FINANCIAL ACCOUNTING AND REPORTING

ASSIGNMENT 1 – LESSON 16

EXERCISES

1. The following accounts and their balances are found in the records of Alamo Corporation:
authorized share capital of par P100 is P10,000,000 of which P5,000,000 was issued and its
accumulated earnings as of January 1 is P1,275,000. You were given the following additional
information:
Cash dividends of P10, June 30 P 500,000
Appropriation for Plant expansion, December 1 250,000
Net loss for the year 80,000
Direction:
a. Give the entries needed for the above

Retained Earnings P 500,000

Cash Dividends Payable P 500,000
Retained Earnings 250,000
RE – Appropriation for Plant Expansion 250,000
Retained Earnings 80,000
Income Summary 80,000

b. What is the balance of the free or unrestricted retained earnings as of December 31?

Retained Earnings, Beginning P 1,275,000

Less:
Dividends (500,000)
Appropriation (250,000)
Net Loss (80,000)
Retained Earnings, Ending P 445,000 Unrestricted

2. The records of Alamo Corporation showed the following data:

Ordinary Share Capital, par P100, authorized
200,000 shares, issued 50,000 shares P 5,000,000
Share premium 230,000
Retained Earnings 2,300,000
Direction: From the following independent cases, journalize the dividend declaration and the
dividend payment:
a. The Board of Directors declared a 10% cash dividend.

Retained Earnings P 500,000

Cash Dividends Payable P 500,000
To record 10% cash dividends declared on
50,000 shares at a par value of P100.

Cash Dividends Payable 500,000

Cash 500,000
To record distribution of cash dividends.

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 b. The Board of Directors declared a P5 cash dividend.

Retained Earnings P 250,000

Cash Dividends Payable P 250,000
To record P5 cash dividends declared on
50,000 shares at a par value of P100.

Cash Dividends Payable 250,000

Cash 250,000
To record distribution of cash dividends.

c. The Board of Directors declared a merchandise dividend of P15 per share.

Retained Earnings P 750,000

Property Dividends Payable P 750,000

Property Dividends Payable 750,000

Inventory 750,000

d. The Board declared a property dividend of 2 SMB shares for one Alamo Share. SMB shares are
selling at P15 but were acquired by Alamo Corporation @ P10. Use PAS 39. SMC shares are
considered available for sale securities.

Retained Earnings P 1,500,000

Property Dividends Payable P 1,500,000

Property Dividends Payable 1,500,000

Investment in SMB 1,500,000

e. The Board declared a 22% stock dividend. Stocks are selling at P105 per share.

Retained Earnings P 1,100,000

Stock Dividends Payable P 1,100,000

Stock Dividends Payable

Ordinary Share Capital 1,100,000 1,100,000

f. The Board declared a 12% stock dividend. Market value of stock is P120.

Retained Earnings P 720,000

Stock Dividends For Distribution P 600,000
Share Premium 120,000

Stock Dividends For Distribution 600,000

Share Capital 600,000

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 3. Using the data in no. 2 but with additional information that the available cash of the
corporation is only P300,000. Comment on the declaration made by the board in the above first
two cases.

Retained Earnings P 30,000

Cash Dividends Payable P 30,000
To record 10% cash dividends declared on
3,000 shares at a par value of P100.
30,000
Cash Dividends Payable
Cash 30,000
To record distribution of cash dividends.

Retained Earnings P 15,000

Cash Dividends Payable P 15,000
To record P5 cash dividends declared on
3,000 shares at a par value of P100.
15,000
Cash Dividends Payable
Cash 15,000
To record distribution of cash dividends.

4. Using the case f in exercise 2, prepare the shareholders’ equity section after the declaration and
another shareholders’ equity section after the distribution of dividends.

Shareholders’ Equity Section After The Declaration

Ordinary Share Capital, par P100, authorized
200,000 shares, issued 50,000 shares P 5,000,000
Stock Dividends for Distribution 600,000
Share Premium 350,000
Total Contributed Capital P 5,950,000
Retained Earnings 1,580,000
Total P 7,530,000

Shareholders’ Equity Section After The Distribution of Dividends

Ordinary Share Capital, par P100, authorized
200,000 shares, issued 50,000 shares P 5,000,000
Stock Dividends for Distribution 600,000
Share Premium 350,000 P 5,950,000
Retained Earnings 1,580,000
Total P 7,530,000

5. The Following information appears in the books of Great Corporations

Share Capital, par P100 P 6,000,000
Subscribed Share Capital 2,000,000
Share Premium 1,000,000
Retained Earnings 2,000,000
Treasury Shares (1,000) 550,000
The board declared a cash dividend of P15 per share on November 15, 2014 to shareholders of record
as of December 15, 2014, payable on January 10, 2015

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 Direction:
a. How many shares are entitled to dividends?

Date of Declaration 11/15/2014

Date of Record 12/15/2014
Date of Distribution 01/10/2015

Shares Issued 60,000

Treasury Shares (1,000)
Shares Outstanding P 59,000

b. Entries for the above transactions.

Retained Earnings P 885,000

Cash Dividends Payable P 885,000

c. How much is free retained earnings?

Retained Earnings, Beginning P 2,000,000

Less:
Appropriated Retained Earnings – TS (550,000)
Dividends (885,000)
Retained Earnings, Ending P 565,000 Unrestricted

6. On December 31, 2015, the shareholders’ equity section of R U B Corporation reflected the
following:
Common stock (par P10, authorized 60,000 shares.
Outstanding 25,000 shares) P 250,000
Additional Paid-in Capital 12,000
Retained Earnings 75,000

On February 16, 2016, the Board of Directors declared a 10% stock dividends to be issued April 30,
2016. The market value of the stock on February 1 was P18.
Directions:
a. Prepare required entries for the declaration and distribution.

Retained Earnings P 45,000

Stock Dividends For Distribution P 25,000
Share Premium 20,000

Stock Dividends For Distribution 25,000

Share Capital 25,000

b. Prepare the shareholders’ equity section immediately after the stock Dividend was declared.

Shareholders’ Equity Section After The Declaration

Common stock (par P10, authorized 60,000 shares.
Outstanding 25,000 shares) P 250,000
Stock Dividends for Distribution 25,000
Share Premium 20,000
Additional Paid in Capital 12,000
Total Contributed Capital P 307,000
Retained
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 Total P 337,000

c. Compare with the accounts and figures given above and explain the effects of this stock
dividend on the a) assets b) liabilities and c) shareholders’ equity
 Stock dividends have no effect on the financial flow of the corporation and only
have an impact on the shareholders' equity portion of the balance sheet. If a
company pays dividends on its shares, the dividends will reduce the company's
retained earnings and increase the common share account. Share distributions do
not result in an asset adjustment in the balance sheet, but rather affect the stock
side by reassigning some of the remaining profits to the common share portfolio.

d. Prepare again the shareholders’ equity immediately after the stock dividend was distributed.
Compare the accounts against no. 1 above and explain the effects of this distribution on the a)
assets b) liabilities and c) shareholders’ equity
 Shareholders’ equity remains the same before and after the declaration and
distribution.

7. Use the information in Exercise 6, but assume instead that a 20% stock dividend was declared.
Answer the same Requirements

Retained Earnings P 90,000

Stock Dividends For Distribution P 50,000
Share Premium 40,000

Stock Dividends For Distribution 50,000

Share Capital 50,000

Shareholders’ Equity Section After The Declaration

Common stock (par P10, authorized 60,000 shares.
Outstanding 25,000 shares) P 250,000
Stock Dividends for Distribution 50,000
Share Premium 40,000
Additional Paid in Capital 12,000
Total Contributed Capital P 352,000
Retained Earnings (15,000)
Total P 337,000

 Stock dividends have no effect on the financial flow of the corporation and only
have an impact on the shareholders' equity portion of the balance sheet. If a
company pays dividends on its shares, the dividends will reduce the company's
retained earnings and increase the common share account. Share distributions do
not result in an asset adjustment in the balance sheet, but rather affect the stock
side by reassigning some of the remaining profits to the common share portfolio.

 Shareholders’ equity remains the same before and after the declaration and
distribution.

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