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Parcor Training

1) Battery Company declared a 10% share dividend which resulted in a charge to retained earnings of P3.2 million. 2) Harmony Corporation declared a 1 share dividend for every 5 shares owned, resulting in a charge to retained earnings of P2 million. 3) Party Company declared dividends of 10% and 25% which resulted in a total charge to retained earnings of P675,000 at the time of declaration.

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Parcor Training

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Self-Assessment 02

Retained Earnings
1) On July 1, 2021, Battery Company’s board of directors declared a 10% share dividend. The market price of Batter’s
400,000 outstanding ordinary shares, P50 par value, was P80 per share on the date of declaration. The share
dividend was distributed on September 1, 2021, when the market price of the share was P100 per share.

What amount should be charged to the Retained Earnings account as a result of the share dividend?
A. -0- B. 2,000,000 C. 3,200,000 D. 4,000,000

1. Number of shares entitled 400,000 shares

Share dividend rate 10%
Share dividend 40,000 shares
Fair value (small dividend) 80 per share
Retained earnings capitalized P 3,200,000 C.

2) Harmony Corporation declared share dividends of 1 share for every 5 shares owned on its 200,000 issued and
outstanding shares with a par value of P50 per share. At the time of declaration, the market value of ordinary shares
was P80 per share and P100 per share at the time the shares were issued.

What amount should be charged to Retained Earnings account and credit liability accounts, respectively?
A. 2,000,000 and -0- C. 3,200,000 and -0-
B. 2,500,000 and 2,500,000 D. 4,000,000 and 4,000,000

2. Number of shares entitled 200,000 shares

Share dividend rate 1/5
Share dividend 40,000 shares
Par value (large dividend) 50 per share
Retained earnings capitalized P 2,000,000 A.

3) The following share dividends were declared and distributed by Party Company:

Percentage of ordinary shares outstanding Market value Par value

10% 225,000 150,000
25% 600,000 450,000

How much should be debited to Retained Earnings at the time of declaration?

A. 600,000 B. 675,000 C. 750,000 D. 825,000

3. 10% small dividend P 225,000

25% large dividend 450,000
Total P 675,000 B.

4) On May 31, 2022, Internal Company declared a 10% share dividend. The market price of the 30,000 outstanding
shares of P20 par value was P90 per share on that date. The share dividend was distributed on July 31, 2022, when
the share market price of P100.

What amount should be credited to share premium for the share dividend?
A. 210,000 B. 240,000 C. 270,000 D. 300,000

4. Retained earnings capitalized (30,000 x 10% x 90) P 270,000

Share capital (30,000 x 10% x 20) 60,000
Share premium P 210,000 A.

5) Millionaire Company provided the following information:

Preference share capital, P500 par value, 2,200 shares 1,100,000

Treasury preference shares, 100 share at cost 110,000
Ordinary shares capital, no par, 3,000 shares at issue price 600,000
Retained earnings 2,500,000
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FAR by: John Bo S. Cayetano, CPA, MBA

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The board of directors resolved to pay a 100% share dividend on all shares outstanding capitalizing amounts of
retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding,
respectively.

Subsequently, the board of directors resolved to pay a cash dividend of 10% on preference share and a cash dividend
of P10 per ordinary share. What is the shareholders’ equity after effecting the dividend transactions?
A. 4,090,000 B. 3,810,000 C. 3,820,000 D. 3,955,000

5. Share capital PS {(1,100,000 – [(2,200-100) x 100% x 500)} P 2,150,000

Share capital OS [(600,000 – (3,000 x 100% x 200)] 1,200,000
Retained earnings:
Retained earnings beginning 2,500,000
Share dividend PS (2,200 – 100) x 100% x 500 (1,050,000)
Share dividend OS (3,000 x 100% x 200) (600,000)
Dividend PS (2,200x100%) x 500 x 10% (220,000)
Dividend OS (6,000 x 10) (60,000) 570,000
Treasury shares (110,000)
Shareholders’ equity P 3,810,000 B.

6) Chain Company provide the following information:

• Dividends on 10,000 cumulative preference shares of 6% P100 par value have not been declared or paid for 3
years.

• Treasury shares were acquired at a cost of P1,500,000. The treasury shares had not been reissued as of year-
end.

What amount of retained earnings should be appropriated?

A. 1,500,000 B. 1,680,000 C. 180,000 D. 0

6. Cost of treasury shares P 1,500,000 A.

7) Rover Company sustained heavy losses over a period of time and conditions warrant that the entity should undergo
a quasi-reorganization on December 31, 2022.

• Inventory with cost of P6,500,000 was recorded on December 31, 2022 at the market value of P6,000,000.
• Property, plant and equipment were recorded on December 31, 2022 at P12,000,000, net of accumulated
depreciation. The sound value was P8,000,000.
• On December 31, 2022, the share capital is P7,000,000 consisting of 700,000 shares with par value of P10, the
share premium is P1,600,000, and the deficit in retained earnings is P900,000.
• The par value of the share is to be reduced from P10 to P5.

Immediately after the quasi-reorganization, what is the shareholders’ equity?

A. 3,300,000 B. 3,500,000 C. 3,700,000 D. 4,200,000

7. Share capital Share premium Retained earnings

Balances beginning 7,000,000 1,600,000 (900,000)
Inventory decrease --
PPE (4,000,000)
Recapitalization (3,500,000) 3,500,000
Elimination --- (4,900,000) 4,900,000
Balances ending 3,500,000 200,000 -- C.
Inventory is already recorded at market value.

Use the following information for the next three (3) questions:
On November 1, 2020, Jessie Company declared a property dividend of equipment payable on March 1, 2021. The
carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1, 2020. However, the fair
value less cost to distribute the equipment is P2,200,000 on December 31, 2020 and P2,000,000 on March 1, 2021.

8) What is the dividend payable on December 31, 2020?

A. 2,500,000 B. 2,200,000 C. 3,000,000 D. 0
9) What is the measurement of the equipment on December 31, 2020?
A. 2,500,000 B. 2,200,000 C. 3,000,000 D. 2,200,000
10) What is the amount of loss recognized in profit or loss on March 1, 2021?
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A. 300,000 B. 200,000 C. 500,000 D. 0
FAR by: John Bo S. Cayetano, CPA, MBA
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Page 2 of 3
8. Fair value of property at year end P 2,200,000 B.
9. NCA held for sale (LC-FVCOD) 3,000,000 vs 2,200,000 select lower P 2,200,000 B.
10. Dividends payable 2,000,000 – NCAHFS 2,200,000 P 200,000 B.

End of Assessment 02

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