Quiz NUMBER TO 02-retained-earnings PDF

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Module 02: Retained Earnings 1) On July 1, 2021, Battery board of directors declared a share dividend. The market price of outstanding ordinary shares, P50 par value, was P80 per share on the date of declaration. The share dividend was distributed on September 1, 2021, when the market price of the s...

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Module 02: Retained Earnings 1) On July 1, 2021, Battery Company’s board of directors declared a 10% share dividend. The market price of Batter’s 400,000 outstanding ordinary shares, P50 par value, was P80 per share on the date of declaration. The share dividend was distributed on September 1, 2021, when the market price of the share was P100 per share. What amount should be charged to the Retained Earnings account as a result of the share dividend? A. -0-

B. 2,000,000

C. 3,200,000

D. 4,000,000

ANSWER: C

Dividend = (Outstanding ordinary shares x price upon declaration) x 10% share dividend = (400,000 shares x P80) x 10% = P32,000,000 x 10% = P3,200,000

2) Harmony Corporation declared share dividends of 1 share for every 5 shares owned on its 200,000 issued and outstanding shares with a par value of P50 per share. At the time of declaration, the market value of ordinary shares was P80 per share and P100 per share at the time the shares were issued. What amount should be charged to Retained Earnings account and credit liability accounts, respectively? A. 2,000,000 and -0-

C. 3,200,000 and -0-

B. 2,500,000 and 2,500,000

D. 4,000,000 and 4,000,000

ANSWER: C Share dividend = (outstanding shares / 5 shares) x price upon declaration = (200,000 shares / 5 shares) x P80 = 40,000 shares x P50 = P2,000,000 Retained Earnings will be charged by 2,000,000 as dividends, and the Outstanding shares will increase by 2,000,000. No credit liability account because the dividends declared were share dividends. A share dividend is a dividend payment to shareholders that is made in shares rather than as cash. The share dividend has the advantage of rewarding shareholders without reducing the company's cash balance, although it can dilute earnings per share.

3) The following share dividends were declared and distributed by Party Company: Percentage of ordinary shares outstanding

Market value

Par value

10%

225,000

150,000

25%

600,000

450,000

How much should be debited to Retained Earnings at the time of declaration? A. 600,000

B. 675,000

C. 750,000

D. 825,000

ANSWER: D

Dividend = Share dividends declared at market value = P225,000 + P450,000 = P675,000 4) On May 31, 2022, Internal Company declared a 10% share dividend. The market price of the 30,000 outstanding shares of P20 par value was P90 per share on that date. The share dividend was distributed on July 31, 2022, when the share market price of P100. What amount should be credited to share premium for the share dividend? A. 210,000

B. 240,000

C. 270,000

D. 300,000

ANSWER: C Share dividend = (outstanding shares x market price on declaration) x 10% = (30,000 shares x P90) x 10% = P2,700,000 x 10% = P270,000 Share Capital = 30,000 x 20 = 60,000 Dr. Retained Earnings

270,000

Cr. Share Capital

60,000

Cr. Share Premium

210,000

5) Millionaire Company provided the following information: Preference share capital, P500 par value, 2,200 shares

1,100,000

Treasury preference shares, 100 share at cost

110,000

Ordinary shares capital, no par, 3,000 shares at issue price

600,000

Retained earnings

2,500,000

The board of directors resolved to pay a 100% share dividend on all shares outstanding capitalizing amounts of retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding, respectively. Subsequently, the board of directors resolved to pay a cash dividend of 10% on preference share and a cash dividend of P10 per ordinary share. What is the shareholders’ equity after effecting the dividend transactions? A. 4,090,000 ANSWER: C

B. 3,810,000

C. 3,820,000

D. 3,955,000

Shareholders’ equity before dividend

4,090,000

Cash dividend P.S. (2,100 x 200% x 500 x 10%)

(210,000)

Cash dividend O.S. (3,000 x 200% x P10)

(60,000)

Shareholders’ equity after dividend

3,820,000

6) Chain Company provide the following information: • Dividends on 10,000 cumulative preference shares of 6% P100 par value have not been declared or paid for 3 years. • Treasury shares were acquired at a cost of P1,500,000. The treasury shares had not been reissued as of yearend. What amount of retained earnings should be appropriated? A. 1,500,000

B. 1,680,000

C. 180,000

D. 0

ANSWER: A Cost of treasury shares not reissued

1,500,000

7. Rover Company sustained heavy losses over a period of time and conditions warrant that the entity should undergo a quasi-reorganization on December 31, 2022. • Inventory with cost of P6,500,000 was recorded on December 31, 2022 at the market value of P6,000,000. • Property, plant and equipment were recorded on December 31, 2022 at P12,000,000, net of accumulated depreciation. The sound value was P8,000,000. • On December 31, 2022, the share capital is P7,000,000 consisting of 700,000 shares with par value of P10, the share premium is P1,600,000, and the deficit in retained earnings is P900,000. • The par value of the share is to be reduced from P10 to P5.

Immediately after the quasi-reorganization, what is the shareholders’ equity? A. 3,300,000

B. 3,500,000

C. 3,700,000

D. 4,200,000

ANSWER: Quasi- Reorganization Before Quasi Recapitalization Re measurements Re measurements Elimination Balance After QR

Computation of adjustment

Share Capital 7,000,000 (3,500,000)

3,500,000

Share Premium 1,600,000 3,500,000

(4,400,000) 700,000

Retained Earnings (900,000) 500,000 (4,000,000) 4,400,000 -0-

Property, Plant and Equipment, Before 12,000,000 Property, Plant and Equipment, After 8,000,000 Adjustment 4,000,000 Inventory Cost Market Value Gain

6,500,000 6,000,000 500,000

Share Capital + Share Premium = SHE 3,500,000 + 700,000 = 4,200,000 Use the following information for the next three (3) questions: On November 1, 2020, Jessie Company declared a property dividend of equipment payable on March 1, 2021. The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1, 2020. However, the fair value less cost to distribute the equipment is P2,200,000 on December 31, 2020 and P2,000,000 on March 1, 2021. 8) What is the dividend payable on December 31, 2020? A. 2,500,000

B. 2,200,000

C. 3,000,000

D. 0

9) What is the measurement of the equipment on December 31, 2020? A. 2,500,000

B. 2,200,000

C. 3,000,000

D. 2,200,000

10) What is the amount of loss recognized in profit or loss on March 1, 2021? A. 300,000

B. 200,000

C. 500,000

D. 0

8-10 ANSWER: A B B

11/1/20- To recognize the dividends payable on the date of declaration. Retained earnings Dividends payable (at fair value) 12/31/20- To recognize the decrease in dividends payable. Dividends payable (2,200,000-2,500,000) Retained earnings

2,500,000 2,500,000

300,000 300,000

12/31/20- To measure the equipment at the lower of carrying amount and fair value less cost to distribute. Impairment loss (3,000,000-2,200,000) 800,000 Equipment 800,000 Carrying amount 3,000,000 Fair value less cost to distribute 2,200,000 Impairment loss 800,000 3/1/21- To record the decrease in dividends payable on the date of settlement. Dividends payable (2,000,000-2,200,000) 200,000 Retained earnings 200,000

3/1/21- To record the settlement of the dividend payable. Dividend payable (2,500,000-300,000-200,000) Loss on distribution of property dividend (2,000,000-2,200,000) Equipment (new carrying amount)

2,000,000 200,000 2,200,000...