Sambrano, Mark Dave T.

BSA 1-1
DISCUSSION QUESTIONS
1. Contributed capital (divided into two sections: share capital and additional paid-in capital) and Retained
earnings (divided into two parts: appropriate retained earnings and unappropriated retained earnings)

2. Share capital – this section reports both preference and ordinary share capital issued, subscribed and
distributable as dividends stated at par or stated value. It should include a description of each class of share
capital such as the par or stated value, authorized shares, number of shares issued and dividend rights in case
of preference share capital.
Additional paid-in capital - this section reports investment by shareholders in excess of the par or stated value
of the share capital. It includes paid in capital in excess of par value or stated value of both preference and
ordinary share capital

3. The purpose of preparing statement of changes in shareholders' equity is to report transactions or items
that cause changes in shareholders’ equity account balances. It shows the profit or loss for the period, other
comprehensive income, capital share transactions with shareholders and distributions to shareholders, and
the balance of retained earnings at the beginning and end of the period and the movement during the period.

4. The three significant dates in distribution of dividends are the date of declaration, date of shareholders of
record, and date of payment or distribution.

5. The types of dividends are cash dividends, scrip dividends, property dividends, and share capital dividends.

6. Under a small share capital dividend, retained earnings is debited for the fair value of the share capital on
the date of declaration; under a large capital dividend, retained earnings is debited for the par or stated value
of the share capital.

7. Dividends in arrears is a dividend payment that has not been paid by the expected date. If the preference
share capital are non-cumulative, the preference shareholders are not entitled to payment of dividends in
arrears, they're entitled to the current year's dividends only. If the preference share capital is cumulative,
preference shareholders are entitled to the payment of past years' unpaid dividends or dividends in arrears
before the payment of current year's dividends.

8. Book value per share is the peso equity in corporate capital of each capital share. It is significant because it
is the amount that would be paid on each share owned by a shareholder in case of corporate liquidation,
assuming the amount available to shareholders is exactly the same as the total shareholders’ equity. If there is
only one class of share capital outstanding, book value per share is calculated by dividing the total
shareholders’ equity by the number of shares outstanding. When there’s more than one class of share capital
outstanding, the rights of the different classes of shareholders should be taken into consideration. The equity
in preference share capital and equity on ordinary shareholders’ capital must be identified. Equity identified
with each class of share capital divided by the number of shares outstanding yields the book value per share.
Sambrano, Mark Dave T.
BSA 1-1
9. Earnings per share is the amount earned during a given period on each ordinary share outstanding. It is
important because it is used for valuing a company because it breaks down a firm's profits on a per share
basis. The higher earnings per share of accompany, the better is its profitability. If there is only one class of
share capital outstanding, earnings per share can be calculated by dividing the profit by outstanding ordinary
shares. If there are two classes of share capital outstanding, the computation of earnings per share will be as
follows:
Profit or loss per income statement xxx
Less Dividends on preference shares
(Total par value of preference shares x dividend rate) xxx
Profit attributable to ordinary shares xxx

Earnings per share

(Profit attributable to ordinary shares/outstanding shares) xxx

10. The three types of appropriations of retained earnings are appropriations to report the restrictions and
retained earnings, appropriations to report contractual restrictions on retained earnings, and appropriations
to report discretionary action by the board of directors in the presentation of retained earnings. Appropriation
of retained earnings reduces the amount available for distribution as dividends to shareholders.
Sambrano, Mark Dave T.
BSA 1-1
EXERCISES
Exercise 9-1 (Shareholders Equity)
Contributed Capital:
Share Capital
10% Preference Share Capital, P100 par,
Cumulative 10 000 shares authorized 400 000
Ordinary Share Capital, P20 par,
100 000 shares authorized 1 000 000
Ordinary Share Capital Subscribed 200 000 1 600 000
Add: Paid-in Capital
Preference Share Premium 150 000
Ordinary Share Premium 200 000 350 000
Total Contributed Capital 1 950 000
Retained Earnings 250 000
Total Shareholders’ Equity 2 200 000

Exercise 9-2
Contributed Capital:
Share Capital:
10% Preference Share Capital,
P40 par, Shares authorized 800 000
Preference Share Capital Subscribed, 1000 shares 40 000
Less Preference Share Capital Subscription Receivable (14 000)
Ordinary Share Capital, no par, P10 stated value,
500 000 shares authorized, 200 000 shares issued 2 000 000 2 826 000
Add: Paid- in Capital
Paid-in Capital in Excess of Stated Value- Ordinary Shares 100 000
Paid- in Capital in Excess of Par- Preference Shares 120 000 220 000
Total Contributed Capital 3 046 000
Retained Earnings 400 000
Total Shareholders’ Equity 3 446 000
Sambrano, Mark Dave T.
BSA 1-1
Exercise 9-3 (Cash Dividends)
March 1 Retained Earnings 400 000
Dividends Payable 400 000
40 000 sh x P 10

April 15 Dividends Payable 400 000

Cash 400 000

Sept 1 Retained Earnings 800 000

Dividends Payable 800 000
40 000 sh x P20

Sept 15 Dividends Payable 800 000

Cash 800 000

Exercise 9-4 (Cash and Share Capital Stock Dividends)

April 1 Retained Earnings 200 000
Dividends Payable 200 000
100 000 sh x P2

April 15 Dividends Payable 200 000

Cash 200 000

June 1 Retained Earnings 600 000

Share capital 500 000
Paid- in Capital 100 000
100 000 sh x 10% @ P60
100 000 sh x 10% @ P50
100 000 sh x 10% @ P10

June 30 Share Capital Dividends Distributable 500 000

Original Capital Stock 500 000
Sambrano, Mark Dave T.
BSA 1-1
PROBLEMS
Problem 9-1
1. Give the journal entries to record the proceeding transaction
2014 Debit Credit
Jan 2 Cash 3,125,000
Unissued Ordinary Share Capital 2,500,000
Ordinary Share Premium 625,000
125000 x P25 = 3125000
125000 x P20

Mar 2 Cash 1,875,000

Unissued Ordinary Share Capital 1,250,000
Ordinary Share Premium 625,000
62500 x 30 = 1875000
62500 x 20 = 1250000
62500 x 10 = 625000

Mar 31 Land 300,000

Ordinary Share Premium 300,000

Building 500,000
Unissued Ordinary Share Capital 500,000

Dec 31 Income Summary 750,000

Retained Earnings 750,000

Dec 31 Retained Earnings 531,250

Cash Dividends Payable 531,250
(125000 + 62500 + 25000) 2.50

2015
Jan 31 Cash Dividends Payable 531,250
Cash 531,250
Sambrano, Mark Dave T.
BSA 1-1
Feb 14 Ordinary Share Capital Subscription 2,500,000
Receivable
Ordinary Share Capital Subscribed 2,500,000
50000 x 50 = 2500000

Feb 14 Cash 1,000,000

Ordinary Share Capital Subscription 1,000,000
Receivable
2500000 x 40% = 1000000

Mar 15 Cash 1,500,000

Ordinary Share Capital Subscription 1,500,000
Receivable
2500000 x 60%

Mar 15 Ordinary Share Capital Subscribed 1,000,000

Unissued Ordinary Share Capital 1,000,000
500000 x P2

Dec 31 Income Summary 2,000,000

Retained Earnings 2,000,000

Dec 31 Retained Earnings 1,250,000

Share Capital Dividends Distributable 100,000
Paid-In Capital from Share Capital 1,150,000
500000 x 10% @P25 = 1250000
500000 x 10% @P2 = 1000000
500000 x 10% @P3 = 1150000
Sambrano, Mark Dave T.
BSA 1-1
2. Prepare the shareholders’ equity section of the statement of financial position of BCD Corp. as of
December 31, 2014
Shareholder’s Equity
Contributed Capital:
Share Capital:
Ordinary shares, P20 par, 500,000 authorized,
212,500 issued and outstanding 4,250,000 4,250,000
Additional Paid-in Capital
Ordinary Share Premium 1,550,000 1,550,000
Total Contributed Capital 5,800,000

Retained Earnings 218,750

Total Shareholders’ Equity 6,018,750

3. Prepare a statement of changes in shareholder’s equity for the year ended December 31, 2014
BCD Corporation
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2014
Ordinary Share Capital Ordinary Share Premium Retained Earnings
Issuance of ordinary 4,250,000 1,550,000
shares
Profit for the year 218,750
Balances, December 31 4,250,000 1,550,000 218,750
Sambrano, Mark Dave T.
BSA 1-1
Problem 9-7
Contributed capital
Share capital
Ordinary Share Capital (P10 par, 50000 shares authorized 3000000
Ordinary Share Capital Subscribed (10000 shares) 100000
10% Preference Share Capital (25000 shares authorized,
12000 shares outstanding) 1200000 4300000
Additional paid-in capital
Ordinary Share Premium 300000
Preference Share Premium 120000
Paid-in Capital from Stock Dividend 105000
Ordinary Share Capital Dividends Distributable 350000 875000
Total contributed capital 5175000

Retained earnings
Retained Earnings Appropriated For Contingencies 250000
Retained Earnings Appropriated For Bond Retirement 300000
Retained Earnings – Unappropriated 600000 1150000
Total shareholder’s equity 6325000
Sambrano, Mark Dave T.
BSA 1-1
MULTIPLE CHOICE
MC 9-1 b. Appropriations of Retained Earnings reflect funds set aside for a designated purpose, such as plant
expansion
MC 9-2 b. Liquidating dividend
MC 9-3 b. Addition to share capital outstanding
MC 9-4 c. not be affected on the date of payment
MC 9-5 a. P600 000
MC 9-6 a. P61 000
Retained Earnings P80 000
Shares Issued (P10,000)
Stock Dividend x10%
Fair Value x 7
P73 000
Loss (P12000)
Balance P61 000
MC 9-7 b. P164 000
Preference Share Outstanding P2 000 Total Cash Dividend declared P200 000
Par Value x 100 (P36 000)
Cash Dividend x 6% Ordinary Share Received P164 000
P12000
x 3 (yrs)
P36 000
MC 9-8 c. 36 000
Ordinary Share Received (P164 000)
Cash Dividend declared P200 000
Preference Share Received P36, 000
MC 9-9 c. P170
Total Shareholders’ Equity 4 100 000
Less Equity identified with Preference Shares
500000 / 100 = 5 000 (shares)
Liquidation Value (5000 sh x P120) 600 000
Dividend in Arrears (500 000 x 10% x 5) 250 000 850 000
3 250 000
Sambrano, Mark Dave T.
BSA 1-1
Book Value
Preference Shares 850 000/5000 = P170
MC 9-10 c. P65
Book Value
Ordinary Shares 3 250 000 / 50000 = P65
MC 9-11 a. P10 000
Ordinary Shares 20 000
Capital Dividend x 25%
Par Value x P2
10 000
MC 9-12 d. Did not change
MC 9-13 b. 150 000
Ordinary Share Capital 750 000
Par Value / P5
Ordinary Shares Issued 150 000
and Outstanding
MC 9-14 c. P25
Preference Share Capital 300 000
Shares Outstanding /12 000
Par Value P25
MC 9-15 b. 8
Ordinary Share Capital Dividends Distributable 105 000
Par Value /P5
Authorized Ordinary Shares /500 000
0.042

Paid-in Capital from Share Capital Dividend 63 000

/0.042
Authorized Ordinary Shares /P500 000
P3
Par Value P5
Add: P3
Market Value P8
Sambrano, Mark Dave T.
BSA 1-1
MC 9-16 d. 700 000
Retained Earnings Appropriated for Contingencies 150 000
Retained Earnings Appropriated for Bond Retirement 100 000
Retained Earnings Unappropriated 450 000
Total Retained Earnings 700 000
MC 9-17 b. 1 075 000
Ordinary Share Capital 750 000
Ordinary Share Capital Subscribed 25 000
Preference Share Capital 300 000
Total Share Capital 1 075 000
MC 9-18 b. 1 323 000
Ordinary Share Capital 750 000
Ordinary Share Capital Subscribed 25 000
Ordinary Share Premium 50 000
Preference Share Capital 300 000
Preference Share Premium 30 000
Ordinary Share Capital Dividends Distributable 105 000
Paid in Capital 63 000
Total Contributed Capital 1 323 000
MC 9-19 a. 450 000
MC 9-20 c. 2 032 000
Total Contributed Capital 1 323 000
Total Retained Earnings 700 000
Total Shareholders’ Equity 2 032 000