Assets – Liabilities = Shareholders’ Equity

Assets – Liabilities = Shareholders’ Equity

Assets – Liabilities = Shareholders’ Equity

Net Assets
Assets – Liabilities = Shareholders’ Equity

Shareholders’ Equity
Net Assets
Paid-in Capital
Assets – Liabilities = Shareholders’ Equity

Shareholders’ Equity
Net Assets
Paid-in Capital
Retained Earnings
Assets – Liabilities = Shareholders’ Equity

Shareholders’ Equity
Net Assets
Paid-in Capital
Retained Earnings
Accumulated Other
Comprehensive Income
 It is shares to be subscribed and paid in
by
the shareholders, either in money,
property
or services, at the time or organization
of
the corporate or afterwards, and
upon
which it is to conduct it

e l
operations.

a r
Sh
ita
a p
C
 It is shares to be subscribed and paid in
by
the shareholders, either in money,
property
or services, at the time or organization
of
the corporate or afterwards, and
upon
which it is to conduct it

e l
operations.

a r
Sh
ita
a p
C
 It is shares to be subscribed and paid in
by
the shareholders, either in money,
property
or services, at the time or organization
of
the corporate or afterwards, and
upon
which it is to conduct it

e l
operations.

a r
Sh
ita
a p The share , contributed or paid -

C
in capital is further divided in to
two:

• Legal Capital (par,nopar)

• Share premium
Legal Capital

Capital contributed by shareholders 1

comes from the sale of shares of
The shares of stock issued and
stock. generally
referred to as share capital. Legal Capital is
that portion of the contributed capital or
the amount paid-in capital, which must
2
remain in the corporation for the protection
of corporate creditors.
Legal Capital

Capital contributed by shareholders 1

comes from the sale of shares of
The shares of stock issued and
stock. generally
referred to as share capital. Legal Capital is
that portion of the contributed capital or
the amount paid-in capital, which must
2
remain in the corporation for the protection
of corporate creditors.
Legal Capital
in case of par value share, legal
Capital contributed by shareholders 1 capital is the aggregate par value
comes from the sale of shares of of all issued and subscribed
The shares of stock issued and
stock. generally shares.
referred to as share capital. Legal Capital is
that portion of the contributed capital or
the amount paid-in capital, which must
2
remain in the corporation for the protection
of corporate creditors.
Legal Capital
in case of par value share, legal
Capital contributed by shareholders 1 capital is the aggregate par value
comes from the sale of shares of of all issued and subscribed
The shares of stock issued and
stock. generally shares.
referred to as share capital. Legal Capital is In case of no-par shares, legal
that portion of the contributed capital or capital is the total consideration
the amount paid-in capital, which must
2 received by the corporation for the
remain in the corporation for the protection issuance of its shares to the
of corporate creditors. shareholders including the excess
of issue price over the stated value
Share Premium
(Additional Paid-in Capital). It is the portion of
paid-in capital representing amounts paid by
shareholders in excess of par. It may also
result from transactions involving treasury
stocks, retirement of shares, donated capital,
share dividends and any other "gain" on the
corporation's own stock transactions.
Share Premium
(Additional Paid-in Capital). It is the portion of
paid-in capital representing amounts paid by
shareholders in excess of par. It may also
result from transactions involving treasury
stocks, retirement of shares, donated capital,
share dividends and any other "gain" on the
corporation's own stock transactions.
 Ordinary shares.

Two basic 1
types of
shares Preference share.

2
 Ordinary shares. represents the basic
ownership class of the corporation.

Two basic 1
When
only
one class of shares is
issued, it must be ordinary
types of Ordinar share. shares
y
residual are the entity's
shares equity
Preference share. This share gives its
owners certain advantages over
ordinary shareholders. These special
benefits relate either to the receipt of
2 dividends when declared before the
ordinary shareholders (preferred as to
dividends) or to priority claims on
assets in the event of corporate
liquidation.
 Ordinary shares. represents the basic
ownership class of the corporation.

Two basic 1
When
only
one class of shares is
issued, it must be ordinary
types of Ordinar share. shares
y
residual are the entity's
shares equity
Preference share. This share gives its
owners certain advantages over
ordinary shareholders. These special
benefits relate either to the receipt of
2 dividends when declared before the
ordinary shareholders (preferred as to
dividends) or to priority claims on
assets in the event of corporate
liquidation.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
Terms related to share
capital
Authorized Share Capital. The number of
shares indicates the maximum number of Outstanding
1 shares the corporation can issue as a issued shares, which are in the hands of
Share
specified in the article of incorporation. 4 the shareholders. The number
Capital.
outstanding shares of will
Issued Share Capital. These are shares different equal the
These between the issued shares and
2 which have been sold and paid for in full. the treasury shares.
Issued shares may include treasury shares. are
Treasury Stock. These are issued shares
Subscribed Share Capital. It is the portion 5 acquired by the corporation but not
of the authorized share capital that has been retired and are therefore, awaiting to be
3 reissued at a later date.
subscribed but not yet fully paid.
 Are you ready?

Accounting for
Issuance of
Share Capital
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
how to record the issuance of share? WITH PAR
WITHOUR
PAR

When the shares with par value are sold, the proceeds should be credited to the share capital account to the extent of
the par value of the shares, with any excess being reflected as share premium

When shares without par value are sold, the proceeds should be credited to the share capital account. If the no-par stock has a
stated value, the excess proceeds over stated value alternatively be credited to the share premium.

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a corporation who: (a) consents to the
issuance of stocks for a consideration less than its par or issued value: (b) consents to the issuance of stocks for the
consideration other than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its
creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance
of the stock and the par or issued value of the same.

Section 65. Interest on Unpaid Subscriptions. - Subscribers to stock shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
1 Actual cash paid to the corporation.
Consideratio
Tangible or intangible properties actually
2 received by the corporation n for
Labor already performed for or service Issuance of
3 actually rendered to the corporation
Shares
Previously incurred indebtedness by the
4 corporation
 Share Issuance for Cash
Issuing Share Capital at Par

Illustration: Narsan Holdings is authorized to issue 1,000,000 ordinary shares divided into 10,000 shares , with a par
value of P100 per share. The diversified corporation issued on cash basis 2,000 shares at par.
Cash 200,000
Ordinary Shares 200,000
The amount of 200,000 invested in the corporation is called paid-in capital or contributed capital. The credit to
Ordinary Shares increases the share capital of the corporation.

Issuing Share Capital at Above par

Illustration: Suppose the 2,000 shares were sold at P150 per share.

Cash 300,000
Ordinary shares 200,000

Share Premium 100,000

 Share Issuance for Cash
Issuing Share Capital at Par

Illustration: Narsan Holdings is authorized to issue 1,000,000 ordinary shares divided into 10,000 shares , with a par
value of P100 per share. The diversified corporation issued on cash basis 2,000 shares at par.
Cash 200,000
Ordinary Shares 200,000
The amount of 200,000 invested in the corporation is called paid-in capital or contributed capital. The credit to
Ordinary Shares increases the share capital of the corporation.
 Share Issuance for Cash
Issuing Share Capital at Par

Illustration: Narsan Holdings is authorized to issue 1,000,000 ordinary shares divided into 10,000 shares , with a par
value of P100 per share. The diversified corporation issued on cash basis 2,000 shares at par.
Cash 200,000
Ordinary Shares 200,000
The amount of 200,000 invested in the corporation is called paid-in capital or contributed capital. The credit to
Ordinary Shares increases the share capital of the corporation.

Issuing Share Capital at Above par

Illustration: Suppose the 2,000 shares were sold at P150 per share.
 Share Issuance for Cash
Issuing Share Capital at Par

Illustration: Narsan Holdings is authorized to issue 1,000,000 ordinary shares divided into 10,000 shares , with a par
value of P100 per share. The diversified corporation issued on cash basis 2,000 shares at par.
Cash 200,000
Ordinary Shares 200,000
The amount of 200,000 invested in the corporation is called paid-in capital or contributed capital. The credit to
Ordinary Shares increases the share capital of the corporation.

Issuing Share Capital at Above par

Illustration: Suppose the 2,000 shares were sold at P150 per share.

Cash 300,000
Ordinary shares 200,000

Share Premium 100,000

Issuing No-Par Share Capital

Illustration: Morning Star travel is a domestic corporation engaged in the business of organizing tour packages for Asian
European visitors to the Philippines. The entity has two classes of shares-preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for 85,000.
Issuing No-Par Share Capital

Illustration: Morning Star travel is a domestic corporation engaged in the business of organizing tour packages for Asian
European visitors to the Philippines. The entity has two classes of shares-preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for 85,000.
Cash 85,000
Ordinary Shares 85,000
Issuing No-Par Share Capital

Illustration: Morning Star travel is a domestic corporation engaged in the business of organizing tour packages for Asian
European visitors to the Philippines. The entity has two classes of shares-preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for 85,000.
Cash 85,000
Ordinary Shares 85,000
Issuing No-Par Share Capital with Stated Value

Illustration: Suppose that Morning Star Travel's no par ordinary shares have a stated value of P20. The entity issued 5,000
Shares at P25 per share.
Issuing No-Par Share Capital

Illustration: Morning Star travel is a domestic corporation engaged in the business of organizing tour packages for Asian
European visitors to the Philippines. The entity has two classes of shares-preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for 85,000.
Cash 85,000
Ordinary Shares 85,000
Issuing No-Par Share Capital with Stated Value

Illustration: Suppose that Morning Star Travel's no par ordinary shares have a stated value of P20. The entity issued 5,000
Shares at P25 per share.
Cash

125,000
Ordinary Shares

125,000
Issuing No-Par Share Capital

Illustration: Morning Star travel is a domestic corporation engaged in the business of organizing tour packages for Asian
European visitors to the Philippines. The entity has two classes of shares-preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for 85,000.
Cash 85,000
Ordinary Shares 85,000
Issuing No-Par Share Capital with Stated Value

Illustration: Suppose that Morning Star Travel's no par ordinary shares have a stated value of P20. The entity issued 5,000
Shares at P25 per share.
Cash

125,000
Ordinary Shares

Cash 125,000
125,000
Ordinary Shares 100,000
If the no-par stock has state value, the exceeds over stated value, P5 per share, may alternatively be credited to share premium.
Share Premium 25,000
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Illustration: Warranty Auto shop, Inc is quality car care center. Assume that 5,000 shares of P10 par value ordinary shares of the corporation were to
sold on subscription at P12 per shares on Sept. 1, 2016. Subscription installment of 24,000 and 36,000 will be due on Sept. 16 and 30, respectively
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Illustration: Warranty Auto shop, Inc is quality car care center. Assume that 5,000 shares of P10 par value ordinary shares of the corporation were to
sold on subscription at P12 per shares on Sept. 1, 2016. Subscription installment of 24,000 and 36,000 will be due on Sept. 16 and 30, respectively

The Subscribed ordinary shares accounts

Subscription Receivable 60,000 represents the par value of the subscribe shares
Subscribed Ordinary Share 50,000 9/1
Share Premium 10,000
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Illustration: Warranty Auto shop, Inc is quality car care center. Assume that 5,000 shares of P10 par value ordinary shares of the corporation were to
sold on subscription at P12 per shares on Sept. 1, 2016. Subscription installment of 24,000 and 36,000 will be due on Sept. 16 and 30, respectively

The Subscribed ordinary shares accounts

Subscription Receivable 60,000 represents the par value of the subscribe shares
Subscribed Ordinary Share 50,000 9/1
Share Premium 10,000

24,000
Cash Subscription Receivable is a Shareholders'
24,000
Subscription Receivable 9/16
Subscription of Shares
The subscription contract is a legally binding contract which provides for the number of shares subscribed, the subscriber becomes a shareholders
upon subscription but the stock certifies evidencing ownership over shares of stock are not issued until the full collection of the subscription.
Illustration: Warranty Auto shop, Inc is quality car care center. Assume that 5,000 shares of P10 par value ordinary shares of the corporation were to
sold on subscription at P12 per shares on Sept. 1, 2016. Subscription installment of 24,000 and 36,000 will be due on Sept. 16 and 30, respectively

The Subscribed ordinary shares accounts

Subscription Receivable 60,000 represents the par value of the subscribe shares
Subscribed Ordinary Share 50,000 9/1
Share Premium 10,000

24,000
Cash Subscription Receivable is a Shareholders'
24,000
Subscription Receivable 9/16
equity account. It is represented in the statement
Cash 36,000 of FP as a deduction from the related subscribed
Subscription receivable 36,000 9/30 ordinary shares. when it is collectible within

Subscribe Ordinary Shares 50,000 one year, this may be shown as a current asset.
Ordinary Shares 50,000 9/30
 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

Journal Entry Method Memorandum Method

 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

Journal Entry Method Memorandum Method

Authorization:

Unissued Ordinary Shares 400,000 Memo Entry: The corporation was authorized to
Authorized Ordinary Shares 400,000 issue P400,000 ordinary shares, divided into
4,000 shares, with P100 par.
 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

Journal Entry Method Memorandum Method

Shares subscription at par:

Subscription Receivable 100,000 Subscribed

Ordinary Shares 100,000
 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

Journal Entry Method Memorandum Method

Subscription fully collected:

Cash Cash 60,000
60,000
Subscription Receivable Subscription Receivable 60,000
60,000
 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

stock certifies issued correspondingly

Journal Entry Method Memorandum Method

Issuance of stock certifies after full payment of subscription:

Subscribed Ordinary Shares 60,000 Unissued Ordinary Subscribed Ordinary Shares 60,000
Shares 60,000 Ordinary Shares 60,000
 Journal
Two methods of accounting for share capital
Memorandum
Entry
Method
Method

Illustration: Lucky draw Corporation was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a
par value of P100 per share. On Aug. 13, 2016, the corporation received subscriptions for 1,000 shares at par from
various individuals. As at Sept. 20, 2016, 600 of the subscribed shares have been fully paid and the stock certifies issued
correspondingly. Next day, the corporation issued 400 shares at par for cash.

Journal Entry Method Memorandum Method

Cash subscription at par:

Cash 40,000 Cash 40,000
Unissued Ordinary Shares 40,000 Ordinary Shares 40,000
 Journal Entry Method Memorandum Method

Shares subscription at par:

Subscription Receivable 100,000 Subscribed Subscription Receivable 100,000

Ordinary Shares 100,000 Subscribed Ordinary Shares 100,000

Subscription fully collected:

Cash 60,000 Cash 60,000

Subscription Receivable 60,000 Subscription Receivable 60,000

Issuance of stock certifies after full payment of subscription:

Subscribed Ordinary Shares60,000 Unissued Subscribed Ordinary Shares60,000 Ordinary

Ordinary Shares 60,000 Shares 60,000

Cash subscription at par:

Cash 40,000 Cash 40,000

Unissued Ordinary 40,000 Ordinary Shares 40,000
Shares
 Journal Entry Method Memorandum Method

Shares subscription at par:

Subscription Receivable 100,000 Subscribed Subscription Receivable 100,000

Ordinary Shares 100,000 Subscribed Ordinary Shares 100,000

Subscription fully collected:

Cash 60,000 Cash 60,000

Subscription Receivable 60,000 Subscription Receivable 60,000

Issuance of stock certifies after full payment of subscription:

Subscribed Ordinary Shares60,000 Unissued Subscribed Ordinary Shares60,000 Ordinary

Ordinary Shares 60,000 Shares 60,000

Cash subscription at par:

Cash 40,000 Cash 40,000

Unissued Ordinary 40,000 Ordinary Shares 40,000
Shares
 Journal Entry Method
Shareholders Equity:

Authorized Ordinary Shares, 100 par, 4,000 shares P400,000

Less: Unissued Ordinary Shares, 3,000 shares Issued ( 300,000)
Ordinary Shares P100,000

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (40,000) P100,000

Memorandum Method
Shareholders Equity:

Ordinary Shares, P100 par, 4,000 shares authorized,

1,000 shares issued P100,000

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (40,000) P100,000
 Journal Entry Method
Shareholders Equity:

Authorized Ordinary Shares, 100 par, 4,000 shares P400,000

Less: Unissued Ordinary Shares, 3,000 shares Issued ( 300,000)
Ordinary Shares P100,000

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (40,000) P100,000

Memorandum Method
Shareholders Equity:

Ordinary Shares, P100 par, 4,000 shares authorized,

1,000 shares issued P100,000

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (40,000) P100,000
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 ry
Shares of stock which have been Issued and fully paid for,

e a s u but subsequently reacquired by the issuing corporation either by purchased , redemption,

Tr ock
donation or through other lawful means. Such shares may again be disposed of for a

reasonable price fixed by the board of directors.

St Section 40. Power to Acquire Own Shares. - Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired,
a stock corporation shall have the power to purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code.
 • Not an asset because the corporation does not own shares of itself.
• A deduction from the total shareholders' equity.
• Record into two different method: (1) par or stated value and (2) cost method.

Par Value Method - treasury stock is debited for an amount equal to the par of the stock reacquired. Cost
Method - Preferred method of accounting for treasury stock by the ASC

Purchased of Treasury Stock

Treasury stock is recorded at cost regardless of whether the share is acquired below or above par or stated value.

If treasury stock is purchased for cash, the cost is equal to cash payment, If treasury stock is purchased for non-cash
consideration, the cost is measured by the recorded amount of the non-cash assets surrendered or given in exchange.

It does not decrease the number of shares issued; only the outstanding shares decrease. The effect of the purchased is to
decrease both total assets and shareholders' equity. It may affect the cash flows, but they have no effect on the profit of
the company.
 • Not an asset because the corporation does not own shares of itself.
• A deduction from the total shareholders' equity.
• Record into two different method: (1) par or stated value and (2) cost method.

Par Value Method - treasury stock is debited for an amount equal to the par of the stock reacquired. Cost
Method - Preferred method of accounting for treasury stock by the ASC

Purchased of Treasury Stock

Treasury stock is recorded at cost regardless of whether the share is acquired below or above par or stated value.

If treasury stock is purchased for cash, the cost is equal to cash payment, If treasury stock is purchased for non-cash
consideration, the cost is measured by the recorded amount of the non-cash assets surrendered or given in exchange.

It does not decrease the number of shares issued; only the outstanding shares decrease. The effect of the purchased is to
decrease both total assets and shareholders' equity. It may affect the cash flows, but they have no effect on the profit of
the company.
 • Not an asset because the corporation does not own shares of itself.
• A deduction from the total shareholders' equity.
• Record into two different method: (1) par or stated value and (2) cost method.

Par Value Method - treasury stock is debited for an amount equal to the par of the stock reacquired. Cost
Method - Preferred method of accounting for treasury stock by the ASC

Purchased of Treasury Stock

Treasury stock is recorded at cost regardless of whether the share is acquired below or above par or stated value.

If treasury stock is purchased for cash, the cost is equal to cash payment, If treasury stock is purchased for non-cash
consideration, the cost is measured by the recorded amount of the non-cash assets surrendered or given in exchange.

It does not decrease the number of shares issued; only the outstanding shares decrease. The effect of the purchased is to
decrease both total assets and shareholders' equity. It may affect the cash flows, but they have no effect on the profit of
the company.
 • Not an asset because the corporation does not own shares of itself.
• A deduction from the total shareholders' equity.
• Record into two different method: (1) par or stated value and (2) cost method.

Par Value Method - treasury stock is debited for an amount equal to the par of the stock reacquired. Cost
Method - Preferred method of accounting for treasury stock by the ASC

Purchased of Treasury Stock

Treasury stock is recorded at cost regardless of whether the share is acquired below or above par or stated value.

If treasury stock is purchased for cash, the cost is equal to cash payment, If treasury stock is purchased for non-cash
consideration, the cost is measured by the recorded amount of the non-cash assets surrendered or given in exchange.

It does not decrease the number of shares issued; only the outstanding shares decrease. The effect of the purchased is to
decrease both total assets and shareholders' equity. It may affect the cash flows, but they have no effect on the profit of
the company.
 • Not an asset because the corporation does not own shares of itself.
• A deduction from the total shareholders' equity.
• Record into two different method: (1) par or stated value and (2) cost method.

Par Value Method - treasury stock is debited for an amount equal to the par of the stock reacquired. Cost
Method - Preferred method of accounting for treasury stock by the ASC

Purchased of Treasury Stock

Treasury stock is recorded at cost regardless of whether the share is acquired below or above par or stated value.

If treasury stock is purchased for cash, the cost is equal to cash payment, If treasury stock is purchased for non-cash
consideration, the cost is measured by the recorded amount of the non-cash assets surrendered or given in exchange.

It does not decrease the number of shares issued; only the outstanding shares decrease. The effect of the purchased is to
decrease both total assets and shareholders' equity. It may affect the cash flows, but they have no effect on the profit of
the company.
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.

Cash 2,250,000
Retained Earnings 750,000
Treasury Stock 3,
00
Illustration: Plantation EcoResort is a world class destination in Indang, Cavite. The operation have been successful. To consolidate control
over the enterprise and thus avoid a corporate takeover by the outsiders, the broad of directors decided to minimize outstanding shares by
purchasing 1,500 shares with a par value of 1,000 for 2,000.

Treasury Stock 3,000,000

Cash 3,000,000 (1,500 x
2,000)
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.

Cash 3,000,0000
Treasury Stock 3,000,000

Above Cost. Assume that all treasury shares were reissued at 2,500 per share.

Cash 3,750,000
Treasury Stock 3,000,000

Share Premium-Treasury 750,000

Below Cost. Assume that the 1,500 treasury shares were reissued at 1,500 per shares share.
Cash 2,250,000
Cash 2,250,000
Share Premium-Treasury 750,000
Retained Earnings 750,000
Treasury Stock 3, Treasury Stock 3,0
00 00,
000
Retirement of Treasury Stock

With Gain on Retirement. Assume that purchased of treasury shares for P750 per share. Observe that there is a gain on retirement
if the cost of treasury shares is less than par value.

Ordinary Shares (1,500 shs. x P100 par) 1,500,000

Share Premium 375,000
Treasury Stock (1,500 shs. x P750 cost) 1,125,0000

With Loss on Retirement. Assume that a total of 10,000 shares have been issued at purchased 1,500 per share prior to the
purchased of treasury shares. The company purchased 1,500 treasury shares for 2,000 per share; these were not reissued and were
ultimately retired.

Ordinary Shares (1,500 Shares. x 1,000 par) 1,500,000

Share Premium* 750,000
Retained Earnings 750,000

Treasury Stock (1,500 Shares. x 2,000 cost) 3,000,000

* 1,500 retired shares (1,500 issue - P1,000 par)] = P750,000 Share
premium
Retirement of Treasury Stock

With Gain on Retirement. Assume that purchased of treasury shares for P750 per share. Observe that there is a gain on retirement
if the cost of treasury shares is less than par value.

Ordinary Shares (1,500 shs. x P100 par) 1,500,000

Share Premium 375,000
Treasury Stock (1,500 shs. x P750 cost) 1,125,0000

With Loss on Retirement. Assume that a total of 10,000 shares have been issued at purchased 1,500 per share prior to the
purchased of treasury shares. The company purchased 1,500 treasury shares for 2,000 per share; these were not reissued and were
ultimately retired.

Ordinary Shares (1,500 Shares. x 1,000 par) 1,500,000

Share Premium* 750,000
Retained Earnings 750,000

Treasury Stock (1,500 Shares. x 2,000 cost) 3,000,000

* 1,500 retired shares (1,500 issue - P1,000 par)] = P750,000 Share
premium
Retirement of Treasury Stock

With Gain on Retirement. Assume that purchased of treasury shares for P750 per share. Observe that there is a gain on retirement
if the cost of treasury shares is less than par value.

Ordinary Shares (1,500 shs. x P100 par) 1,500,000

Share Premium 375,000
Treasury Stock (1,500 shs. x P750 cost) 1,125,0000

With Loss on Retirement. Assume that a total of 10,000 shares have been issued at purchased 1,500 per share prior to the
purchased of treasury shares. The company purchased 1,500 treasury shares for 2,000 per share; these were not reissued and were
ultimately retired.

Ordinary Shares (1,500 Shares. x 1,000 par) 1,500,000

Share Premium* 750,000
Retained Earnings 750,000

Treasury Stock (1,500 Shares. x 2,000 cost) 3,000,000

* 1,500 retired shares (1,500 issue - P1,000 par)] = P750,000 Share
premium
Retirement of Treasury Stock

With Gain on Retirement. Assume that purchased of treasury shares for P750 per share. Observe that there is a gain on retirement
if the cost of treasury shares is less than par value.

Ordinary Shares (1,500 shs. x P100 par) 1,500,000

Share Premium 375,000
Treasury Stock (1,500 shs. x P750 cost) 1,125,0000

With Loss on Retirement. Assume that a total of 10,000 shares have been issued at purchased 1,500 per share prior to the
purchased of treasury shares. The company purchased 1,500 treasury shares for 2,000 per share; these were not reissued and were
ultimately retired.

Ordinary Shares (1,500 Shares. x 1,000 par) 1,500,000

Share Premium* 750,000
Retained Earnings 750,000

Treasury Stock (1,500 Shares. x 2,000 cost) 3,000,000

* 1,500 retired shares (1,500 issue - P1,000 par)] = P750,000 Share
premium
RETAINED EARNINGS AND
DIVIDENDS
 RETAINED EARNINGS
 One of the sources of corporate capital.

 It represent the cumulative balance of profits earned by the corporation

less dividends declared.

 Retained earnings account is credited when the credit balance of the

income summary representing profit is closed. It is debited when the
result of the operations is a loss and when dividends are declared.

 Normal credit balance. When the losses > profits, it will have a credit
balance (deficit) and it will be deducted from the total share capital when
computing for the total SHE.
 RETAINED EARNINGS
 One of the sources of corporate capital.

 It represent the cumulative balance of profits earned by the corporation

less dividends declared.

 Retained earnings account is credited when the credit balance of the

income summary representing profit is closed. It is debited when the
result of the operations is a loss and when dividends are declared.

 Normal credit balance. When the losses > profits, it will have a credit
balance (deficit) and it will be deducted from the total share capital when
computing for the total SHE.
 RETAINED EARNINGS
 One of the sources of corporate capital.

 It represent the cumulative balance of profits earned by the corporation

less dividends declared.

 Retained earnings account is credited when the credit balance of the

income summary representing profit is closed. It is debited when the
result of the operations is a loss and when dividends are declared.

 Normal credit balance. When the losses > profits, it will have a credit
balance (deficit) and it will be deducted from the total share capital when
computing for the total SHE.
 RETAINED EARNINGS
 One of the sources of corporate capital.

 It represent the cumulative balance of profits earned by the corporation

less dividends declared.

 Retained earnings account is credited when the credit balance of the

income summary representing profit is closed. It is debited when the
result of the operations is a loss and when dividends are declared.

 Normal credit balance. When the losses > profits, it will have a credit
balance (deficit) and it will be deducted from the total share capital when
computing for the total SHE.
FORMS OF DIVIDENDS

A. Cash Dividend – dividend payable in cash. Three relevant dates in

connection with a cash dividend:

 Date of declaration – the date when the BOD authorized the distribution
of dividend. The date when the corporation incurs a liability.

 Date of record – the date when the stock and transfer book is closed to
determine the party that would receive the dividend.

 Date of payment – the date on which the dividend liability is to be paid

FORMS OF DIVIDENDS

A. Cash Dividend – dividend payable in cash. Three relevant dates in

connection with a cash dividend:

 Date of declaration – the date when the BOD authorized the distribution
of dividend. The date when the corporation incurs a liability.

 Date of record – the date when the stock and transfer book is closed to
determine the party that would receive the dividend.

 Date of payment – the date on which the dividend liability is to be paid

FORMS OF DIVIDENDS

A. Cash Dividend – dividend payable in cash. Three relevant dates in

connection with a cash dividend:

 Date of declaration – the date when the BOD authorized the distribution
of dividend. The date when the corporation incurs a liability.

 Date of record – the date when the stock and transfer book is closed to
determine the party that would receive the dividend.

 Date of payment – the date on which the dividend liability is to be paid

FORMS OF DIVIDENDS

A. Cash Dividend – dividend payable in cash. Three relevant dates in

connection with a cash dividend:

 Date of declaration – the date when the BOD authorized the distribution
of dividend. The date when the corporation incurs a liability.

 Date of record – the date when the stock and transfer book is closed to
determine the party that would receive the dividend. (important ba to?)

 Date of payment – the date on which the dividend liability is to be paid

Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 NO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 NO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 NO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 NO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 NO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 MEMO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
Illustration:
The BOD at their meeting on November 30, 2020 declared a dividend of P20
per share, payable April 30, 2021, to shareholders of record on December
31, 2020. The entity had 20,000 shares issued and outstanding with par
value of P100.
2020
Nov. 30 Retained earnings 400,000
Dividends payable 400,000
2020
Dec. 31 MEMO ENTRY
2021
Apr. 30 Dividends payable 400,000
Cash 400,000
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
 ALLOCATION BETWEEN PREFERENCE AND ORDINARY
 The total amount to be declared as dividend needs to be allocated between the
preference and ordinary with due consideration on the preference shares’
dividend rights:

A. Non-cumulative – entitled to current dividend only, previous years unpaid

dividends are considered to be fully paid.
B. Cumulative – entitled to any dividends not declared in the prior period
(dividend in arrears), such that when dividends are declared in the current
period, the dividends in arrears are to be satisfied first.
C. Non-participating – the earnings of the preference share are limited to the
fixed annual rate of amount for each share, excess should be given to ordinary
shareholders.
D. Fully participating – participates in the balance after giving a one year
dividend to the ordinary shares equal to the annual preference dividend rate.
They participate based on their total par values.
Illustration:
Capital structure of D’Palpak Corporation on January 1, 2020:
6% Preference share, P100 par, 3,000 shares issued P300,000 (3/9)
Ordinary shares, P50 par, 12,000 shares issued 600,000 (6/9)
The corporation did not declare dividends in 2020 and 2021. In 2022, the corporation declared cash
dividends of P180,000.

Required: Allocate the total dividends between preference shares and ordinary shares and compute the
dividend per share for each class of stock assuming preference share is:
A. Non-cumulative and non-participating
B. Cumulative but non-participating
C. Non-cumulative but fully participating
D. Cumulative and fully participating

SOLUTION:
A.
Illustration:
Capital structure of D’Palpak Corporation on January 1, 2020:
6% Preference share, P100 par, 3,000 shares issued P300,000 (3/9)
Ordinary shares, P50 par, 12,000 shares issued 600,000 (6/9)
The corporation did not declare dividends in 2020 and 2021. In 2022, the corporation declared cash
dividends of P180,000.

Required: Allocate the total dividends between preference shares and ordinary shares and compute the
dividend per share for each class of stock assuming preference share is:
A. Non-cumulative and non-participating
B. Cumulative but non-participating
C. Non-cumulative but fully participating
D. Cumulative and fully participating
Preference Ordinary
SOLUTION:
300,000 x 6% x 1 year P18,000
A.
180,000 – 18,000 P162,000
Divide by no. of issued shares 3,000 12,000
Dividend per share P6.00 P13.50

Non-cumulative = entitled only to receive the current year dividend

Non-participating = limited to the fixed annual rate or amount
 Preference Ordinary
B.
300,000 x 6% x 3 year P54,000
180,000 – 54,000 P126,000
Divide by no. of issued shares 3,000 12,000
Dividend per share P18.00 P10.50

Cumulative = entitled to receive dividends including the two-year dividend in arrears.

Preference Ordinary
C.
300,000 x 6% x 1 year P18,000
600,000 x 6% x 1 year P36,000
126,000 x 3/9 42,000
126,000 x 6/9 84,000
Total 60,000 120,000
Divide by no. of issued shares 3,000 12,000
Dividend per share P20.00 P10.00

Participating = participate in the balance base on the par values after giving a one year dividend to the
ordinary shares.
D. Preference Ordinary
300,000 x 6% x 3 year P54,000
600,000 x 6% x 1 year P36,000
90,000 x 3/9 30,000
90,000 x 6/9 60,000
Total 84,000 96,000
Divide by no. of issued shares 3,000 12,000
Dividend per share P28.00 P8.00
 FORMS OF DIVIDENDS
B. Share dividend – a proportional distribution of the corporation’s own shares. It is express
as a percentage but is also based on outstanding shares.

It can be small or large. A share dividend of less than 20% is considered small and should be
valued at market value on the date of declaration. A share dividend of 20% or more is
considered large and should be at par.

Illustration:
HindiSyurNa Corporation has 10,000 P100 par ordinary shares issued and outstanding.
Prepare the journal entries to record the declaration and issuance of share dividend
assuming the market value of the share on the date of declaration is P150 and the
corporation declared a:

A. 10% share dividend

B. 50% share dividend
SOLUTION:
Retained earnings (1,000 shares x 150) 150,000
A.
Share dividends payable (1,000 x 100) 100,000
Share premium 50,000

Share dividends payable 100,000

Ordinary share 100,000

Note: the share dividends payable account shall be recorded only to the extent of the par value.

Retained earnings (5,000 shares x 100) 500,000

B.
Share dividends payable 500,000

Share dividends payable 500,000

Ordinary share 500,000
 APPROPRIATION OF RETAINED EARNINGS
Retained earnings can be classified into two:
A. Unappropriated retained earnings – free and available for dividend distribution. This is the
source of dividend declaration.
B. Appropriated retained earnings – restricted and in the mean time not available for dividend
distribution. The reason for appropriation is to limit the amount that may be declared as
dividend. It may be classified into:
 Legal appropriation – arises from the concept of legal capital or that portion of share capital
which cannot be returned to the stockholders until the corporation is dissolved or
liquidated. A corporation cannot acquire treasury shares unless it has sufficient retained
earnings balance to back up the acquisition. To make sure that this matter is not overlook,
an appropriation of retained earnings is required. The appropriation is called retained
earnings appropriated for treasury shares
 Contractual appropriation – arises from restrictions contained in agreements for the
issuance of bonds or preference shares. The objective is to assure the payment of bonds or
redemption of the preference shares. These appropriations are called retained earnings
appropriated for bond redemption and retained earnings appropriated for redemption of
preference shares.
 Voluntary or discretionary appropriation – this is done at the discretion of management. The
purpose is to conserve cash for expansion purposes or to prepare for contingencies. These
appropriations are called retained earnings appropriated for plant expansion and retained
earnings appropriated for contingencies.

 The account title “retained earnings” that is used in journal entries is interpreted as
unappropriated retained earnings. The appropriated retained earnings will have the word
“appropriated” in the account title. The pro-forma entry to record the appropriation of
retained earnings is:
Retained earnings xxx
Retained earnings appropriated for xxx

It is reversed when the condition for which it was created no longer exist.

 The reported retained earnings in the SHE includes both unappropriated and appropriated
retained earnings.
 PRIOR PERIOD ADJUSTMENT
 Prior period adjustments are corrections to retained earnings for accounting errors of previous
periods. They either increase or decrease the beginning balance of retained earnings.

 It appears in the statement of retained earnings after beginning retained earnings as previously
reported to come up with beginning retained earnings as restated.

STATEMENT OF RETAINED EARNINGS

Beginning retained earnings as previously reported xxx
Add (deduct) prior period adjustment xxx or (xxx)
Add (deduct) profit (loss) xxx or (xxx)
Deduct dividends declared (xxx)
Ending retained earnings xxx
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 This statement is formatted with column for each element of equity. It will show
the beginning balance, changes for the period, and ending balance for each of
the following components of equity:

 Preference shares
 Ordinary shares
 Share premium
 Retained earnings
 Treasury shares
 Total stockholders’ equity
 RATIOS FOR DECISION MAKING
 Book value per share – if the corporation has only one class of share, this is equal to
stockholders’ equity divided by the number of ordinary shares outstanding. If has two
classes of shares, we have to allocate first the stockholders’ equity between the
preference and ordinary equity.
Ordinary equity = Total stockholders’ equity – preference equity

Preference equity = Liquidation value* + dividends in arrears

*If the liquidation value is not given, it is assumed that the liquidation value is equal to the par value.

 Once allocated, divide each class of share by their own number of shares outstanding
to come up with their book value per share.
 The book value per share is used in negotiations especially when the corporation’s
share is not listed. Some investors compare the book value per share with the market
price per share to determine whether the share is a good but or not.
Illustration:

Duturtle Corporation presented the following data on December 31, 2021:

6% Preference shares, P100 par, 1,000 shares issued P100,000
Ordinary shares, P50 par, 4,000 shares issued 200,000
Share premium – ordinary 40,000
Retained earnings 160,000

The preference shares are cumulative and have a liquidation value of 110 per share. Dividends are in
arrears for three years as of December 31, 2021.
Determine the book value per preference share and the book value per ordinary share as of Decembe
31, 2021.
SOLUTION:
Stockholders equity P500,000
Preference equity
Liquidation value (1,000 x 110) P110,000
Dividends in arrears (100,000 x 6% x 3) 18,000 (118,000)
Ordinary equity P382,000

Book value per preference share 118,000 / 1,000 = P118

Book value per ordinary share 382,000 / 4,000 = P95.50
RETURN ON ASSET
 Measures the company’s success in using assets to earn profit for those financing the
company such as the creditors and the stockholders.
ROA = (Profit + interest expense*) / Average total assets
*In higher accounting what is added on the numerator is the after tax cost of interest which is equal to interest
expense multiply by 1 – tax rate. Still some authors will not use profit but operating profit in the formula.

RETURN ON ORDINARY EQUITY

 This is a measure of profitability.
ROE = (Profit – preferred dividend) / Average ordinary equity
Illustration:

Assume the following data for TutaNgAnist Corporation:

Profit P112,000
Interest expense 8,000
Preferred dividend 12,000
Beginning assets 780,000
Ending assets 820,000
Beginning ordinary equity 480,000 Note: A higher ROE compared to ROA
Ending ordinary equity 520,000 means that the company is using fixed cost
Calculate the return on asset and the return on ordinary equity. securities (debt and preference shares) with
SOLUTION: a lower rate and investing the funds to earn
ROA = (112,000 + 8,000) / [(780,000 + 820,000) / 2] a higher rate. This is called financial
= 120,000 / 800,000 leverage or trading on equity.
= 15%

ROE = (112,000 – 12,000) / [(480,000 + 520,000) / 2]

= 100,000 / 500,000
= 20%
 BASIC EARNINGS PER SHARE
 The amount of profit earned for each ordinary share outstanding.
BEPS = (Profit – preferred dividends) / weighted average ordinary shares outstanding*
*the weighted average is computed based on the number of shares outstanding per month as a fraction of 12
months.

Illustration:
On January 1, 2021, SadboiGids has 20,000 ordinary shares outstanding. On July 1, 2018, it issued an
additional 10,000 ordinary shares. Compute the weighted average ordinary shares outstanding.
SOLUTION:
January 1 20,000 x 6 / 12 = 10,000
July 1 30,000 x 6 / 12 = 15,000
Total 25,000

Assuming a profit of P81,000 and preferred dividend of P6,000, calculate the basic earnings per share.
SOLUTION:
BEPS = (81,000 – 6,000) / 25,000
= P3
PRACTICE: Multiple choices
1. The residual interest in a corporation belongs to the
a. management.
b. creditors.
c. ordinary stockholders.
d. preference stockholders

2. The pre-emptive right of a ordinary stockholder is the right to

a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of share of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights

3. A primary source of stockholders' equity is

a. income retained by the corporation.
b. appropriated retained earnings.
c. contributions by stockholders.
d. both income retained by the corporation and contributions by stockholders.

4. Share that has a fixed per-share amount printed on each stock certificate is called
a. stated value share.
b. fixed value share.
c. uniform value share.
d. par value share
5. Treasury shares are shares
a. held as an investment by the treasurer of the corporation.
b. held as an investment of the corporation.
c. issued and outstanding.
d. issued but not outstanding

6. An entry is not made on the

a. date of declaration.
b. date of record.
c. date of payment.
d. An entry is made on all of these dates.

7. Cash dividends are paid on the basis of the number of shares

a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares
8. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December
31, 2014, Houser distributed these shares of stock as a dividend to its stockholders. This
is an example of a
a. property dividend.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.

9. Which dividends do not reduce stockholders' equity?

a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends

10. The rate of return on common stock equity is calculated by dividing

a. net income less preferred dividends by average common stockholders’ equity.
b. net income by average common stockholders’ equity.
c. net income less preferred dividends by ending common stockholders’ equity.
d. net income by ending common stockholders’ equity
11. Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par
value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared
and paid a $10,000 dividend in 2014. In 2015, $48,000 of dividends are declared and paid.

What are the dividends received by the preferred stockholders in 2015?

a. $34,000
b. $24,000 4,000 x $50 x .06 = $12,000
c. $14,000 ($12,000 – $10,000) + $12,000 = $14,000.
d. $12,000

12. Layne Corporation had the following information in its financial statements for the years ended 2014 and
2015:
Cash dividends for the year 2015 $ 10,000
Net income for the year ended 2015 83,000
Market price of stock, 12/31/14 10 $1,980,000 ÷ 180,000 = $11.00
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,980,000
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000

What is the book value per share for Layne Corporation for the year ended 2015?
a. $11.00 b. $9.92
c. $9.94 d. $8.89
13. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2011 for $450,000. On December 15, 2014,
Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10
shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15,
2015. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $750,000. The
entry to record the declaration of the dividend would include a debit to Retained Earnings of

a. $0.
b. $300,000. $750,000 (fair value).
c. $450,000.
d. $750,000

14. Mann Co. has outstanding 80,000 shares of 8% preferred stock with a $10 par value and 150,000 shares of $3
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 $400,000 is distributed, the common stockholders will
receive:

a. $0.
b. $272,000. $400,000 – ($800,000 x 8% × 2) = $272,000
c. $336,000.
d. $400,000
15. At December 31, 2014 and 2015, Plank Corp. had outstanding 4,000 shares of $100 par value 8% cumulative
preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2014, dividends in arrears on
the preferred stock were $16,000. Cash dividends declared in 2015 totaled $60,000. What amounts were payable
on each class of stock?

Preferred Stock Common Stock

a. $32,000 $28,000 ($400,000 x .08) + $16,000 = $48,000
b. $44,000 $16,000 $60,000 – $48,000 = $12,000.
c. $48,000 $12,000
d. $60,000 $0