ACCOUNTING 4 Retained Earnings
ACCOUNTING 4 Retained Earnings
PROBLEM 1: ETC Co. has been paying regular semi-annual dividends to its shareholders. The following are the
company's equity transactions:
1.1 The company has 1,800,000 shares issued and outstanding; total shares authorized is 3,000,000 shares;
the par is P2 per share.
10.13 P2 M of P1,000 bonds were converted into ordinary share at the rate of 50 shares of stock per P1,000
bond.
12.31 Paid semi-annual dividends. The dividend per share is the same as that paid in the first semi-annual
period.
2. The amount of dividend to be paid in the December 31, in order to pay the same dividend rate as that paid in the
previous semi-annual period _________________
PROBLEM 2: JKL Corp. reported the following amounts in the shareholders' equity section of its December 31, 2015,
statement of financial position:
a. At the beginning of 2016, the company paid the annual 2015 P1 per share dividend
on preference shares and PO.50 per share dividend on ordinary shares. These dividends had been declared on
December 1, 2015.Further investigations revealed that no entry has been made to account for the declaration of the
said dividends.
b. On February 13, the company purchased 4,000 shares of its own outstanding ordinary shares for P80,000.
c. On March 30, the company declared and issued ordinary shares split-up (1 is to 2).
d. On June 19, the company reissued 2,800 treasury shares for an equipment with a fair value at P50,000.
e. On August 1, the company issued 10,000 shares of preference shares at P15 per share.
f. On September 30, the company declared a 10% stock dividend on the outstanding ordinary shares when the stock is
selling for P6 per share. The share dividends were subsequently issued on October 11.
g. December 1, the company declared the annual 2016 P1 dividend on preference shares and the PO.25 per share
dividend on ordinary shares. These dividends are payable at the beginning of 2017.
h. The company registered a net income for 2016 at P940,000.
Requirements:
1. What is the effect to stockholders' equity as a result of the share split in item c?
2. What is the amount debited to accumulated profits as a result of the declaration of the 10% stock dividend
in item f?
3. What is the amount debited to accumulated profits as a result of the 2016 cash dividend declaration?
4. What is the correct balance of the accumulated profits-unappropriated account as of December 31, 2016?
5. Assuming that the share dividends declared in item f was 20%, what is the amount debited to retained earnings as a
result of the declaration of stock dividends?
PROBLEM 3: Logan Corp. has incurred losses from operations for many years. At the recommendation of the newly
hired president, the board of directors noted to implement a quasi-reorganization, subject to the stockholders' and
creditors' approval. Immediately, prior to the quasi-reorganization, on June 30, 2016, Logan's balance sheet was as
follows:
Assets
The stockholders and creditors approved the quasi-reorganization effective July 1, 2016, to be accomplished by a
reduction in property, plant, and equipment (net) P875,000, a reduction in other noncurrent assets of P375,000, and a
reduction in par value from P10 to P5.
1. Logan's July 1 balance sheet after the quasi-reorganization should show total assets of _________
2. The balance in the Additional paid-in capital after the quasi-reorganization on July 1, is ____________