ltd paid a preference dividend of £30,000 on 600,000 £1 preference shares. What rate of
dividend attaches to the preference shares, assuming the full preference dividend was paid during
the year?
a) 3%
b) 5%
c) 20%
d) 50%
Correct answer:
b) 5%
Feedback:
The rate of preference dividend = 30,000/600,000 = 5%.
4. If a company pays a dividend of £0.45 and the share price is £5, what is the dividend yield?
a. 5%
b. 15%
c. 9%
d. 7%
The dividend yield is 9%
Dividend yield = (Dividends per share/price per share) x 100
So 0.45 / 5 = 0.09
0.9 x100 = 9%
5.The following stock dividends were declared and distributed by Sol Corp.:
Percentage of common share
outstanding at declaration date Fair value Par value
10 $15,000 $10,000
28 40,000 30,800
What aggregate amount should be debited to retained earnings for these stock dividends?
a. $40,800
b. $45,800
c. $50,000
d. $55,000
(b) 30800 + 15000 = $45,800.
43
1. On January 2, year 2, Lake Mining Co.’s board of directors declared a cash dividend of $400,000 to
stockholders of record on January 18, year 2, payable on February 10, year 2. The dividend is permissible
under law in Lake’s state of incorporation. Selected data from Lake’s December 31, year 1 balance sheet
are as follows:
Accumulated depletion $100,000
Capital stock 500,000
The $400,000 dividend includes a liquidating dividend of
a. $0 b.
b. $100,000
c. $150,000
d. $300,000
(b) The excess $400,000 dividend – $300,000 RE = $100,000
2.Below are several amounts from Locust Company’s accounting records. Answer the questions that
follow.

Net income 32,000
Calculate the amount of retained earnings at the end of the year.
a. 82000
b. 32000
c. 65000
d. 75000
$65,000 + $32,000 –$15,000 = $82,000

3.At December 31, 2014 and 2015, Eagle Company had outstanding 4,000 shares of P100 par value 12%
cumulative, fully participating preference share and 20,000 or P10 par value ordinary share. At
December 31, 2014, dividends in arrears om the preference share were P24,000. Cash dividends
declared in 2015 totaled P108,000.
What are the amounts of dividend per share on the preference and ordinary shares, respectively?
a. P20.00 and P1.40
b. P20.00 and 1.80
c. P18.00 and P1.40
d. P18.00 and P1.80
Answer: a.
24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000 72,000 + (12,000 x 4/6) = 80,000; 24,000 +

(12,000 x 2/6) =28,000 80,000/4,000 = 20; 28,000/20,000 = 1.40
The Red Velvet Company paid a total of P610,000 dividends in 2015 to its 250,000 shares of P10 par
ordinary share and 20,000 shares of 9% P100 par preference share.
Dividends of P50,000 were in arrears at January 1, 2015.
Compute the total amount of dividends on both preference share capital and ordinary share capital,
assuming
4. Preference is participating up to 14%
a. P12.44; P1.24
b. P15.44; P9.24
c. P13.44; P1.50
d. P10.44; P2.24
Answer: a.
Preference Ordinary
Current dividends:
9% x P2,000,000 P180,000
9% x P2,500,000 P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which is

less than the limit of additional 5%;
therefore full excess is prorated.
P155,000 x 2M/4.5M 68,889

P155,000 x 2.5M/4.5M 86,111
Total P248,889 P311,111
Dividend per share P12.44 P1.24
5. Preference is participating up to 12%
a. P10.00; P1.28
b. P12.00; P3.28
c. P12.00; P1.28
d. P13.00; P4.28
Answer: c
2013 Preference Ordinary
Current dividends:
9% x P2,000,000 P180,000
9% x P2,500,000 P225,000
Excess divided by total par 155,000/4,500,000 = 3.44%,

which exceeds the additional limit of 3%;
therefore, additional to preference is limited to 3%;
remainder goes to ordinary
3% x P2,000,000 60,000
P155,000 – 60,000 95,000
Total P240,000 P320,000

Dividend per share P12.00 P1.28
44
1. The shareholders' equity section of Doll Corporation as of December 31, 2015 before closing its books
and recording the 2015 dividends is as follows:
Ordinary Share Capital, 100,000 shares issued and outstanding P3,000,000
Doll's board of directors declared a 10% bonus issue on December 31, 2015 when the market value of
each share was P70. Accordingly, 10,000 new shares were issued. Doll's share capital has a par value of
P30 per share.
Assuming that Doll sustained a net loss of P1,200,000 for the year 2015, what amount should Doll report
as retained earnings as of December 31, 2015?
a. P6,100,000
b. P6,500,000
c. P8,500,000
d. P8,900,000
Answer: a.
8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000
2. The Board of Directors of Galleria Suites located in the heart of Ortigas Commercial Complex wishes to
declare a dividend whereby ordinary shareholders shall receive a total per share dibidend of P40. The
shareholders' equity section of the company has the following information:
Preference Share Capital (P1,000 par, 7% participating up to 10%, non-cumulative; 10,000 shares
authorized, 2,500 shares issued and outstanding) P2,500,000
Ordinary Share Capital (P250 par; 25,000 shares authorized, issued and outstanding) 6,250,000
How much should be the total amount of dividends to be declared to meet the goal of the directors of
P40 per share?
a. P1400000
b. P1250000
c. P1175000
d. P1000000
Answer: b
25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000 1,000,000 + 250,000 = 1,250,000
3. ABC Corporation’s performance during the last three years had not been favorable resulting to a
deficit of P950,000 at December 31, 2015. The Company, with the approval of the shareholders, decided
to eliminate the deficit through a quasi-reorganization which would be affected as follows: The
company’s 200,000, P20 per ordinary share capital originally issued at an average price of P22 would be
reissued wit par value of P15.
Immediately after quasi-reorganization, what would be the balance of additional paid in capital?
a. P1,400,000
b. P1,000,000
c. P600,000
d. P450,000
Answer: d
(200,000 x 2) + (200,000 x 5) – 950,000 = 450,000
4. Subsidiary’s inventory at the year end included £180,000 purchased from its parent. Further goods
invoiced by the parent at £45,000 were in transit. The parent invoices the subsidiary at cost plus 20%.
The amount of unrealised profit that needs to be eliminated from the parent’s retained earnings would
be:
a. 30000
b. 37500
c. 36000
d. 38333
Answer: b
£45,000/1.2 = £37,500
5. The retained earnings balance on January 1, 2013, was $90,300. Net income for the past 11 months
has been $24,000. Preferred stock dividends for all of 2013 have been declared and paid. Calculate the
amount of dividends on common stock during the first 11 months of 2013.
a. $7,500
b. $10,800
c. $10,000
d. $6,500
Answer: d
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Less: Common stock dividends . . . . . . . . . . . . ? .
Retained earnings, December 31, 2013 . . . . . . $97,000
Common Stock dividends = $6,500
45
1. Information from Mango Company’s balance sheet immediately subsequent to financing and investing
activities appears below. Answer the questions that follow.
Cash $12,000
Inventory 15,000
Equipment 50,000
Accounts Payable 17,000
Long-term Payable 10,000

Capital Stock 30,000
Calculate the total amount of retained earnings for Mango Company.

a. $20,000
b. $10,000
c. $18,000
d. $25,000
($12,000 + $15,000 + $50,000) – $17,000 – $10,000 – $30,000 = $20,000
2. Below are several amounts from Locust Company’s accounting records. Answer the questions that
follow.

Net income 32,000
Calculate the amount of retained earnings at the end of the year.
a. $65,000
b. $82,000
c. $80,000
d. $75,000
Answer: b
$65,000 + $32,000 –$15,000 = $82,000
3. Andersen's Nursery has sales of $318,400, cost of $199,400, depreciation expense of $28,600, interest
expense of $1,000, and a tax rate of 34%. The firm paid out $16,500 in dividends.
What is the addition to retained earnings?
a. $59,004
b. $42,500
c. $42,504
d. $30,396
Answer: c
Sales $318,400
Less: Cost of sales $199,400
Gross Profit $119,000 ($318,400-$199,400)
Less: Depreciation $28,600
Less: Interest expense $1,000
Net profit before tax $89,400 ($119,400 - $28,600 - $1,000)
Less: Tax $30,396 ($89,400 X 34/100)
Net profit after tax $59,004 ($89,400 - $30,396)
If $16,500 of the net profit after tax was paid out in dividends then $42,504 ($59,004 - $16,500) was left
over for the retained earnings account.
4. A brand new company started its operations on January 2, 2010, with an initial investment of $50,000
by each of its two primary stockholders who were also involved in the management of the company.
The company's net income for its first year of business was $240,000. The company also paid a total of
$100,000 in dividends to its stockholders during the year.
What is the company's retained earnings that will be reported on the balance sheet at December 31,
2010?
a. $240,000
b. $140,000
c. $100,000
d. $50,000
Accounting Answer: b
Retained earnings equation = Net Income - Dividends
Retained Earnings = 240,000 - 100,000 = 140,000
5. ABC International has $500,000 of net profits in its current year, pays out $150,000 for dividends,
and has a beginning retained earnings balance of $1,200,000.
Calculate the amount of Retained earnings at the end of the Year.
a. 1,550,000
b. 1,200,000
c. 1,480,000
d. 1,350,000
Answer: A
+ $1,200,000 Beginning retained earnings

+ $500,000 Net income
- $150,000 Dividends
= $1,550,000 Ending retained earnings
46
a. Wedge Corporation has the following capital stock outstanding: Common stock, par
$1, 250,000 shares. 8% preferred stock, par $100, 5,000 shares, cumulative, with 2
years in arrears excluding the current year. Cash dividends of $150,000 were declared
and paid near the end of the current year. How much is the dividends received by
preferred stockholders'?
a. $30000
b. $60000
c. $90000
d. $120000
b. How much is the dividends received by common stockholders'?
a. $30000
b. $60000
c. $90000
d. $120000
Answer D A
Preferred: (5,000 shares $100 8%) 3 = $120,000
Common: $150,000 $120,000 = $30,000

c. New Castle company had the following classes of share outstanding as of December
31, 2014:
Ordinary shares , ₱20 par value , 20,000 outstanding; Preference shares, 6%, ₱100 par
value, cumulative and fully participating , 1000 shares were outstanding.
The last payment of preference dividend was on December 31,2011. On December 31,
2014 a total cash dividend of ₱90,000 was declared.
1.What is the amount of dividend payable on the ordinary shares?
a. ₱57,600
b. ₱62,400
c.67,200
d.72,000
d. What is the amount of dividend payable on the preference shares?
a. ₱22,000
b. ₱27,600
c. ₱32,400
d. ₱18,000
answer A C
Preference Ordinary
Shares Shares
Dividends due for distribution ₱90,000
Dividends in arrears (24,000)
[(6% x 4yrs) x 100,000] ₱24,000
Current year dividends ₱24,000
(6% x 400,000) (24,000)
Balance for participation 42,000
PS= (100/500 x 42,000 (8,400) 8,400

OS= (400/500 x 42,000) (33,600) 33,600
Dividends in arrears ₱32,400 ₱57,600
e. As the beginning of the accounting year 2014, trumpet company has machinery with
a historical cost of ₱4,500,000 and accumulated depreciation of ₱1,500,000.
On December 31,2014, trumpet company declared the machinery as dividend which

has a carrying amount at that time of ₱ 2,500,000. Trumpet’s policy measure all
depreciable asset at cost. At the time of declaration, the equipment has fair market
value of ₱2,000,000.
What amount should Trumpet company charge its accumulated profits and losses
related to the machine during 2014?
a. ₱2,000,000
b. ₱2,500,000
c. ₱3,000,000
d. ₱4,500,000
answer: c.
current year depreciation :
historical cost ₱4,500,000
accumulated depr., beg 1,500,000
BV, beg ₱3,000,000
Less: Book value , end 2,500,000 ₱500,000
Impairment loss (₱2M - ₱2.5M) 500,000
Fair value of Asset 2,000,000
Total change against accumulated profits or losses ₱3,000,000

A. On November 27, The Board of Directors of India Star Company Declared A $.35 Per Share

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A. On November 27, The Board of Directors of India Star Company Declared A $.35 Per Share

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1.

Nov. 27 Retained Earnings ............................................................... 8,925

Dividends Payable ................................................... 8,925

(25000 x .35 = 8925)

Dec. 24 Dividends Payable............................................................... 8,925

Number of shares to be issued: 500 shares (small stock dividend)

Common Stock Dividends Distributable ................... 500

Paid in Capital in Excess of Par ............................... 7,000

Oct. 31 Common Stock Dividends Distributable............................... 500

Common Stock......................................................... 500

Balance, January 1 as reported $600,000

Correction for understatement of net income

in prior period (depreciation expense error) 50,000

Balance, January 1, as adjusted 650,000

Add: Net income 100,000

Less: Cash dividends $70,000

Stock dividend 8,000 78,000

Balance, December 31 $672,000

d. The following information is available for Orson Corporation:

Retained Earnings, December 31, 2008 $1,500,000

e. What is the ending balance of retained earnings?

Accumulated Depreciation............................................................ 15,000

Retained Earnings ............................................................... 15,000

Balance January 1, as reported ................................................................. $1,500,000

Correction for overstatement of depreciation in prior period ..................... 15,000

Balance, January 1, as adjusted ............................................................... 1,515,000

Add: Net income ....................................................................................... 250,000

Balance, December 31 .............................................................................. $1,765,000

$15,000 + NI - $8,000 = $10,000

b. Below are several accounts from Norel Company’s accounting records.

Total assets, end of year P110,000

The amount of retained earnings at the end of the year is:

Annual preferred dividend: 2,000 × $100 × 3% = $6,000

a. On November 1, 2008, Mates Corporation’s stockholders’ equity section is as follows:

*$600,000 + (60,000 × .10 × $10)

c. Preferred Dividends Payable?

d. Common Dividends Payable?

RE = (96000 + 180000 = 276000)

June 1 Retained Earnings (120,000 × .15 × $12)............................ 216,000

Preferred Common Total

c. On November 1, 2008, Lambert Corporation's stockholders' equity section is as follows:

Common Stock $ 660,000

Balance, January 1, as reported .......................................................... $378,000

How much is charged to retained earnings as the result of above transactions?

b. What is the balance of dividends payable as the result of above transactions?

Mar. 1 Cash..................................................................................... 400,000

d. By how much did Retained Earnings increase or decrease during 2010?

Preferred dividend, (200,000 shares * $1.80 per share)............ $360,000

Common dividend (remainder: $500,000 * $360,000) ............. 140,000

Total dividend........................................................................... $500,000

$360,000 (200,000 shares × $1.80 per share)

c.How much goes to common?

Preferred: $360,000 Common: $ 40,000

e. How much goes to common?

Preferred: $1,080,000 ($360,000 × 3)

Common: $ 420,000 ($1,500,000 − $1,080,000)

Retained Earnings (13,000 × .15 × $25.00)…… 48,750