MAYO, GERALDINE Z.

2.4 BSA

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solution:
➢ The outstanding shares are computed as follows:

Shares issued (₱1M ÷ ₱10 par) 100,000

Shares subscribed (₱200,000 ÷ ₱10 par) 20,000
Treasury shares (₱150,000 ÷ ₱15 cost) (10,000)
Outstanding shares 110,000

➢ The cash dividends payable is computed as follows:

Outstanding shares 110,000

Multiply by: Dividends per share ₱2
Total cash dividends ₱220,000

Sept. 15, 20x1

(Date of Retained earnings
220,000
declaration) Cash dividends payable 220,000

Sept. 21, 20x1 No

(Date of
record) entry

Sept. 30, 20x1

(Date of Cash Dividends Payable
distribution) 220,000
Cash 220,000
 2. Solution:
➢ 1/20 = 5%. Therefore, the share dividends
declared as considered “small.”
➢ The stock dividends payable are computed as follows:

Outstanding shares (see ‘Case 1’ above)

110,000
Multiply by: Dividends declared 1/20
Number of shares declared as dividends
5,500
Multiply by: Fair value per share on Sept. 15 14
Total share dividends 77,000

Sept. 15, Retained earnings 77,000

20x1 (Date Stock dividends payable 55,000
of (5,500 sh. x ₱10 par
declaration) value) 22,000
Share premium
Sept. 21, 20x1 No
(Date of
record) entry
Sept. 30, Stock dividends payable 55,000
20x1 Share capital 55,000
(Date of
distribution)

3. Solution:
➢ 1/4 = 25%. Therefore, the share dividends
declared as considered “large.”
➢ The stock dividends payable is computed as follows:
 Outstanding shares (see ‘Case 1’ above)
110,000
Multiply by: Dividends declared ¼
Number of shares declared as dividends
27,500
Multiply by: Par value per share 10
Total share dividends 275,000

Sept. 15, 20x1 Retained earnings 275,000

(Date of Stock dividends 275,000
declaration) payable

Sept. 21,
20x1 No entry
(Date of
record)

Sept. 30, 275,000

20x1 Stock dividends payable
(Date of 275,000
Share capital
distribution)
4. Solution:

Outstanding shares (see ‘Case 1’ above)

110,000
Multiply by: Dividends declared 1/20
Number of shares declared as dividends
5,500
Multiply by: Cost per share 15
Total share dividends 82,500

Sept. Retained earnings 82,500

15, 20x1 Stock dividends payable 82,500
(Date of
declarat
ion)
Sept. 21, No
20x1 entry
(Date of
record)
Sept. Stock dividends 82,500
30, 20x1 payable 82,500
(Date of Treasury shares
distribu
tion)
Sept. 30, Retained earnings – 82,500
20x1 appropriated 82,500
Retained earnings –
. unrestricted
5. Solution:
Total dividends declared 600,000
Allocation:
① Allocation to preference shares (₱.5M par x 50,000
10% x 1 yr.)
② Excess allocated to ordinary shares (₱.6M- 550,000
₱50K)
As allocated -

6. Solution:
Total dividends declared 600,000
Allocation:
① Allocation to preference shares (₱.5M par x 150,000
10% x 3 yrs.)
② Excess allocated to ordinary shares (₱.6M 450,000
- ₱150K)
As allocated -
7. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par 50,000
x 10% x 1 yr.)
② Basic allocation to ordinary sh. (₱1M par 100,000
x10%)
Excess subject to participation 450,000
③ Participation of preference sh. (₱450K x .5M 150,000
par ÷ 1.5M par)
③ Participation of ordinary sh. (₱450K x 1M 300,000
par ÷ 1.5M par)
As allocated -

❖ The total dividends received by each class of

shares are as follows:

Preference shares: (₱50,000 basic + ₱150,000

participation) 200,000
Ordinary shares: (₱100,000 basic + ₱300,000
participation) 400,000
Total dividends 600,000
8. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par x 10% x 3
yrs.) 150,000
② Basic allocation to ordinary sh. (₱1M par x 10%)
100,000

Excess subject to participation 350,000

③ Participation of preference sh. (₱350K x .5M par ÷
1.5M par) 116,667
③ Participation of ordinary sh. (₱350K x 1M par ÷ 1.5M
par) 233,333
As allocated -

❖ The total dividends received by each class of shares

are as follows:
Preference shares: (₱150,000 basic + ₱116,667
participation) 266,667
Ordinary shares: (₱100,000 basic + ₱233,333
participation) 333,333
Total dividends 600,000
 9. Solution:
Total dividends declared 600,000
Allocation:
① Basic allocation to preference sh. (₱.5M par 150,000
x 10% x 3 yrs.)
② Basic allocation to ordinary sh. (₱1M par x 100,000
10%)
Excess subject to participation 350,000
③ Participation of preference sh. [(18% - 10%) 40,000
x ₱.5M par]
③ Excess allocated to ordinary sh. (₱350K - 310,000
₱40K)
As allocated -

❖ The total dividends received by each class of

shares are as follows:

Preference shares: (₱150,000 basic + 190,000

₱40,000 participation)
Ordinary shares: (₱100,000 basic + ₱310,000 410,000
participation)
Total dividends 600,000
10. Solution:

Total dividends declared 1,200,000

Allocation:
① Basic allocation to 10% PS (₱.5M par x 150,000
10% x 3 yrs.)
① Basic allocation to 14% PS (₱.3M par x 42,000
14% x 1 yr.)
② Basic allocation to ordinary sh. (₱1M par 100,000
x
10%)

Excess subject to participation 908,000

③ Participation of 10% PS (₱.908M x .5M par 252,222
÷ 1.8M par)
③ Participation of 14% PS (₱.908M x .3M par 151,333
÷ 1.8M par)
③ Participation of ordinary sh. (₱.908M x 1M 504,444
par ÷ 1.8M par)
As allocated -

The total dividends received by each class of share are as

follows
10% PS: (₱150,000 basic + ₱252,222 participation) 402,222
14% PS: (₱42,000 basic + ₱151,333 participation)
193,333
Ordinary shares: (₱100,000 basic + ₱504,444
participation) 604,444
Total dividends 1,999,999*

*Difference of ₱1 is due to rounding-off.

11. Solution:
Dec. 31, Capital liquidated (.5M x 375,000
20x1 75%)
Retained earnings (.5M x 125,000
25%)
Cash dividends payable 500,000
PROBLEM 4: MULTIPLE CHOICE
1. A
2. C
3. C
4. C
5. D
6. A
7. D
8. A
9. C
Solution:

Shares issued (₱880,000 ÷ ₱100 par) 8,800

Shares subscribed (₱120,000 ÷ ₱100 par) 1,200
Treasury shares (₱390,000 ÷ ₱130 cost) (3,000)
Outstanding shares 7,000

10. D
Solution:
Outstanding shares: (10,000 x 25%) + 1,000 = 3,500
Cash dividends payable: 3,500 x 200 = 700,000