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ACCTG 5an ACTIVITY 2

East Company declared a dividend of P1,000,000 payable to shareholders on April 1, 2018 but was short of cash. It issued promissory notes to shareholders in lieu of cash, with a maturity date of March 31, 2019 and 10% annual interest. The appropriate accounting is to debit retained earnings P1,000,000 on April 1, 2018 for the dividend, and debit interest expense P75,000 on December 31, 2018 for three-quarters of the annual interest on the notes.

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97 views4 pages

ACCTG 5an ACTIVITY 2

East Company declared a dividend of P1,000,000 payable to shareholders on April 1, 2018 but was short of cash. It issued promissory notes to shareholders in lieu of cash, with a maturity date of March 31, 2019 and 10% annual interest. The appropriate accounting is to debit retained earnings P1,000,000 on April 1, 2018 for the dividend, and debit interest expense P75,000 on December 31, 2018 for three-quarters of the annual interest on the notes.

Uploaded by

RUNEL J. PACOT
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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East Company had sufficient retained earnings in 2018 as a basis for dividends but was temporarily

short of cash.

The entity declared a dividend of P1,000,000 on April 1, 2018, and issued promissory notes to
shareholders in lieu of cash.

The notes, which were dated April 1, 2018, had a maturity date of March 31, 2019 and a 10% interest.

How should the scrip dividend and related interest be accounted for?

a. Debit retained earnings P1,100,000 on April 1, 2018

b. Debit retained earnings P1,100,000 on March 31, 2019

c. Debit retained earnings P1,000,000 on April 1, 2018 and debit interest expense P100,000 on March
31, 2019

d. Debit retained earnings P1,000,000 on April 1, 2018 and debit interest expense P75,000 on December
31, 2018

Answer: d.

D. Retained earnings is reduced only by the amount of the dividend otherwise payable in cash, in this
case P1,000,000. Interest on the notes is recognized as interest expense, not as a part of the dividend.
12/31/03 is three-fourths of the way into the note term. Thus, .75(.10)(P1,000,000) or P75,000 of
interest expense should be recognized on this date.

Cyan Company issued 200,000 shares of P5 par value at P10 per share. On January 1, 2018, the
retained earnings amounted to P3,000,000.

In March 2018, the entity reacquired 50,000 treasury shares at P20 per share. In June 2018, the entity
sold 10,000 of these shares to corporate officers for P25 per share. The entity used cost method to
record the treasury shares.

Net income for the year was P600,000.

1. What is the total amount of retained earnings at year-end?

a. 4,400,000

b. 2,200,000

c. 3,600,000

d. 3,400,000

Answer:

c. 3, 600,000
retained earnings-December 31, 2017 P3,000,000

retained earnings-December 31, 2018 600,000

total retained earnings-December 31, 2018 P3,600,000

2. What amount should be reported as unappropriated retained earnings at year-end?

a. 3,600,000

b. 3,650,000

c. 3,750,000

d. 2,800,00

Answer:

d. 2,800,000

The retained earnings must be appropriated to the extent of the remaining cost of the treasury shares
of P800,000 (40,000*P20). Thus, the unappropriated earnings at year-end should be
P2,800,000(3,600,000-800,000)

On November 1, 2018, Glade Company declared a property dividend of equipment payable on March
1, 2019.

The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1,
2018.

However, the fair value less cost to distribute the equipment is P2,200,000 on December 31, 2018 and
P2,000,000 on March 1, 2019.

1. What is the dividend payable on December 31, 2018?

a. 2,500,000

b. 2,200,000

c. 3,000,000

d. 0

Answer:

b. 2,200,000
2. What is the measurement of the equipment on December 31, 2018?

a. 2,500,000

b. 2,200,000

c. 3,000,000

d. 2,000,000

Answer:

b. 2,200,000

3. What amount of loss on distribution of property dividend is recognized on March 1, 2019?

a. 300,000

b. 200,000

c. 500,000

d. 0

Answer:

b. 200,000

solution:

2,000,000-2,200,000= (200,000) loss

On December 31, 2018, Blake Mining Company declared a cash dividend of P800,000 to shareholders
of record on January 15, 2019 and payable on February 15, 2019.

The entity reported the following information on December 31, 2018:

Accumulated depletion 200,000

Share capital 1,000,000

Premium earnings 300,000

Retained earnings 600,000


What amount should be recognized as liquidating dividends?

a. 600,000

b. 300,000

c. 200,000

d. 50,000

Answer:

c. 200,000

dividend declared 800,000

retained earnings balance 600,000

liquidating dividends 200,000

Any amount paid in excess of the retained earnings balance is a liquidating dividend or return of
capital. This is legally allowed under the wasting asset doctrine as long as the excess does not exceed
the accumulated depletion balance.

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