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Earnings:
Dividend
Prepared by:
Nick Freddy R. Bello
2013-43169
Pre-Test
Quick
Pre - Test
Pre-Test
For 30 seconds
1. Cumulative preferred dividends in arrears
should be shown in a corporation's balance
sheet as
a. an increase in current liabilities.
b. an increase in stockholders' equity.
c. a footnote.
d. an increase in current liabilities for the
current portion and long-term liabilities
for the long-term portion.
Pre-Test
For 30 seconds
2. Oraaayt Inc. owns 4,000,000 shares of
stock in Royal House Corporation. On
December 31, 2015, Oraaayt distributed
these shares of stock as a dividend to its
stockholders. This is an example of a
a. dividends in kind.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.
Pre-Test
For 30 seconds
3. The IAS term when the retained
earnings account has a debit balance.
Pre-Test
For 30 seconds
4. A share that is entitled to receive only
the dividends equal to the fixed rate.
Pre-Test
For 60 seconds
5. Carlo Angelo Co. has outstanding 50,000
shares of 8% preferred stock with a P10 par
value and 125,000 shares of P4 par value
common stock. Dividends have been paid
every year except last year and the current
year. If the preferred stock is cumulative and
nonparticipating and P250,000 is distributed,
the common stockholders will receive
a. P85,000.
b. P105,000.
c. P170,000.
d. P210,000.
Pre-Test
For 60 seconds
6. At the beginning of 2011, Tatlong Bebe Inc.
had retained earnings of P150,000. During the
year Hamilton reported net income of P75,000,
sold treasury stock at a gain of P27,000,
declared a cash dividend of P45,000, and
declared and issued a small stock dividend of
1,500 shares (P10 par value) when the market
value of the stock was P30 per share. The
amount of retained earnings available for
dividends at the end of 2011 was:
a. P184,500.
b. P162,000.
c. P157,500.
d. P135,000.
Pre-Test
Pre-Test
For 60 seconds
8. On October 1, 2015, Deli Company
declared a property dividend of machinery
payable on April 1, 2016. The carrying amount
of the machinery is P3,000,000 on October 1,
2014. The machinery had the following fair
value:
October 1, 2015 2,500,000
December 31, 2015 2,400,000
April 1, 2016 2,000,000
Pre-Test
Times Up!
Pre-Test
For 30 seconds
1. Cumulative preferred dividends in arrears
should be shown in a corporation's balance
sheet as
a. an increase in current liabilities.
b. an increase in stockholders' equity.
c. a footnote.
d. an increase in current liabilities for the
current portion and long-term liabilities
for the long-term portion.
Pre-Test
For 30 seconds
2. Oraaayt Inc. owns 4,000,000 shares of
stock in Royal House Corporation. On
December 31, 2015, Oraaayt distributed
these shares of stock as a dividend to its
stockholders. This is an example of a
a. dividends in kind.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.
Pre-Test
For 30 seconds
3. The IAS term when the retained
earnings account has a debit balance.
Pre-Test
For 30 seconds
4. A share that is entitled to receive only
the dividends equal to the fixed rate.
Pre-Test
For 60 seconds
5. Carlo Angelo Co. has outstanding 50,000
shares of 8% preferred stock with a P10 par
value and 125,000 shares of P4 par value
common stock. Dividends have been paid
every year except last year and the current
year. If the preferred stock is cumulative and
nonparticipating and P250,000 is distributed,
the common stockholders will receive
a. P85,000.
b. P105,000.
c. P170,000.
d. P210,000.
Pre-Test
For 60 seconds
6. At the beginning of 2011, Tatlong Bebe Inc.
had retained earnings of P150,000. During the
year Hamilton reported net income of P75,000,
sold treasury stock at a gain of P27,000,
declared a cash dividend of P45,000, and
declared and issued a small stock dividend of
1,500 shares (P10 par value) when the market
value of the stock was P30 per share. The
amount of retained earnings available for
dividends at the end of 2011 was:
a. P184,500.
b. P162,000.
c. P157,500.
d. P135,000.
Pre-Test
Pre-Test
For 60 seconds
8. On October 1, 2015, Deli Company
declared a property dividend of machinery
payable on April 1, 2016. The carrying amount
of the machinery is P3,000,000 on October 1,
2014. The machinery had the following fair
value:
October 1, 2015 2,500,000
December 31, 2015 2,400,000
April 1, 2016 2,000,000
Retained
Earnings:
Dividend
Prepared by:
Nick Freddy R. Bello
2013-43169
Outline
Retained
Kinds
Earnings Definition
of Appropriation
Dividends
Out
of Earning
Cash
Property
Stock
Out of Capital/Liquidating Dividend
Others
Dividend
Allocation
Earnings
Retained earnings represent the
cumulative balance of periodic net income
or loss, dividend distributions, prior period
errors, effects of changes in accounting
policy and other capital adjustments.
Earnings
RE represent that
portion which is free and can be
declared as dividends to stockholders.
Appropriated RE represent that portion
which is restricted and therefore not
available for any dividend declaration.
Earnings
Earnings
required by law.
Ex. For the cost of treasury shares
Contractual required by contract.
Ex. For bond or preference share
redemption
Voluntary
Earnings
Earnings
Illustration
An entity purchased treasury shares at
a cost of P1,000,000.
Treasury Shares 1,000,000
Cash
1,000,000
RE
1,000,000
RE-appropriated 1,000,000
Earnings
Continuing illustration
The treasury shares are subsequently
issued for P2,000,000.
Cash
2,000,000
Treasury Shares 1,000,000
APIC - TS
1,000,000
RE-appropriated 1,000,000
RE
1,000,000
Dividends
What are dividends?
Dividends are distribution of earnings or
capital to shareholders in proportion to
their shareholdings. Dividends are broadly
classified into:
Dividends
out of earnings
Dividends out of capital
Dividends
Dividends
Dividend declaration is reposed on
the board of directors. When
dividends are formally declared,
three dates are essential for
accounting purposes.
Dividends
Date of declaration
the
Dividends
Date of record
the
Dividends
Date of payment
the
Dividends
Illustration
The Board of Directors at their meeting
on December 31, 2014 declared a
dividend of P5 per share, payable March
31, 2015, to shareholders of record on
January 31, 2015.
Date of declaration Dec. 31, 2014
Date of record
Jan. 31, 2015
Date of payment
Mar. 31, 2015
Dividends
Dividends
Illustration
The Board of Directors at their meeting on November 30, 2014
declared a dividend of P20 per share, payable April 30, 2015,
to shareholders of record on December 31, 2014. The entity
had 20,000 shares issued and outstanding with par value of
P100.
400,000
Dividends
Two
1.
2.
accounting issues:
Measurement of the property dividend
payable.
Measurement of the noncash assets to
be distributed as dividend.
Dividends
Measurement of the property
dividend payable.
Under IFRIC 17, dividend payable is initially
recognized at fair value of the noncash asset on
the date of declaration and is increased or
decreased as a result of the change in fair value of
the asset at year-end and the date of settlement.
The offsetting debit or credit is through equity or
directly retained earnings.
At the date of payment, the difference between
the carrying amount of the dividend payable and
of the noncash asset distributed shall be
recognized in profit or loss.
Dividends
Measurement of the noncash
asset distributed.
PFRS 5, provides that an entity shall measure a
noncurrent asset classified for distribution to
owners at lower of carrying amount and
fair value less cost to distribute.
If FVLCTD < CA of the asset, the difference is
accounted for as impairment loss at yearend.
Moreover, if FVLCTD > CA, no journal entry
is needed.
Dividends
Illustration
Dividends
Dec 1, 2014
RE 1,500,000
Div Pay
1,500,000
Dec 31, 2014
RE 300,000
Div Pay
300,000
100,000
Dividends
Illustration
On November 1, 2014, an entity declared
a property dividend of equipment
payable on March 1, 2015. The carrying
amount of the equipment is P3,000,000
and the fair value is P2,500,000 on
November 1, 2014.
Dividends
Nov 1, 2014
RE 2,500,000
Div Pay
2,500,000
Dec 31, 2014
Div Pay 300,000
RE
300,000
Impairment loss 800,000
Equipment
800,000
Mar 1, 2015
Div Pay 200,000
RE
200,000
Div Pay 2,000,000
Loss on dist. 200,00
Equipment
2,200,000
Dividends
Dividends
If
If
Dividends
Illustration
Share capital, P100 par 200,000 authorized 10,000,000
shares, 100,000 shares issued and
outstanding.
Share Premium 500,000
RE 500,000
The company declared a 20% stock dividend to its shareholders.
Date of Declaration:
RE 2,000,000
Div Dist
2,000,000
Date of Payment:
Div Dist 2,000,000
Share Capital
2,000,000
Dividends
Illustration
Share capital, P100 par 200,000 authorized 10,000,000
shares, 100,000 shares issued and
outstanding.
Share Premium
500,000
RE
500,000
The company declared a 15% stock dividend to its
shareholders. The fair value of the shares are 150 and 120 on
the date of declaration and date of payment, respectively.
Date of Declaration:
RE
2,250,000
Div Dist
1,500,000
Share Premium
750,000
Date of Payment:
Div Dist
1,500,000
Share Capital
1,500,000
Dividends
May treasury shares be declared
as dividend?
Under Philippine GAAP, treasury shares
may be issued as dividends in which case
the cost of the shares shall be charged
to RE.
Valix believes that such declaration shall
be accounted for as stock dividend
because the entity is reissuing its own
share capital rather than conveying
noncash asset.
Dividends
Illustration
The entity distributed as stock dividend 1,000
treasury shares with cost of P100,000 and market
value of P150,000.
(Note: The cost of TS is charged to RE, not
the market value.)
Date of Declaration
RE
100,000
SD Dist
100,000
Date of Payment
SD Dist
100,000
Trea Shares 100,000
Dividends
Dividends
Illustration
The following accounts appear in the financial
statements of a wasting asset entity:
Resource Property
10,000,000
Accumulated Depletion 2,000,000
RE
3,000,000
The maximum dividend dividends that may be
declared is 5,000,000. If the maximum amount of
divided is declared, the journal entry on the date
of declaration is:
RE
3,000,000
Cap Liquidated 2,000,000
Div Pay
5,000,000
Others
May dividends be considered as
an expense?
Yes. PAS 32 provides that distributions to
holders of an equity instrument classified
as financial liability are recognized in
the same way as interest expense on a
bond payable.
Ex. Dividends given to redeemable
preference shares holder
Others
What is quasi-reorganization?
A quasi-reorganization is a permissive but
not a mandatory procedure under which a
financially troubled entity restates its
accounts and establishes a fresh start
in accounting sense.
Also called corporate readjustment.
Its purpose is to eliminate the entitys
deficit.
Others
What is a statement of retained
earnings?
The statement of RE shows the changes
directly affecting the RE of an entity
and relates the income statement to the
balance sheet.
It is no longer required as a
component of financial statements
but it is a part of the statement of
changes in equity.
Dividend Allocation
Dividend Allocation
Illustration
Chin Ong Inc. provided the following on Dec 31, 2016:
Ordinary share capital, P20 par
4,000,000
value, 200,000 shares
Preference share capital, 6%
1,000,000
P100 par value, 100,000 shares
Preference dividends have been arrears for 2014 and
2015. on Dec. 31, 2016, a cash dividend of P900,000
was declared. What is the dividend payable on the PS
and OS assuming:
a. PS is noncumulative and nonparticipating.
b. PS is cumulative and nonparticipating
c. PS is noncumulative and participating
d. PS is cumulative and participating
e. PS is noncumulative and participating up to 20%
f. PS is cumulative and participating up to 15%
Dividend Allocation
PS is noncumulative and
nonparticipating.
Dividend Allocation
PS is cumulative and
nonparticipating
Dividend Allocation
PS is noncumulative and
participating
Dividend Allocation
Dividend Allocation
PS is noncumulative and
participating up to 20%
Dividend Allocation
PS is cumulative and
participating up to 15%
Quiz
Quiz!
Quiz
For 45 seconds
1. On September 1, 2010, N. Hirai
Company reacquired 12,000 shares of its
$10 par value common stock for $15 per
share. Valdez uses the cost method to
account for treasury stock. What is the
journal entry to record the reacquisition of
the stock?
Quiz
For 45 seconds
2. Ikkin Company has 350,000 shares of
$10 par value common stock outstanding.
During the year, Ikkin declared a 10%
stock dividend when the market price of
the stock was $30 per share. Four months
later Ikkin declared a $.50 per share cash
dividend. As a result of the dividends
declared during the year, retained
earnings decreased by ____________.
Quiz
For 45 seconds
3. Gibbs Corporation owned 20,000 shares of
Oliver Corporations $5 par value common
stock. These shares were purchased in 2007
for $180,000. On September 15, 2011, Gibbs
declared a property dividend of one share of
Oliver for every ten shares of Gibbs held by a
stockholder. On that date, when the market
price of Oliver was $14 per share, there were
180,000 shares of Gibbs outstanding. What
NET reduction in retained earnings would
result from this property dividend?
Quiz
Quiz
Quiz
Times Up!
Quiz
For 45 seconds
1. On September 1, 2010, N. Hirai
Company reacquired 12,000 shares of its
$10 par value common stock for $15 per
share. Valdez uses the cost method to
account for treasury stock. What is the
journal entry to record the reacquisition of
the stock?
Quiz
For 45 seconds
2. Ikkin Company has 350,000 shares of
$10 par value common stock outstanding.
During the year, Ikkin declared a 10%
stock dividend when the market price of
the stock was $30 per share. Four months
later Ikkin declared a $.50 per share cash
dividend. As a result of the dividends
declared during the year, retained
earnings decreased by ____________.
1,242,50
0
Quiz
For 45 seconds
3. Gibbs Corporation owned 20,000 shares of
Oliver Corporations $5 par value common
stock. These shares were purchased in 2007
for $180,000. On September 15, 2011, Gibbs
declared a property dividend of one share of
Oliver for every ten shares of Gibbs held by a
stockholder. On that date, when the market
price of Oliver was $14 per share, there were
180,000 shares of Gibbs outstanding. What
NET reduction in retained earnings would
result from this property dividend?
252,000
Quiz
90,000
Quiz
PS 24,000; CS 6,000
End