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Answer Key

Chapter 6: Share Capital

1. The issuance of preference share to shareholders

a. decreases preference share authorized.
b. increases preference share outstanding.
c. increases preference share authorized.
d. has no effect on preference share outstanding.
2. Evangelista Corp. paid a lawyer P5,000 to prepare its articles of incorporation. In recording this
transaction, the corporation should debit
a. organization expense.
b. donated capital.
c. ordinary shares.
d. treasury stock.
3. The purchase of treasury stock will result in
a. a decrease in assets and a decrease in liabilities.
b. a decrease in assets and a decrease in shareholders' equity.
c. a decrease in one asset account and an increase in a different asset account.
d. no net changes in assets, liabilities, or shareholders' equity.
4. The contributed capital of a corporation does not include
a. share premium.
b. retained earnings.
c. preference share.
d. the stated value of ordinary shares issued.
5. The amount of the shareholders' investments is called
a. outstanding share.
b. total shareholders' equity.
c. paid-in capital.
d. retained earnings.
6. Which of the following is not a characteristic of most preference share issues?
a. no voting power.
b. preferred as to dividends.
c. preferred as to assets.
d. participating clause.
7. Shares of treasury stock are
a. part of the total outstanding shares but not part of the total issued shares of corporation.
b. shares held by the Bureau of Treasury.
c. unissued shares that are held by the treasurer of the corporation.
 d. issued shares that have been bought back by the corporation and are being held by the
corporation.
8. Which of the following is the primary element that distinguishes accounting for corporations from
accounting for partnerships?
a. The entity theory relates primarily to the other forms of business organization.
b. In a corporation, retained earnings may be reduced only by the declaration of dividends.
c. The corporation draws a sharper distinction in accounting for sources of capital.
d. Generally accepted accounting principles apply to corporations but have relatively little
applicability to other forms of business organization.
9. When ordinary shares is sold on a subscription basis and the entire subscription price has been
collected, the issuance of the share is recorded by
a. a debit to Subscribed Ordinary Shares and a credit to Ordinary Shares.
b. a debit to Ordinary Shares and a credit to Subscriptions Receivable.
c. a debit to Cash and a credit to Ordinary Shares.
d. a debit to Subscriptions Receivable and a credit to Subscribed Ordinary Shares.
10. Treasury stock should be shown on the statement of financial position as
a. an investment asset.
b. a current asset.
c. a current liability.
d. a reduction of the corporation's shareholders' equity.
11. Treasury stock should be shown on the statement of financial position as
a. a current liability.
b. an investment asset.
c. a current asset.
d. a reduction of the corporation's shareholders' equity.
12. What is the entry to record issuance of share after all cash have been received from a share
subscription, assuming an entry to record ordinary shares authorized was made at the time of
incorporation?
a. Subscribed Ordinary Shares
Ordinary Shares
Share Premium
b. Subscribed Ordinary Shares
Ordinary Shares
c. Subscribed Ordinary Shares
Unissued Ordinary Shares
d. Subscriptions Receivable
Subscribed Ordinary Shares
Share Premium
13. Gains or losses on the purchase and resale of treasury stock may only be recorded in
a. share capital accounts.
b. retained earnings and share capital accounts.
c. income and retained earnings accounts.
 d. Income, share capital and retained earnings accounts.
14. Treasury shares plus outstanding shares equal
a. issued shares.
b. subscribed shares.
c. authorized shares.
d. unissued shares.
15. An arbitrary amount assigned by the board of directors to each share of a given class is
a. Stated value.
b. Redemption value.
c. Liquidation value.
d. Par value.
16. Cabance Corporation had 100,000 shares of P4 par value ordinary shares outstanding on June 12, 2023.
On this date, Cabance acquired 1,000 of its own shares as treasury stock at a cost of P12 per share. The
acquisition was accounted for by the cost method. As a result of this treasury stock purchase,
a. total assets and total shareholders' equity were unaffected.
b. total assets and total shareholders' equity decreased.
c. total assets were unaffected but retained earnings decreased.
d. total assets, retained earnings and total shareholders' equity decreased.
17. Outstanding shares of stock are
a. shares of stock owned by unknown individuals.
b. also called treasury shares.
c. authorized shares that have not yet been issued.
d. issued shares that are still in circulation.
18. The amount of stock that a corporation has sold at some point in time is called
a. outstanding share.
b. issued share.
c. share capital.
d. authorized share.
19. Treasury stock is best described as
a. an asset acquired by making a cash disbursement.
b. reacquired share which was previously outstanding.
c. unissued share.
d. retirement of a portion of outstanding share which increases total equity
20. Preference share that has dividends in arrears is
a. Noncumulative and nonparticipating preference share.
b. Cumulative preference share.
c. Noncumulative and participating preference share.
d. Noncumulative preference share.
21. When ordinary shares is sold on subscription
a. The Ordinary Shares account is credited when the subscription contract is signed and a
down payment is received.
 b. the Ordinary Shares account is credited when the subscription price has been fully paid
and the share is issued.
c. the Ordinary Shares account is not used. Shares issued on, subscription are credited to
Subscribed Ordinary Shares, a permanent shareholders' equity account.
d. a shareholders' equity account called Subscriptions Receivable is used to record the par
value of the shares issued.
22. Which of the following is not included in Share Capital?
a. Donated Capital.
b. Shares Distributable.
c. Appropriated Retained Earnings
d. Ordinary Shares.
23. A corporation's residual equity is its
a. ordinary and preference share.
b. creditors
c. preference share.
d. ordinary shares.
24. All of the following normally are found in a corporation's shareholders' equity section except
a. Ordinary Shares.
b. Retained Earnings.
c. Dividends in Arrears.
d. Share Premium.
25. The maximum number of ordinary shares that may be issued according to the corporation's charter is
referred to as
a. authorized shares.
b. issued shares.
c. unissued shares.
d. outstanding shares.
26. The number of shares of issued equals
a. outstanding shares plus treasury shares.
b. authorized shares minus treasury shares.
c. unissued shares minus authorized shares
d. subscribed shares plus outstanding shares.
27. Par value
a. represents what a share of stock is worth.
b. is the legal capital established for a share of stock.
c. is established for a share of stock after it is issued.
d. represents the original selling price for a share of stock.
28. Which of the following is most relevant in determining the cost of assets acquired in exchange for
share capital?
a. par or stated value of the share
b. issuance price of share already outstanding
c. fair market value of the share
 d. fair market value of the asset
29. Treasury stock transactions may result in
a. increases or decreases in the amount of profit.
b. increases or decreases in the amount of shares authorized to be issued.
c. increases in the balance of retained earnings.
d. decreases in the balance of retained earnings.
30. Reissuing treasury stock at a price above cost results in
a. an increase in share capital.
b. a restriction of retained earnings.
c. a prior period adjustment to be reported in the statement of retained earnings.
d. a gain to be reported as a separate item in the statement of recognized income and
expense.
31. The difference between issued shares and outstanding shares of stock is
a. common stock.
b. authorized stock.
c. treasury stock.
d. preferred stock.
32. Outstanding shares are the
a. total number of shares that can be issued by the corporation at any time.
b. number of shares that have been distributed to shareholders.
c. number of shares that are owned by shareholders at the balance sheet date
d. number of shares the corporation has repurchased
33. On the balance sheet, a corporation must disclose all of the following except the number of shares
a. Issued
b. Outstanding
c. Authorized
d. Unissued
34. Authorized shares are the
a. total number of shares that can be issued by the corporation at any time.
b. number of shares that have been distributed to shareholders.
c. number of shares that are owned by shareholders at the balance sheet date
d. number of shares the corporation has repurchased
35. Issued shares are the
a. total number of shares that can be issued by the corporation at any time.
b. number of shares that have been distributed to shareholders.
c. number of shares that are owned by shareholders at the balance sheet date
d. number of shares the corporation has repurchased
36. If a partner in a partnership dies,
a. the partnership is dissolved.
b. a new partner is added to the partnership.
c. the partner's spouse takes the deceased partner's place.
 d. each remaining partner receives an equal share of the deceased partner's ownership of
the business.
37. The reissuance of treasury stocks at a price above cost results in a gain to be reported in the statement
of recognized income and expense. Fair market value is the estimated amount that a willing seller would
receive from a financially capable buyer for the sale or exchange of the asset in a free market.
A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
38. The Corporation Code prohibits the original issue of share capital for a consideration less than the par
or stated value. The board of directors carries out the day-to-day operations of the business.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
39. The par value of a share of share capital is an indication of the book value of the share of stock.The par
value of share constitutes the legal capital of a corporation.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
40. Shareholders elect the board of directors which appoints the management of a corporation. The board
of directors carries out the day-to-day operations of the business.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
41. The reissuance of treasury stocks for less than their par or issued value is prohibited by law. Treasury
stocks refer to shares reacquired by the issuing corporation.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
42. Treasury stock may be either ordinary or preference share.The concept of legal capital exists to protect
the corporation's assets for the shareholders of the corporation.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
43. If share capital is issued for an outstanding liability, the fair market value of the share capital issued
should be the measure for recording.The purchase of treasury stocks reduces both total assets and total
shareholders equity.
 a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
44. A corporation is a separate entity for legal purposes. Organization cost is an asset and is usually
amortized over five years.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
45. Treasury stocks refer to shares reacquired by the issuing corporation.The entry to record the purchase
of treasury stock will cause total shareholders equity to decrease by the amount of the cost of the treasury
shares.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
46. The liability of a shareholder is usually limited to the shareholder's investment in the corporation.
Retained earnings is a fund of cash accumulated from profitable operations of the business.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
47. When no-par ordinary shares have a stated value, the stated value of the shares issued normally is
considered the legal capital of the corporation.A certificate of stock is a written acknowledgment by the
corporation of an interest of a shareholder in the corporate property and franchise.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
48. When ordinary shares without par value are sold, the proceeds should be credited to the ordinary
shares account.The par value of share refers to its value on the open market.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
49. Treasury shares are shares that are issued but not outstanding.Treasury stocks shall have no voting
right as long as they remain in the treasury.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
50. Treasury stock is reported as an asset on the statement of financial position because treasury shares
may be sold later.The entry to record the retirement of treasury stock will include a debit to Ordinary
Shares account for the amount of the cost to retire the shares.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE

Chapter 7: Retained Earnings

1. When a small share dividend is declared, Retained Earnings is debited for

a. zero; it is not affected by the declaration of a small share dividend.
b. the par value of the shares to be distributed.
c. the liquidation value of the shares to be distributed.
d. the fair market value of the shares to be distributed.
2. A share dividend
a. leaves total shareholders' equity unchanged.
b. decreases shareholders' equity.
c. decreases assets.
d. none of the above
3. The Income Summary account of a proprietorship is closed to the owner's Capital account; for a
corporation, Income Summary is closed to
a. Ordinary Shares.
b. Retained Earnings.
c. Share Premium.
d. Donated Capital
4. Which of the following would result in an increase in the Retained Earnings account?
a. loss for the period
b. cash dividends declared
c. positive prior period adjustments
d. share dividends declared
5. A deficit appears on the statement of financial position
a. as a deduction from Income Taxes Payable.
b. among the assets.
c. among the liabilities.
d. as a deduction from total share capital.
6. Dividends shall be declared and paid out of
a. share capital.
b. profits earned in selling no-par value shares.
c. retained earnings.
d. None of the above
7. A corporation declared cash dividends on its ordinary shares in Dec. 2022, payable in Jan. 2023.
Retained earnings will
a. not be affected on the date of payment.
b. not be affected on the date of declaration.
c. decrease on the date of payment.
d. increase on the date of declaration.
8. When preference shareholders have the right to receive a specified dividend and to receivermore after a
matching dividend percentage is given to ordinary shareholders, the preference shares are said to be
a. participating
b. cumulative
c. callable
d. convertible
9. The book value of ordinary shares is the same as
a. par value.
b. liquidation value.
c. net tangible asset value per share.
d. net worth.
10. A share split by a corporation affects which account on the statement of financial position?
a. Shareholder's Equity
b. Par Value
c. Share Premium
d. Retained Earnings
11. A share dividend exceeding 25% is properly treated as a share split. A share dividend reduces the
retained earnings balance and permanently capitalizes the reduced portion of the retained earnings.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
12. The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of
record.Dividends are declared by the shareholders.
A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
13. Share splits and share dividends are accounted for differently.Retained earnings is a component of
contributed capital.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
14. A share split normally increases total shareholders' equity.A 2-for-I share split will have the same
effect on the number of shares outstanding as a 200% share dividend.
 A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
15. A share dividend is a pro rata distribution of cash to a corporation's shareholders.Dividends in arrears
are liabilities of the corporation.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
16. Correction of errors and prior period adjustments both result in either a debit or a credit to Retained
Earnings.A debit balance in the Retained Earnings account is referred to as a deficit.
A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
17. Dividends are expenses since they decrease shareholders' equity. Dividends in arrears refer to passed
preference dividends which must be satisfied before any dividends may be paid on ordinary shares.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
18. The date on a statement of changes in shareholders' equity is for a period of time rather than for a
specific point in time.Dividends are contractual obligations of the corporation which must be paid at
regular intervals.
A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
19. Dividends in arrears pertain to non-cumulative preference shares.Cumulative preference shares entitle
the holder to receive all current and previously postponed dividends after the ordinary share dividends are
distributed.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
20. A dividend that represents a return to the shareholders of a part of their share capital rather than a
distribution out of retained earnings is called a liquidating dividend.Cumulative preference shares entitle
the holders to participate with the holders of ordinary shares pro-rata in the remainder after the ordinary
shareholders have received their initial share.
A. TRUE, FALSE
B. FALSE, TRUE
 C. BOTH TRUE
D. BOTH FALSE
21. Dividends on cumulative preference shares do not become a liability of the corporation until they are
declared by the board of directors in a share split, the par value of all shares in the issued class is
increased in proportion to the additional shares issued.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE
22. Retained earnings consist of a pool of funds to be distributed to shareholders.Retained earnings
represent cash readily available for dividends.
A. TRUE, FALSE
B. FALSE, TRUE
C. BOTH TRUE
D. BOTH FALSE
23. Cash dividends are declared by the board of directors with the concurrence of the shareholders of the
corporation.In case of liquidation, the claims of the preference shareholders are given preference over the
claims of creditors.
a. TRUE, FALSE
b. FALSE, TRUE
c. BOTH TRUE
d. BOTH FALSE

Problem Solving

1. A company has an authorized share capital of 500,000, divided into 50,000 shares of 10 each. The
company issued 30,000 shares at 10 each. Calculate the issued share capital:
A. 200,000
Dr Cash 300,000
B. 300,000 Cr Share Capital (Common Shares) 300,000

C. 400,000 30,000*10= 300,000

D. 500,000
2. A company issued 20,000 shares with a nominal value of 5 each. If the company received applications
for 25,000 shares, how many shares were oversubscribed?
A. 2,000 Shares applied for = 25,000
Shares issued = 20,000
B. 3,000
C. 5,000 25,000−20,000= 5,000

D. 6,000
3. The shareholders' equity of Cecille Corp. revealed the following on June 30, 2020:
Preference share, P100 par value P230,000
Preference share premium 80,500
Ordinary share, P15 par value 525,000
 Ordinary share premium 275,000
Ordinary share subscribed 5,000
Retained earnings 190,000
Notes payable 400,000
Subscription receivable - ordinary 40,000
How much is the legal capital of the corporation?
a. 760,000
b. 775,000
c. 1,115,000
d. 1,305,500
4. On April 1, 2020, Friends Corp., a newly formed company had the following shares issued and
outstanding:
Preference share, P50 par, 6,000 shares originally issued at P100
Ordinary share, P20 par, 20,000 shares originally issued at P60
Friends shareholders' equity should report preference share capital, ordinary share capital and share
Dr Cash 600,000
premium, respectively at Preference Share Capital: 600*50= 300,000 Cr Preference Share Capital 300,000
Cr Share Premium – Preference 300,000
a. P600,000, P1,200,000, 0 Ordinary Share Capital: 20,000*20= 800,000 Dr Cash 1,200,000
b. P600,000, P400,000, P800,000 Share Premium
Cr Ordinary Share Capital
Cr Share Premium – Ordinary
400,000
800,000

c. P300,000,P 1,200,000, P300,000 - Preference Share Premium: (100-50)*6,000= 300,000

- Ordinary Share Premium: (60-20)*20,000= 800,000
d. P300,000, P400,000,P 1,100,000 Total Share Premium: 300,000+800,000= 1,100,000

5. During the fiscal year 2019, Julius Corp. issued for P110 per share 15.000 shares of P100 par value
convertible preference share capital. One preference share is convertible into three ordinary shares with a
par value of P25. On November 15, 2019, all of the preference shares were converted into ordinary shares.
The market value of the ordinary shares on the conversion date was P40 per share. What amount should
be credited to the ordinary share capital account as a result of conversion of preference shares into
ordinary shares? Preferred shares issued: 15,000 shares
a. P1,125,000 15,000*3= 45,000 Par value of preferred shares: 100
Conversion ratio: 1 preferred share = 3 ordinary shares
b. P1,500,000 Par value of ordinary shares: 25
45,000*25= 1,125,000 Market value of ordinary shares: 40 (not relevant for accounting
c. P1,650,000 entry)
All preferred shares were converted on Nov 15, 2019
d. P1,800,000
6. Joros Corp. was organized on January 1, 2018, at which date it issued 100,000 shares of P10 par ordinary
share capital at P15 per share. For the period 2018 to 2020, the company reported profit of P450,000 and
paid cash dividends of P230,000. On January 10, 2020, the company purchased 6,000 of its own shares at
P12 per share. On November 20, 2020, Joros sold 4,000 treasury shares at P8 per share. What is the total
shareholders' equity on December 31, 2020?
a. P1,680,000 S h a r e
Share capital (at par): 100,000×10=1,000,000 This loss reduces Retained Earnings (or Treasury Stock account if
premium:100,000×(15−10)=500,000 using cost method)
Retained Earnings: 450,000−230,000=220,000 Remaining treasury shares = 2,000 shares at 12 = 24,000
b. P1,688,000 Loss of 16,000 reduces retained earnings: 220,000−16,000=204,000
Treasury Shares Transactions Share Capital 1,000,000
c. P1,704,000 a. Purchase of Treasury Shares- 6,000*12= 72,000
b. Sale of Treasury Shares- 4,000*8= 32,000
Share Premium 500,000
Retained Earnings 204,000
d. P1,720,000 Original cost of shares sold: 4,000 × 12 = 48,000
Loss on sale: 48,000 - 32,000 = 16,000
Less: Treasury Shares
Total Equity
(24,000)
1,680,000
7. Jabar Corp. holds 10,000 ordinary shares, par value P10, as treasury shares, which was purchased in year
2019 at a cost of P120,000. On December 8, 2020, Jabar sold all the 10,000 shares for P210,000. The sale
would result in a credit to Share Premium from Sale of Treasury Shares in the amount of
 a. P90,000 Excess over cost:
210,000−120,000=90,000
b. P110,000
c. P120,000
d. P210,000
8. Jinggoy Corporation has 5,000 shares of 6% cumulative, P100 par value, preference shares outstanding
and 175,000 ordinary shares outstanding. The corporation has paid no dividends since May 31, 2017. For
the year ended May 31, 2019, Estrada had profit of P1,450,000 and wishes pay ordinary shareholders a
dividend equivalent to 25% of profit. The total amount of dividends to be paid by Jinggoy Corporation at
5,000 shares of 6% cumulative, 100 par value preference shares
May 31, 2019 is Dividends unpaid since May 31, 2017 (2 years: 2017–2018 and 2018–2019)
a. P422,500 Ordinary shares outstanding: 175,000
Profit for 2019: 1,450,000
b. P407,500 Wants to pay 25% of profit to ordinary shareholders -1,450,000×25%=362,500
Before that, we must pay preference dividends in arrears:
c. P392,500 Annual preferred dividend:
- 5,000×100×6%=30,000/year
d. P362,500 2 years of arrears = 30,000×2=60,000
Total dividends = 60,000 (arrears) + 362,500 (ordinary)=422,500
10. Derek Corp’s outstanding shares at December 31, 2019, consisted of the following: 30,000 shares of 5%
cumulative preference shares, P10 par value, fully participating as dividends. No dividends were in
arrears. 200,000 ordinary shares, P1 par value

On December 15, 2019 Derek declared dividends of P100,000. What was the amount of dividends payable
to Derek’s ordinary shares? P a y preference dividend (fixed portion) Ordinary gets: 85,000*(200,000/500,000)= 34,000
a. P10,000 - 30,000×10×5%=15,000
Remaining dividend for participation Preferred gets: 85,000*(300,000/500,000)= 51,000
b. P34,000 - 100,000−15,000=85,000
Total par value of all shares Total ordinary dividend:
c. P40,000 Preferred: 30,000×10=300,000 Participating portion: 34,000
Ordinary: 200,000×1=200,000
d. P47,500 Total par value = 500,000
No fixed dividend for ordinary (they only get
what's left)
11. A company had retained earnings of 500,000 at the beginning of the year. During the year, the
company reported a net income of 200,000 and paid dividends of 50,000. Calculate the retained earnings at
the end of the year.

A. 350,000
B. 600,000
C. 650,000 500,000+200,000−50,000=650,000
D. 700,000
12. XYZ Corporation has cumulative preferred shares with an annual dividend of 20% 8 per share. There
are 10,000 preferred shares outstanding. The company did not pay dividends for the last two years.
Calculate the total amount of dividends that must be paid to the preferred shareholders before any
dividends can be paid to the ordinary shareholders.
a. 48,000 20%*8= 1.60 per year
b. 16,000 1.60*10,000 shares= 16,000
2 prior years+current year = 3 years total
c. 32,000 16,000×3=48,000
d. 64,000
13. ABC Corporation has non-cumulative preferred shares with an annual dividend of 30% 5 per share.
There are 15,000 preferred shares outstanding and 100,000 shares of ordinary dividends 1 per share. The
company did not pay dividends last year, but this year, it plans to pay dividends. Calculate the total
amount of dividends to be paid to the preferred shareholders this year.

a. 20,000
Annual dividend = 30% of 5 = 1.50 per share
b. 20,500 15,000 preferred shares
c. 22,500 This year's dividend:
15,000×1.50=22,500
d. 45,000

Diaz Corporation, a distributor of exercise equipment, has the following outstanding shares: 18,000 shares
of 2% cumulative preference shares, P75 par, and 40,000 shares of P10 par ordinary shares. During its first
four years of operations, the following amounts were distributed as dividends: first year, P22,500; second
year, P28,800; third year, P40,100; fourth year, P77,000. Note: To compute dividends per share always divide to 18,000

14. Calculate the dividends per share on each class of shares for the first year.

Preference Ordinary Required for preferred: 27,000

Only 22,500 paid - goes entirely to preferred, but still 4,500 unpaid (in
arrears).
a. 20,000 2,500 Ordinary gets nothing
b. 22,500 0
Answer:
c. 0 22,500 Preferred: 22,500 - 1.25 per share
d. 21,000 1,500 Ordinary: 0.00

15. Calculate the dividends per share on each class of shares for the second year.

Preference Ordinary Preferred needs:

- 4,500 from prior year arrears
- 27,000 for current year
a. 25,000 3,000 - Total = 31,500 needed
b. 28,000 800 But only 28,800 paid - goes entirely to preferred
Still 2,700 unpaid
c. 28,800 0
d. 28,800 1,200 Preferred= 28,800 - 1.60 per share
Ordinary: 0.00

16. Calculate the dividends per share on each class of shares for the third year.
Preferred needs:
Preference Ordinary - 2,700 from arrears
- 27,000 for current year
Total = 29,700
a. 20,000 15,000
Pay that to preferred
b. 29,700 10,000
Preferred- 29,700 - 1.65 per share
c. 29,700 10,400 Remaining for ordinary: 40,100−29,700=10,400
d. 27,000 15,000 Ordinary- 10,400 - 0.26 per share

17. Calculate the dividends per share on each class of shares for the fourth year.

Preference Ordinary

a. 25,000 0
 Preferred gets:
- 27,000 (no arrears left)
b. 27,000 50,000
Preferred: 27,000 - 1.50 per share
c. 30,000 55,000 Remaining for Ordinary: 77,000−27,000=50,000
d. 0 70,000 Ordinary: 50,000 - 1.25 per share

The preference and ordinary shares outstanding of Casio, Inc on Dec 31, 2024 follows:

8% preference shares, 10 par, cumulative, participating

40,000 hares authorized, 10,000 shares issued
and Outstanding 100,000
ordinary shares, 2 par, 10,000 shares authorized, 250,000
Shares issued and outstanding 500,000
Total preference and ordinary shares 600,000
Calculate the amount of dividends received by preference and ordinary shareholders, respectively, under
each of the following assumptions. (questions 18-20)

18. Preference dividends for 2023 are in arrears. On dec 31, 2024, Casio, Inc declared a total dividend of
56,000. How much is the total dividend paid to preference shareholders?
a. 15,000 2023 dividend (arrears) = 8,000
2024 dividend = 8,000
b. 16,000
c. 22,667 Total to preference shareholders= 16,000
No participation because total dividend is just 56,000, and
d. 9,333 the fixed dividend (16,000) is less than the rest (40,000).
19. No dividends are in arrears. On Dec 31,2024, Casio, Inc declared a total dividend of 66,000. How much
is the total dividend paid to the ordinary shareholders?
Preference dividend 2024 = 8,000
a. 11,000 Balance = 66,000 − 8,000 = 58,000
b. 48,333
Participating based on par values:
Preference share of excess = 1/11 × 58,000 = 5,272.73
c. 55,000 Ordinary share of excess = 10/11 × 58,000 = 52,727.27
Total to ordinary shareholders = 52,727.27
d. 22,333 Supposed preference receives 11,000
Ordinary receives- 66,000-11,000= 55,000
20. Preference dividends for 2022 and 2023 are in arrears. On Dec 31, 2024, Casio, Inc declared a total
dividend of 88,000. How much is the total dividend paid to preference shareholders?
a. 28,000
b. 60,000
c. 21,333
d. 25,333