Problem 1 (Cash and Scrip Dividends) Presented below the capital structure of DBM Corporation as of December 31, 2018: Ordinary Share Capital, P 50...
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Problem 1 (Cash and Scrip Dividends) Ordinary Share Capital, P 50 par, 100,000 issued and 95,000 

Presented below the capital structure of DBM Corporation as of December 31, 2018:

outstanding shares               5,000,000

Ordinary Share Premium                                                                                               1,000,000     

Retained Earnings                                                                                                         8,000,000

Treasury Shares                                                                                                               120,000

 

The Corporation declared the following dividends during 2019:

 

April 1              Declared a cash dividend of P 10 per share of ordinary shares. The corporation issued 6% interest bearing promissory note in relation to cash dividend declared payable on September 30 to shareholders of record of April 20.

 

November 10   Declared a cash dividend of P 6 per share of ordinary shares, payable on December 15 to shareholders of record of November 20.

 

Requirement: Record the transactions occurred during 2019.

 

Problem 2 (Property Dividend)

Goodie Corporation owns 20,000 shares of JFC Corporation recorded as "Investment in JFC Corporation" amounting to P 1.1 million as of December 31, 2019.

 

On December 15, 2020, Goodie Corporation declared a property dividend to shareholders of record of December 30, distributable on January 5, 2021. The corporation will distribute three (3) ordinary shares of JFC Corporation for every share of Goodie Corporation owned by the shareholders. Goodie Corporation has 5,000 issued and outstanding shares at the time of declaration. The carrying value of JFC as of December 15, 2020 is 60 per share.

 

The fair market value of JFC Corporation as follows:

December 15 - 65 per share; December 31 - 67 per share; January 5 - 66 per share.

 

Requirement:

  1. Journalize the transactions occurred in relation to property dividends.
  2. What will be the gain or loss on January 5, 2021?

 

 

Problem 3 (Small and Large Stock Dividends)

On November 7, Lauren Enterprise Company declared a share capital dividend distributable to shareholders of record of November 15, distributable on December 5. The Lauren Enterprise Company has 250,000 ordinary shares with 20 par value per share at the date of declaration. The fair market value of Lauren Enterprise as follows:

November 7 - 25 per share; November 15 - 22 per share; December 5 - 24 per share.

 

Requirement:

record all the necessary entries to record the transaction of share capital dividends using the following independent assumptions:

  1. A 15% share capital dividend
  2. A 25% share capital dividend

 

 

 

 

Problem 4 (Allocation of Cash Dividends to Preference and Ordinary Shareholders)

 

The Company has the same capital structure (except for retained earnings) for the past five year, see details below:

6% Preference Share Capital, 80,000 shares issued and outstanding, P 50 par                  P4,000,000

Ordinary Share Capital, 200,000 shares issued and outstanding, P 30 par                       6,000,000

Retained Earnings                                                                                                       5,000,000 

 

No dividends were paid prior to 2020 for two years. On December 10, 2020, the Company declared P 1,500,000 as cash dividends to shareholders of record of December 21, 2020, payable on January 5, 2021.

 

Requirements:

  1. Record all the necessary journal entries to record the dividend transactions.
  2. Allocate the dividends between ordinary shareholders and preference shareholders if:

           Case A. Preference share capital is NON-CUMULATIVE and NON-PARTICIPATING

           Case B. Preference share capital is CUMULATIVE and NON-PARTICIPATING

           Case C. Preference share capital is NON-CUMULATIVE and FULLY PARTICIPATING

           Case D. Preference share capital is NON-CUMULATIVE and PARTICIPATING UP TO ADDITIONAL 5%

  1. Assuming the dividend declared is P 1,000,000 what will be the allocation of dividends if in case the preference share is CUMULATIVE and FULLY PARTICIPATING

Answered by Expert Tutors

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