INTER. ACCT. (RETAINED EARN. - PROBLEMS)

Question 1

A Company issued 200,000 shares of P5 par value at P10 per share. At the beginning of current year, the retained earnings amounted to P3,000,000.

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

Net income for the current year was P600,000.

1. What total amount should be reported as retained earnings at year-end?
   a. 4,400,000
   b. 2 200,000
   c. 3,600,000
   d. 3,400,000
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. 2,800,000

Answer 1

1. c. 3,600,000
2. d. 2,800,000

Question 2

A Company had sufficient retained earnings in 2021 as a basis for dividends but was temporarily short of cash.

The entity declared a dividend of P1,000,000 on April 1, 2021, and issued promissory notes to the shareholders in lieu of cash.

The notes, which were dated April 1, 2021, had a maturity date of March 31,2022 and a 10% interest rate.

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

a. Debit retained earnings P1,100,000 on April 1, 2021.

b. Debit retained earnings P1,100,000 on March 31, 2022.

c. Debit retained earnings P1,000,000 on April 1, 2021 and debit interest expense P100,000 on March 31, 2022.

d. Debit retained earnings P1,000,000 on April 1, 2021 and debit interest expense P75,000 on December 31, 2021.

Answer 2

D. Debit retained earnings P1,000,000 on April 1, 2021 and debit interest expense P75,000 on December 31, 2021.

Question 3

At the beginning of current year, A Company reported the following shareholders’ equity:

Share capital P1,500,000
Share premium P3,000,000
Retained earnings P2,000,000

The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were issued and outstanding.

During the year, the entity acquired 50,000 shares for P10 per share to be held as treasury. The shares were originally issued at P8 per share. The entity used the cost method to account for treasury shares.

At year-end, the entity declared and distributed a property dividend of inventory.

The inventory had a P750,000 carrying amount and a P1,000,000 fair value. The net income for the current year was P2,500,000.

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

a. 3,500,000
b. 3,250,000
c. 3,350,000
d. 3,000,000

Answer 3

D. 3,000,000

Question 4

A Company, a real estate developer, is owned by five founding shareholders.

On December 1, 2021, the entity declared a property dividend of a “one-bedroom flat” for each shareholder. The property dividend is payable on January 31, 2022.

On December 1, 2021, the carrying amount of a one-bedroom flat is P1,000,000 and the fair value is P1,500,000.

However, the fair value is P1,800,000 on December 31, 2021 and P1,900,000 on January 31, 2022.

1. What amount should be reported as dividend payable on December 1,2021?
   a. 5,000,000
   b. 7,500,000
   c. 9,000,000
   d. 0
2. What amount should be reported as dividend payable on December 31,2021?
   a. 5,000,000
   b. 7,500,000
   c. 9,000,000
   d. 0
3. What amount of gain is included in profit or loss as a result of the settlement of the property dividend on January 31, 2022?
   a. 2,500,000
   b. 4,000,000
   c. 2,000,000
   d. 4,500 000

Answer 4

1. B. 7,500,000
2. C. 9,000,000
3. D. 4,500 000

Question 5

On November 1, 2021, Grande Company declared a property dividend of equipment payable on March 1, 2022.

The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1, 2021.

However, the fair value less cost to distribute the equipment is P2,200,000 on December 31, 2021 and P2,000,000 on March 1, 2022.

1. What amount should be reported as dividend payable on December 31, 2021?
   a. 2,500,000
   b. 2,200,000
   c. 3,000,000
   d. 0
2. What is the measurement of the equipment on December 31, 2021?
   a. 2,500,000
   b. 2,200,000
   c. 3,000,000
   d. 2,000,000
3. What amount of loss on distribution of property dividend is recognized on March 1, 2022?
   a. 300,000
   b. 200,000
   c. 500,000
   d. 0

Answer 5

1. B. 2,200,000
2. B. 2,200,000
3. B. 200,000

Question 6

On January 1, 2021, A Company had ordinary and preference shares outstanding. The incorporators or original shareholders own ten ordinary shares but no preference shares.

On December 31, 2021, the entity declared dividends on the ordinary shares. The entity decided to give the ordinary shareholders a choice between receiving a cash dividend of P500,000 per share or a property dividend in the form of a noncash asset.

The noncash asset is a standard model from the entity’s car fleet. Each car has a fair value of P600,000 and carrying amount of P450,000. The fair value of the car is P700,000 on December 31, 2022.

The entity estimated that 80% of the ordinary shareholders will take the option of the cash dividend and 20% will elect for the noncash asset.

1. What amount should be recognized as dividend payable on December 31,2021?
   a. 5,500,000
   b. 5,200,000
   c. 4,000,000
   d. 6,000,000
2. What amount should be reported as gain on distribution of property dividend in 2022 if the shareholders elected to receive the noncash asset?
   a. 2,000,000
   b. 2,500,000
   c. 1,500,000
   d. 1,800,000
3. What is included in the journal entry on December 31, 2022 if the shareholders elected to receive the cash?
   a. Debit dividend payable P5,200,000
   b. Credit cash P5,000,000
   c. Credit retained earnings P200,000
   d. All of these are included in the journal entry

Answer 6

1. B. 5,200,000
2. D. 1,800,000
3. D. All of these are included in the journal entry

Question 7

At the beginning of the current year, Sol Company declared a 10% share dividend. The market price of the entity’s 300,000 outstanding shares of P50 par value was P90 per share on that date.

The share dividend was distributed on July 1 when the market price was P100 per share.

What amount should be credited to share premium for the share dividend?

a. 1,200,000
b. 2,700,000
c. 1,500,000
d. 0

Answer 7

a. 1,200,000

Question 8

At the current year-end, Grey Company issued 4,000 ordinary shares of P100 par value in connection with a share dividend. The market value per share on the date of declaration was P150.

The shareholders’ equity accounts immediately before issuance of the share dividend were:

Ordinary share capital P100 par, 50,000 shares authorized, 20,000 shares outstanding - 2,000,000

Share premium - 3,000,000
Retained earnings - 1,500,000

What amount should be reported as retained earnings immediately after the share dividend?

a.1,100,000
b. 1,500,000
c. 2,100,000
d. 900,000

Answer 8

a.1,100,000

Question 9

Company declared a 5% share dividend on 100,000 issued and outstanding shares of P20 par value which had a fair value of P50 per share before the share dividend was declared. This share dividend was distributed 60 days after the declaration date

What amount should be reported as increase in current liabilities as a result of the share dividend declaration?

a. 250,000
b. 100,000
c. 150,000
d. 0

Answer 9

D. 0

Question 10

Solace Company declared and distributed 10% share dividend with fair value of P1,500,000 and par value of P1,000,000, and 25% share dividend with fair value of P4,000,000 and par value of P3,500,000.

What aggregate amount should be debited to retained earnings for the share dividends?

a. 4,500,000
b. 3,500,000
c. 5,000,000
d. 5,500,000

Answer 10

c. 5,000,000

Question 11

At the beginning of the current year, Flash Company had retained earnings of P4,000,000. Throughout the year, the entity has 600,000 shares of PIO par value issued and outstanding. During the year, the entity reported net income of P2,000,000, sold treasury shares at a “gain” of P720,000, declared a cash dividend of P1,200,000, and declared and issued a 10% share bonus issue when the fair value of the share was P20.

What amount of retained earnings should be reported at the end of the current year?

a. 3,600,000
b. 4,200,000
c. 4,320,000
d. 4,920,000

Answer 11

a 3,600,000

Question 12

The directors of Ontario Company whose P50 par value share capital is currently selling at P60 per share have decided to issue a share dividend. The selling price of the share is not expected to be affected by the share dividend. The entity, which has an authorization for 1,000,000 shares, had issued 500,000 shares, of which 100,000 shares are now held as treasury.

In order to capitalize P2,400,000 of retained earnings, what percentage should be declared as a share dividend by the directors?

a. 10%
b. 8%
C. 6%
d. 4%

Answer 12

a. 10%

Question 13

On January 1, 2021, Katrina Company provided the following information:

Share capital, 250,000 shares authorized; 100,000 shares issued and outstanding - 3,000,000

Share premium - 4,000,000
Retained earnings - 8,000,000

The entity declared a 10% share dividend on April 1, 2021 when the market value of the share was P70.

The share dividend was issued on July 1, 2021 when the market value of the share was P100. The share has a par value of P30.

The entity sustained a net loss of P1,200,000 for 2021.

What amount should be reported as retained earnings on December 31, 2021?

a. 6,100,000
b. 6,500,000
c. 6,800,000
d. 5,050,000

Answer 13

a 6,100,000

Question 14

Kiara Company provided the following data at year-end:

Share capital, P100 par value
2021: 5,100,000. 2022: 5,100,000

Share premium
2021: 2,500,000 2022: 2,900,000

Retained earnings
2021: 5,000,000 2022: ?

During 2022, the entity declared and paid cash dividend of P750,000 and also declared and issued a share dividend.

There were no other changes in shares issued and outstanding during 2022.

The net income for 2022 was P1,500,000.

What amount should be reported as retained earnings on December 31, 2022?

a. 5,250,000
b. 5,750,000
c. 5,650,000
d. 6,500,000

Answer 14

a. 5,250,000

Question 15

Company reported the following shareholders’ equity at year-end:

Share capital, par P25, authorized 150,000 shares, 55,000 shares issued of which 5,000 shares are in treasury - 1,375,000

Retained earnings - 2,000,000

Treasury shares, at cost - 150,000

A 100% share dividend was declared and all of the treasury shares were issued as share dividend and the balance from the unissued shares. The share has market value of P40.

What amount of retained earnings should be capitalized?

a. 1,250,000
b. 1,800,000
c. 1,275,000
d. 1,125,000

Answer 15

c. 1,275,000

Question 16

On December 31, 2021, Blake Mining Company declared a cash dividend of P800,000 to shareholders of record on January 15, 2022 and payable on February 15, 2022.

The entity reported the following information on December 31, 2021:

Accumulated depletion - 200,000
Share capital - 1,000,000
Share premium - 300,000
Retained earnings - 600,000

What amount should be recognized as liquidating dividend?

a. 600,000
b. 300,000
c. 200,000
d. 50,000

Answer 16

c. 200,000

Question 17

At the beginning of current year, Nam Company reported the following shareholders’ equity:

Preference share capital (P150 par value, 20,000 shares) - 3,000,000

Ordinary share capital (P50 par value, 100,000 shares) - 5,000,000

Share premium - 6,000,000

Retained earnings - 4,500,000

During the current year, the entity sold 20,000 additional ordinary shares for P90 per share.

Late in the current year, it was learned that because of mathematical error, an overstatement of depreciation expense by P500,000 had occurred in prior year.

The entity reported net income of P4,000,000 for current year.

The entity declared cash dividend of P1,000,000 on preference shares and P2,000,000 on ordinary shares at year-end.

The income tax rate is 30%.

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

a. 5,850,000
b. 6,000,000
c. 5,150,000
d. 5,000,000

Answer 17

a. 5,850,000