PALCON, Penelope C.

BSA-1B
CHAPTER 16_DIVIDENDS_Problem 3: Computations_Page 597-599

Use the following information for the next four questions

The shareholders equity of entity on May 1, 20x1 as follows:

Share capital, 20 par value 2,800,000

Subscribed share capital 400,000
Share premium 400,000
Retained earnings 1,700,000
Treasury shares, 25 cost per share (340,000)
Total shareholders’ equity 4,950,000

1. Entity declares cash dividends of 5 per share on May 15, 20x1, for distribution on May
31 20x1. Provide the journal entries.

SOLUTION

Share Capital (2.8 M /20) 140,000

Subscribed Share Capital (400k/20) 20,000
Treasury Share (350k/25) - 14,000
Outstanding share 146,000

Outstanding share 146,000

Multiply by: dividends per share 5
Total Cash dividends 730,000

May 15, 20x1 Retained earnings 730,000

(declaration) Cash dividends payable 730,000

May 21,20x1 NO ENTRY

(record)

May 31, 20x1 Cash dividends payable 730,000

(distribution) Cash 730,000
 2. Entity declares 1 for 10 share dividends on May 15 20x1 to shareholders of record as of
May 21 20x1, for distribution on May 31 2021. The fair values per share were 24, 25,
and 26, on May 15, 21 and 31, respectively. Provide the journal entries.

SOLUTION

Share Capital (2.8M/20) 140,000

Subscribed Share Capital (400k/20) 20,000
Treasury Share (350k/25) -14,000
Outstanding share 146,000

Outstanding share 146,000

Multiply by: dividend declared 10%
Number of Share 14,600
Multiply by: Fair Value 24
Total Share dividends 350,400

May 15, 20x1 Retained earnings 350,400

(declaration) Stock dividends payable 292,000
Share premium 58,400
May 21,20x1 NO ENTRY
(record)

May 31, 20x1 Stock dividends payable 292,000

(distribution) Share Capital 292,000
 3. Entity A declares a 1 for 5 share dividends on May 15 20x1 that to shareholders of
record as of May 21 20x1, for distribution on May 31 20x1 the fair values per share were
24, 25, and 26, on May 15, 21 and 31 respectively. Provide the journal entries

SOLUTION

Share Capital (2,8000,000/20) 140,000

Subscribed Share Capital (400k/20) 20,000
Treasury Share (350k/25) -14,000
Outstanding share 146,000

Outstanding share 146,000

Multiply by: dividend declared 20%
Number of Share 29,200
Multiply by: Par Value 20
Total Share dividends 584,000

May 15, 20x1 Retained earnings 584,000

(declaration) Stock dividends payable 584,000

May 21,20x1 NO ENTRY

(record)

May 31, 20x1 Stock dividends payable 584,000

(distribution) Share Capital 584,000
 4. Entity declares all the treasury shares as dividends on May 15 20x1 to shareholders of
record as of May 21 20x1, for distribution on May 31 20x1 the fair value share were 24
25 and 26 on May 15 21 and 31 respectively. Provide journal entries.

SOLUTION

May 15, 20x1 Retained earnings 350,000

(declaration) Stock dividends payable 350,000
May 21,20x1 NO ENTRY
(record)
May 31, 20x1 Stock dividends payable 350,000
(distribution) Treasury Shares 350,000
May 31, 20x1 Retained earnings- restricted 350,000
Retained earnings- Unrestricted 350,000
Use the following information for the next five questions

Entity A declared the 1,200,000 cash dividends to its preference and ordinary shareholders in
20x3. The dividends in arrears are three years, including the current year the entity a
shareholders’ equity immediately before the dividend declaration is as follows:

10% preference share capital, 20 par 1,000,000

Ordinary share capital, 10 par 2,000,000
Retained earnings 5,000,000
Total shareholders’ equity 8,000,000

5. How much are the respective shares of the preference and ordinary shareholders on
the dividends declared if the preference shares are noncumulative and
nonparticipating?

SOLUTION

Total Dividends Declared 1,200,000

Allocations for PS (1M x 10%) 100,000
Excess to ordinary share 1,100,000
As allocated -
 6. How much are the respective shares of the preference and ordinary shareholders on
the dividends declared if the preference shares are cumulative and nonparticipating?

SOLUTION

Total Dividends Declared 1,200,000

Allocations for PS (1M x 10%x3yrs) 300,000
Excess to ordinary share 900,000
As allocated -

7. How much are the respective shares of the preference and ordinary shareholders on
the dividends declared if the preference shares are noncumulative and fully
participating?

SOLUTION

Total Dividends Declared 1,200,000

Basic Allocations for PS (1M x 10%) 100,000
Basic Allocation for OS (2M x 10%) 200,000
Excess subject to participation 900,000
Participation of PS (900k x 1M /3M) 300,000
Participation of OS (900k x 2M /3M) 600,000
As allocated -

Total Dividends Receivable

Preference Share 400,000
Ordinary Share 800,000
Total Dividends 1,200,000
 8. How much are the respective shares of the preference and ordinary shareholders on
the dividends declared if the preference shares are cumulative and fully participating?

SOLUTION

Total Dividends Declared 1,200,000

Basic Allocations for PS (1M x 10% x 3yrs) 300,000
Basic Allocation for OS (2M x 10%) 200,000
Excess subject to participation 700,000
Participation of PS (700k x 1M /3M) 233,333
Participation of OS (700k x 2M /3M) 466,667
As allocated -

Total Dividends Receivable

Preference Share 533,333
Ordinary Share 666,667
Total Dividends 1,200,000

9. How much are the respective shares of the preference and ordinary shareholders on
the dividends declared if the preference shares are cumulative and participating up to
15%?

SOLUTION

Total Dividends Declared 1,200,000

Basic Allocations for PS (1M x 10% x 3yrs) 300,000
Basic Allocation for OS (2M x 10%) 200,000
Excess subject to participation 700,000
Participation of PS (15%-10% x 1M) 50,000
Excess Allocated to ordinary shares 650,000
As allocated -

Total Dividends Receivable

Preference Share 350,000
Ordinary Share 850,000
Total Dividends 1,200,000
 10. Entity a declared 2,400,000 cash dividends to its preference and ordinary shareholders
in 20x3 no dividends has been declared since 20x1 entity A’s shareholder equity
immediately before dividend declaration is as follows:

10% preference share capital (cumulative and participating) 1,000,000

12% preference share capital (noncumulative and participating) 1,000,000
Ordinary share capital 100 par 2,000,000
Retained earnings 4,700,000
Total shareholders’ equity 8,700,000

Requirement: compute for the dividends to be received by each of the following

classes of share capital.

SOLUTION

Total Dividends Declared 2,400,000

Basic Allocations for PS (1M x 10% x 3yrs) 300,000
Basic Allocations for PS (1M x 12%) 120,000
Basic Allocation for OS (2M x 10%) 200,000
Excess subject to participation 1,780,000
Participation of 10% PS (1,780,000 x 1M/4M) 445,000
Participation of 12% PS (1,780,000 x 1M/4M) 445,000
Participation of OS (1,780,000 x 2M /4M) 890,000
As allocated -

Total Dividends Receivable

10% Preference Share 745,000
12% Preference Shares 565,000
Ordinary Share 1,090,000
Total Dividends 2,400,000
 11. On December 31 2021, Entity A declares 100,000 cash dividends. Immediately
before the declaration, entity is retained earnings had a balance of 90,000. Provide
the journal entry on the date of declaration.

SOLUTION

December 31, 2021 Retained Earnings 90,000

(declaration) Capital Liquidation 10,000
Cash Dividends Payable 100,000