APC Ch9sol

CHAPTER 9
Operations, Dividends, Book Value and Earnings per Share
E 9-1
Contributed Capital:
10% Preference Share Capital, P100 par, cumulative, 10,000 shares
authorized, 4,000 shares issued and outstanding P 400,000
Ordinary Share Capital, P20 par, 100,000 shares authorized,
50,000 shares issued and outstanding 1,000,000
Ordinary Share Capital Subscribed – 10,000 shares 200,000
Preference Share Premium 150,000
Ordinary Share Premium 200,000
Total Contributed Capital P1,950,000
Retained Earnings 250,000
Total Shareholders’ Equity P2,200,000
E 9-2
10% Preference Share Capital, P40 par, 40,000 shares authorized,
20,000 shares issued and outstanding P800,000
Preference Share Capital Subscribed P40,000
Less PSC Subscription Receivable 14,000 26,000
Ordinary Share Capital, P10 stated value, 500,000 shares authorized,
Paid-in Capital in Excess of Par – Preference Shares 120,000
Paid-in Capital in Excess of Stated Value – Ordinary Shares 100,000
E 9-3
Mar. 1 Retained Earnings 400,000
Dividends Payable 400,000
40,000 sh x P10 = P400,000
Apr. 15 Dividends Payable 400,000

Cash 400,000
Sept. 1 Retained Earnings 800,000

40,000 sh x P20
30 Dividends Payable 800,000

Cash 800,000
E 9-4
Apr. 1 Retained Earnings 200,000
100,000 sh x P2
APC – Chapter 9 (2007 edition) page 2
May 2 Dividends Payable 200,000

Cash 200,000
June 1 Retained Earnings 600,000

Stock Dividends Distributable 500,000
PIC from Stock Dividends 100,000
100,000 sh x 10% x P60
July 15 Stock Dividends Distributable 500,000

Ordinary Share Capital 500,000
E 9-5
1. Retained Earnings 1,875,000
PIC from Stock Dividends 1,125,000
500,000 sh x 15% x P25 = P1,875,000
500,000 sh x 15% x P10 = P 750,000

2. Retained Earnings 2,500,000

Stock Dividends Distributable 2,500,000
500,000 sh x 50% x P10 = P2,500,000
Stock Dividends Distributable 2,500,000

Ordinary Share Capital 2,500,000
E 9-6
Mar. 15 Retained Earnings 10,000
2,000 sh x P5 = P10,000
Apr. 15 Dividends Payable 10,000

Cash 10,000
July 15 Retained Earnings 40,000

Property Dividends Payable 40,000
2,000 sh x P20
Property Dividends Payable 40,000

Investment in Pentagon Corp. Stocks 40,000
Oct. 15 Retained Earnings 15,000

2,000 sh x 30% x P25
Dec. 1 Stock Dividends Distributable 15,000

E 9-7
Annual PSC dividend requirement – 100,000 sh x P100 x 12% = P1,200,000
1.
2007 2008 2009
Preference P1,200,000 P1,200,000 P1,200,000
Ordinary 1,300,000 2,300,000 5,300,000
Total P2,500,000 P3,500,000 P6,500,000
Dividends per share:
Preference P12.00 P12.00 P12.00
Ordinary P 2.60 P 4.60 P10.60
2.
Preference Ordinary Total
2007
Dividends in arrears – 2 yrs. P2,400,000 P2,400,000
Current dividends 100,000 P ----------- 100,000
Total P2,500,000 P ----------- P2,500,000
Dividends per share P25.00 P –0--

2008
Dividends in arrears P1,100,000 P1,100,000
Current dividends 1,200,000 1,200,000
Balance – Ordinary P1,200,000 1,200,000
Total P2,300,000 P1,200,000 P3,500,000
Dividends per share P23.00 P 2.40

2009
Current dividends P1,200,000 P1,200,000
Balance – Ordinary P5,300,000 5,300,000
Total P1,200,000 P5,300,000 P6,500,000
Dividends per share P12.00 P 10.60

3.
2007
Regular dividends P1,200,000 P600,000 P1,800,000
Balance –P700,000
Preference – 10/15 466,667 466,667
Ordinary – 5/15 233,333 233,333
Total P1,666,667 P833,333 P2,500,000
Dividends per share P16.67 P1.67

2008
Regular dividends P1,200,000 P 600,000 P1,800,000
Balance –P1,700,000
Preference – 10/15 1,133,333 1,133,333
Ordinary – 5/15 566,667 566,667
Total P2,333,333 P1,166,667 P3,500,000

2009
Preference – 10/15 3,133,333 3,133,333
Ordinary – 5/15 1,566,667 1,566,667
Total P4,333,333 P2,166,667 P6,500,000

4.
2007
Dividends in arrears – 2 yrs. P2,400,000 P2,400,000
Current dividends 100,000 P ----------- 100,000
Total P2,500,000 P ----------- P2,500,000
Dividends per share P25.00 P –0--

2008
Dividends in arrears P1,100,000 P1,100,000
Regular dividends 1,200,000 P 600,000 1,800,000
Balance – P600,000
Preference – 10/15 400,000 400,000
Ordinary – 5/15 200,000 200,000
Total P2,700,000 P 800,000 P3,500,000

2009
Balance – P4,700,000
Preference – 10/15 3,133,333 3,133,333
Ordinary – 5/15 1,566,667 1,566,667
Total P4,333,333 P2,166,667 P6,500,000

5.
2007
Regular dividends P1,200,000 P600,000 P1,800,000
Balance –P700,000
Preference – 10/15 466,667 466,667
Ordinary – 5/15 233,333 233,333
Total P1,666,667 P833,333 P2,500,000

2008
Preference 800,000 800,000
Ordinary 900,000 900,000
Total P2,000,000 P1,500,000 P3,500,000
2009
Preference 800,000 800,000
Ordinary 3,900,000 3,900,000
Total P2,000,000 P4,500,000 P6,500,000
E 9-8
1. P2,500,000 / 200,000 shares P12.50
2. Total Shareholders’ Equity P2,500,000

Equity identified with preference shares (10,000 sh x P120) 1,200,000
Equity identified with ordinary shares P1,300,000
BV/share: PS – P120.00; OS – P13.00
E 9-9
a. P10,000/60,000 = P.17
b. P70,000/60,000 = P1.17
c. P90,000/60,000 = P1.50
d. P150,000/60,000 = P2.50
e. P180,000/60,000 = P3.00
E 9-10
Profit P450,000
Less earnings identified with preference share capital 200,000
(20,000 sh x P100 x 10%)
Earnings identified with ordinary shares P250,000
Earnings per share P250,000/300,000 = P.83
P 9-1
1.
2009
Jan. 2 Cash 1,875,000
Ordinary Share Capital 1,250,000
125,000 sh x P15
Mar. 2 Cash (62,500 sh x P20) 1,250,000

Mar. 31 Land 125,000

Building 312,500
Dec. 31 Income Summary 750,000

31 Retained Earnings 531,250

125,000 + 62,500 + 25,000 = 212,500 sh x P2.50
2010
Jan. 31 Dividends Payable 531,250
Cash 531,250
Feb. 14 OSC Subscription Receivable (50,000 x P25) 1,250,000

OSC Subscribed 500,000
14 Cash 500,000
OSC Subscription Receivable 500,000
P1,250,000 x 40%
Mar. 15 Cash 750,000

OSC Subscription Receivable 750,000
P1,250,000 x 60%
15 OSC Subscribed 500,000

Dec. 31 Income Summary 1,000,000

Retained Earnings 1,000,000

212,500 + 50,000 = 262,500 x P1

PIC from Stock Dividend 393,750
262,500 x 10% x P25 = 262,500
2.
Ordinary share Capital, P10 par, 500,000 shares authorized,
212,500 shares issued and outstanding P2,125,000
Ordinary Share Premium 1,437,500
3.
BCD Corporation
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2010
Ordinary Ordinary PIC from

Share Share Stock Retained
Capital Premium Dividend Earnings Total
Balances, January 1, 2010 P2,125,000 P1,437,500 P 218,750 P3,781.250
Subscription & issuance of 5,000 500,000 750,000 1,250,000
shares@P25
Declaration of cash dividends ( 262,500) ( 262,500)
Declaration of 10% stock 262,500 P393,750 ( 656,250)
Dividends
Profit for 2010 1,000,000 1,000,000
Balances, December 31, 2010 P 2,887,500 P2,187,500 P393,750 P 300,000 P5,768,750
P 9-2
MMM Corporation
For the Two Years Ending December 31, 2010
Ordinary Ordinary
Share Share Retained
Capital Premium Earnings Total
2009:
Issued 120,000 shares @ P24 P2,400,000 P 480,000 P2,880,000
Loss for the year (P300,000) ( 300,000)
Balances, December 31 P2,400,000 P 480,000 (P300,000) P2,580,000
2010:
Issued 80,000 shares @ P30 1,600,000 800,000 2,400,000
Profit for the year 800,000 800,000
Balances, December 31 P4,000,000 P1,280,000 P500,000 P5,780,000
VVV Inc.
For the Two Years Ending December 31, 2010
5% Preference
Preference Ordinary Share Retained
Share Share Premium Earnings Total
2009:
Issued 6,000 PS @ P120 P 600,000 P 120,000 P 720,000
Issued 200,000 ordinary shares P1,400,000 1,400,000
Profit for the year P 240,000 240,000
Dividends:
PS – P600,000 x 5% ( ( 30,000)
30,000)
OS – 200,000 shares x P.25 ( ( 50,000)
50,000)
Balances, December 31 P 600,000 P1,400,000 P 120,000 P 160,000 P2,280,000
2010:
Issued 5,000 PS @ P130 500,000 150,000 650,000
Issued 100,000 OS @ P10 1,000,000 1,000,000
Profit for the year 600,000 600,000

Dividends:
PS – 1,100,000 x 5% ( ( 55,000)
55,000)
OS - 300,000 shares x P.50 ( ( 150,000)
150,000)
Balances, December 31 P1,100,000 P2,400,000 P 270,000 P 555,000 P4,325,000
MMM Corp.
Shareholders’ Equity
December 31, 2010
Ordinary Share Capital, P20 par, 200,000 shares authorized,
all issued and outstanding P4,000,000
Ordinary Share Premium 1,280,000 P5,280,000
VVV Inc.
December 31, 2010
5% Preference Share Capital, P100 par, 200,000 shares authorized,
11,000 shares issued and outstanding P1,100,000
Ordinary Share Capital, no par, no Stated Value 500,000 shares
authorized,
Preference Share Premium 270,000 P3,770,000
P 9-3
DEF Corporation
Balance Sheet
December 31, 2009
Assets
Current Assets:
Cash P 200,000
Accounts Receivable P 100,000
Less Allowance for Doubtful Accounts 10,000 90,000
Merchandise Inventory 210,000
Store Supplies 5,000
Office Supplies 4,000
Prepaid Insurance 12,000
Total Current Assets P 521,000
Noncurrent Assets:
Land P1,000,000
Office Equipment, net of Accumulated Depreciation of P45,000 105,000
Store Equipment, net of Accumulated Depreciation of P75,000 175,000 1,280,000
Total assets P1,801,000
Liabilities
Current Liabilities:
Accounts Payable P 75,000
Income Tax Payable 163,100
Salaries Payable 12,000
Total Liabilities P 250,100
Ordinary Share Capital, P20 par, 50,000 shares
issued and outstanding P1,000,000
Total Shareholders’ Equity 1,550,900
Total Liabilities and Shareholders’ Equity P1,801,000
DEF Corporation
Ordinary Ordinary Retained
Share Capital Share Earnings Total
Premium
Balances, Jan. 1 P 980,000 P 95,000 P228,000 P1,303,000
Issuance of CS 20,000 5,000 25,000
Declaration and dist.
of dividends ( 80,000) ( 80,000)
Profit for 2009 302,900 302,900
Balances, Dec. 31 P1,000,000 P100,000 P450,900 P1,550,900
DEF Corporation
Income Statement
Sales (net of discounts of P50,000) P2,450,000
Cost of Goods Sold:
Merchandise Inventory, Jan. 1 P 150,000
Purchases (net of ret. and allow. of P100,000) 1,300,000
Cost of Goods available for Sale P1,450,000
Less Merchandise Inventory, Dec. 31 210,000 1,240,000
Gross Profit P1,210,000
Selling Expenses:
Sales Salaries P258,000
Advertising 75,000
Delivery 50,000
Depreciation – Store Equipment 25,000
Miscellaneous 20,000 (438,000)
Administrative Expenses:
Office Salaries P189,000
Light and Power 60,000

Insurance 18,000
Depreciation – Office Equipment 15,000
Miscellaneous 18,000 (306,000)
Profit before Income Tax P 466,000
Income Tax (35%) 163,100
Profit P 302,900
Earnings per share P302,900/ 50,000 shares P6.058
3. Adjusting Entries

Income Summary 210,000

Store Supplies Expense 10,000

Office Supplies Expense 6,000
Store Salaries 8,000

Office Salaries 4,000
Salaries Payable 12,000
Depreciation Expense – Store Equipment 25,000

Depreciation Expense – Office Equipment 15,000
Accumulated Depreciation – Store Equipment 25,000
Accumulated Depreciation – Office Equipment 15,000
Insurance Expense 18,000

Prepaid Insurance 18,000
Income Tax 163,100

Income Tax Payable 163,100
Closing Entries
Sales 2,500,000
Purchases Returns and Allowances 100,000
Sales Discount 50,000
Purchases 1,400,000
Sales Salaries 258,000
Advertising 75,000
Delivery 50,000
Store Supplies Expense 10,000
Depreciation Expense – Store Equipment 25,000
Miscellaneous Expenses 20,000
Office Salaries 189,000

Light and Power 60,000
Insurance 18,000
Depreciation Expense – Office Equipment 15,000
Office Supplies Expense 6,000
Miscellaneous Administrative Expenses 18,000
Income Taxes 163,100

P9-4
PS OS TOTAL
2007
Regular dividend P200,000 P100,000 P300,000
PS – 2/3; OS –1/3 100,000 50,000 150,000
Total P300,000 P150,000 P450,000
PS OS TOTAL
2008
Regular dividend P200,000 P100,000 P300,000
PS – 2/3; OS –1/3 300,000 150,000 450,000
Total P500,000 P250,000 P750,000
PS OS TOTAL
2009
Regular dividend P 200,000 P100,000 P 300,000
PS – 2/3; OS –1/3 933,333 466,667 1,400,000
Total P1,133,333 P566,667 P1,700,000
2.
PS OS TOTAL
2007
Dividends in arrears P400,000 --- P400,000
Current dividends 50,000 --- 50,000
Total P450,000 P –0-- P450,000
Dividends per share P22.50 P—0--
2008
Dividends in arrears P150,000 ---- P150,000
Current dividends 200,000 200,000
Balance – to Ordinary P400,000 400,000
Total P350,000 P400,000 P750,000
2009
Current dividends P200,000 P 200,000
Balance – to ordinary P1,500,000 1,500,000
Total P200,000 P1,500,000 P1,700,000

3.
2007 PS OS Total
Dividends in arrears P240,000 P240,000
Regular dividends 80,000 P40,000 120,000
Balance – P90,000
PS – 10/15; OS 5/15 60,000 30,000 90,000
Total P380,000 P70,000 P450,000
2008
Regular dividends P 80,000 P 40,000 P120,000
PS – 10/15; OS 5/15 420,000 210,000 630,000
Total P500,000 P250,000 P750,000
2009
Regular dividends P 80,000 P 40,000 P 120,000
PS – 10/15; OS 5/15 1,053,333 526,667 1,580,000
Total P1,133,333 P566,667 P1,700,000
4.
2007 PS OS Total
Dividends in arrears P240,000 P240,000
Regular dividends 80,000 P40,000 120,000
Balance – P90,000 50,000 40,000 90,000
Total P370,000 P80,000 P450,000
2008
Regular dividends P 80,000 P 40,000 P120,000
Balance – P630,000 50,000 580,000 630,000
Total P130,000 P620,000 P750,000
2009
Regular dividends P 80,000 P 40,000 P 120,000
Balance – P1,580,000 50,000 1,530,000 1,580,000
Total P 130,000 P1,570,000 P1,700,000
P 9-5
Less Equity identified with PS (10,000 sh @ P30) 300,000
Equity identified with OS P2,000,000
BV per share
PS P 30.00
OS (P2,000,000 / 100,000 sh) P 20.00

Less Equity identified with PS
Liquidation value (10,000 sh @ P25) P250,000
Div. in arrears (P25,000 x 5 yrs.) 125,000 375,000
Equity identified with OS P1,925,000
BV per share
PS P 37.50
OS (P1,925,000,000 / 100,000 sh) P 19.25
P9-6
a. Profit P20,000
Less Earnings identified with PS (10,000 sh @ P25 x 10%) 20,000
Earnings identified with OS -----
b. Profit P75,000
Equity identified with OS P50,000
Earnings per share

(P50,000 / 100,000 sh) P .50
c. Profit P120,000
Equity identified with OS P95,000
Earnings per share

(P95,000 / 100,000 sh) P .95
d. Profit P300,000
Earnings identified with OS P275,000
Earnings per share

(P275,000 / 100,000 sh) P 2.75
P 9-7
10% PS, P50 par, 25,000 shares authorized,
12,000 shares issued and outstanding P 600,000
OS, P5 par, 500,000 shares authorized,
OS Dividend Distributable, 35,000 shares 175,000
OS Subscribed, 10,000 shares 50,000
Preference share Premium 60,000
PIC from Stock Dividend 65,000
Retained Earnings
Appropriated for contingencies P250,000
Appropriated for Bond Retirement 300,000
Total P550,000
Unappropriated 400,000 950,000
Multiple Choice
1. B 4. C 7. B 10. B 13. C 16. A 19. A
2. B 5. A 8. C 11. A 14. D 17. B 20. D
3. B 6. A 9. D 12. D 15. B 18. C
TM 32
1. T 5. F 9. F 13. T 17. T
2. T 6. F 10. F 14. T 18. F
3. T 7. F 11. T 15. F 19. T
4. T 8. F 12. F 16. F 20. F
TM 33
1. Contributed capital 9. Small share capital dividend
2. Share Capital 10. Dividends in arrears
3. Share premium 11. Deficit
4. Liquidating dividend 12. Book value per share
5. Scrip dividend 13. Unappropriated Retained Earnings
6. Dividends 14. Retained Earnings
7. Appropriated Retained Earnings 15. Participating Preference Share Capital
8. Property dividend 16. Paid-in Capital from Stock Dividend
17. Carrying value
18. Stock Dividend Distributable
19. Stock Dividend
20. Earnings per share
TM 34
1. A 6. C 11. C 16. A 21. D
2. B 7. A 12. C 17. C 22. B
3. D 8. A 13. D 18. B 23. A
4. D 9. D 14. D 19. C 24. B
5. B 10. A 15. D 20. A 25. D
TM 35
1. C ABC – P5.00; DEF – P12.00
2. D P252,000 + P116,550 + P118,420 + P116,000 + P12,000 = P614,970
3. B P614,970 + P38,390 = P653,360
4. B 400 sh x P50 x 6% = P1,200
5. A PS = P48,000; CS – P180,000 – P48,000 = P132,000
6. A PS = P48,000 / 6,000 = P8.00; CS = P132,000 /12,000 = P11.00
7. B P801,400 – P601,100 = P200,300
8. B 60,000 x 40% x P20 = P480,000
9. C P20 x 40%
10. D
TM 36
1. P1,500,000 75,000 sh x P20
2. P750,000 75,000 sh x P10
3. P2,250,000 P1,500,000 + P750,000
4. P150,000 P500,000 – P350,000
5. P2,400,000 P2,250,000 + P150,000
6. P32 P2,400,000/75,000
7. P4.67 P350,000/75,000
8. P6.67 P500,000/75,000
TM 37
1. P4.00 P50 x 8%
2. P24,450,000 P450,000 + P16,000,000 + P8,000,000
3. 9,000 sh P450,000 / P50
4. 1,600,000 sh P16,000,000 / P10
5. P72,000 P450,000 x 8% x 2 years
6. P68 LV + Div. in arrears = P60 + (P4 x 2 years) = P68
7. P16.67 [P21,450,000 – (9,000 x 68)]/ 1,600,000 sh
TM 38
Year Share
capital Case1 Case 2 Case 3 Case 4
2005 Preference P114,286 P114,286 P 60,000 P 60,000

Ordinary 285,714 285,714 340,000 340,000
2006 Preference P 64,286 P64,286 P60,000 P60,000

Ordinary 160,714 160,714 165,000 165,000
2007 Preference P37,500 P37,500 P37,500 P37,500

Ordinary --------- --------- ----------- ----------
2008 Preference P75,000 P60,000 P75,000 P60,000

Ordinary --------- 15,000 ---------- 15,000
2009 Preference P 91,071 P 85,714 P 67,500 P 60,000

Ordinary 208,929 214,286 232,500 240,000

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CHAPTER 9

Operations, Dividends, Book Value and Earnings per Share

Apr. 15 Dividends Payable 400,000

Sept. 1 Retained Earnings 800,000

30 Dividends Payable 800,000

May 2 Dividends Payable 200,000

June 1 Retained Earnings 600,000

July 15 Stock Dividends Distributable 500,000

Stock Dividends Distributable 750,000

2. Retained Earnings 2,500,000

Stock Dividends Distributable 2,500,000

Apr. 15 Dividends Payable 10,000

July 15 Retained Earnings 40,000

Property Dividends Payable 40,000

Oct. 15 Retained Earnings 15,000

Dec. 1 Stock Dividends Distributable 15,000

Dividends per share P25.00 P –0--

Dividends per share P23.00 P 2.40

Dividends per share P12.00 P 10.60

Dividends per share P16.67 P1.67

Dividends per share P23.33 P2.33

Dividends per share P43.33 P4.33

Dividends per share P25.00 P –0--

Dividends per share P27.00 P1.60

Dividends per share P43.33 P4.33

Dividends per share P16.67 P1.67

Dividends per share P20.00 P3.00

Dividends per share P20.00 P9.00

2. Total Shareholders’ Equity P2,500,000

BV/share: PS – P120.00; OS – P13.00

Earnings per share P250,000/300,000 = P.83

Mar. 2 Cash (62,500 sh x P20) 1,250,000

Mar. 31 Land 125,000

Dec. 31 Income Summary 750,000

31 Retained Earnings 531,250

Feb. 14 OSC Subscription Receivable (50,000 x P25) 1,250,000

Mar. 15 Cash 750,000

15 OSC Subscribed 500,000

Dec. 31 Income Summary 1,000,000

31 Retained Earnings 262,500

31 Retained Earnings 656,250

Ordinary Ordinary PIC from

Profit for the year 600,000 600,000

Total assets P1,801,000

Light and Power 60,000

Earnings per share P302,900/ 50,000 shares P6.058

Merchandise Inventory 210,000

Income Summary 150,000

Store Supplies Expense 10,000

Store Salaries 8,000

Depreciation Expense – Store Equipment 25,000

Insurance Expense 18,000

Income Tax 163,100

Office Salaries 189,000

Income Summary 302,900

Total P200,000 P1,500,000 P1,700,000

2. Total Shareholders’ Equity P2,300,000

Earnings per share

Earnings per share

Earnings per share

2005 Preference P114,286 P114,286 P 60,000 P 60,000

2006 Preference P 64,286 P64,286 P60,000 P60,000

2007 Preference P37,500 P37,500 P37,500 P37,500