RETAINED EARNINGS

Problem 23-1 (AICPA Adapted)

East Company had sufficient retained in 2016 as a basis for dividend but was temporarily short
of cash.
The entity declared a dividend of P1,000,000 on April 1,2016, and issued promissory notes to
the shareholders in lieu of cash.
The notes, which were dated April 1,2016, had maturity date of March 31,2017 and a 10%
interest rate.
How should the scrip dividend and related interest be accounted for?
Debit retained earnings P1,100,000 on April 1,2016.
Debit retained earnings P1,100,000 on March 31,2017.
Debit retained earnings P1,000,000 on April 1,2016 and debit interest expense P100,000 on
March 31,2017.
Debit retained earnings P1,000,000 on April 1,2016 and debit interest expense P75,000 on
December 31,2016.

Problem 23-2(AICAPA Adapted)

Cyan Company issued 200,000 share of P5 per value at P10 per share. On January 1,2016, the
retained earnings amounted to P3,000,000.
In March 2016, 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.
What is the total amount of retained earnings at year end?
4,400,000
2,200,000
3,600,000
3,400,000
What amount should be reported as unappropriated retained earnings at year end?
3,600,000
3,650,000
3,750,000
2,800,000
Problem 23-3 (IAA)
Lauretta Company reported the following shareholsder’s equity on January 1, 2016:
Share capital 1,500,000
Share premium 3,000,000
Retained earnings 2,000,000
The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were issued
and outstanding.
On March 1,2016; 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.
On December 31,2016, 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
2016 was P2,500,000.
What should be reported as unappropriated retained earnings on December 31,2016?
3,500,000
3,250,000
3,350,000
3,000,000

Problem 23-4 (IFRS)

Global Company, a real estate developer, is owners by five founding shareholders.
On December 1,2016, the entity declared a property dividend of a ‘‘one-bedroom flat’’ for each
shareholder. The property dividend is payable on January 31,2017.
On December 1,2016, 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 31,2016 and P1,900,000 on January
31,2017.
What is the dividend payable on December 31,2016?
5,000,000
7,500,000
9,000,000
0
What is the dividend payable on December 31,2016?
5,000,000
7,500,000
9,000,000
0
What amount of gain is included in profit or loss as a result on the settlement of the property
dividend on January 31,2017?
a.2,500,000
b. 4,000,000
c. 2,000,000
d. 4,500,000

Problem 23-5 (IFRS)

On November 1,2016, Grande Company declared a property dividend of equipment payable on
March 1,2017.
The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on
November 1,2016.
However, the fair value less cost to distribute the equipment is P2,200,000 on December
31,2016 and P2,000,000 on March 1,2017.
What is the dividend payable on December 31,2016?
2,500,000
2,200,000
3,000,000
0
What is the measurement of the equipment on December 31,2016?
2,500,000
2,200,000
3,000,000
2,000,000
What amount of loss on distribution of property dividend is recognized on March 1,2017?
300,000
200,000
500,000
0

Problem 23-6(IFRS)
On January 1, 2016, Easy Company had ordinary and preference shares outstanding. The
incorporators or original share holders own ten ordinary shares but no preference share.
On December 31, 2016, 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, 2017.
The entity estimated that 80% of t he ordinary shareholders will take the option of the cash
dividend and 20% will elect for the noncash asset.
What is the dividend payable that should be recognized on December 30, 2016
5,500,000
5,200,000
4,000,000
6,000,000
What is the gain on distribution of property dividend in 2017 if the shareholders elected to
receive the noncash asset?
2,000,000
2,500,000
1,500,000
1,800,000
What is included in the journal entry on December 31, 2017 if the shareholders elected to
receive the cash?
Debit dividend payable P5,200,000
Credit cash P5,000,000
Credit retained earnings P200,000
All of these are included in the journal entry
Problem 23-7 (AICPA Adapted)
At the beginning of the current year, Sol Company declared a 10% stock dividend . The market
price of the entity’s 30,000 outstanding shares P20 par value was P90 per share on that date.
The stock dividend was distributed on July 1, when the market price was P100 per share.
What amount should be credited to share premium for the stock dividend?
210,000
240,000
270,000
300,000
Problem 23-8(AICPA Adapted)
At the current year-end, Grey Company issued 4,000 ordinary shares of P100 per value in
connection with a stock dividend. The market value per share on the date of declaration was
P150
The shareholders’ equity accounts immediately before issuance of the stock dividend shares
were as follows:
Ordinary share capital P100 per, 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 stock dividend?
1,100,000
1,500,000
2,100,000
900,000
Problem 23-9(AICPA Adapted)
Ray Company declared a 5% stock dividend on 100,000 issued and outstanding shares of P20
per value, which had fair value of P50 per share before the stock dividend was declared. This
stock dividend was distributed 60 days after the declaration date.
What is the increase in current liabilities as a result of the stock dividend declaration?
250,000
100,000
150,000
0

Problem 23-11 (IAA)

At the beginning of the current year, Flash Company had retained earnings of P4,000,000.
During the year, 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 small share
dividend of 60,000 shares with P10 per value when the fair value of the share was P20.
What is the amount of retained earnings available for dividends at the end of the current year?
3,600,000
4,200,000
4,320,000
4,920,000
Problem 26-12 (AICPA Adopted)
The directors of Ontario Company whose P50 par value share capital is currently selling at P60
per share have decided to issue a stock dividend. The selling price is not expected to be affected
by the stock dividend. The entity, which has an authorization for 1,000,000 shares, had issued
500,000 shares, of which 100,000 share are now held as treasury.
In order to capitalize P2,400,000 of retained earnings, what percentage should be declared as a
stock dividend by the directors?
10%
8%
6%
4%
Problem 23-13 (IAA)
Katrina Company provided the following information on January 1,2016:
Share capital, 250,000 shares authorizes;
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 1,2016 when the market value of the share
was P70.
The share dividend was issued on July 1,2016 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 2016.
6,100,000
6,500,000
6,800,000
5,050,000

Problem 23-14 (IAA)

Kiara Compay provided the following data:
12/31/2016 12/31/2017
Share capital (P100 par value) 5,000,000 5,100,000
Share premium 2,500,000 2,900,000
Retained earnings 5,000,000 ?
During 2017, the entity declared and paid cash dividend of P750,000 and also declared and
issued a share dividend.
There were no other changes in share issued and outstanding during 2017.
The net income for 2017 was P1,500,000.
What is the balance of retained earnings on December 31,2017?
5,250,000
5,750,000
5,650,000
6,500,000
Problem 23-15 (ACP)
Zoe Company reported the following shareholder’s equity at the current year-end:
Share capital, par P, authorized 150,000 shares, 55,000 share 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 P40.
What amount of retained earnings should be capitalized?
1,250,000
1,800,000
1,275,000
1,125,000

Problem 23-16 (ACP)

Multiple Company reported the following balances at year end:
Share capital authorized, P100 par 5,000,000
Share capital unissued 2,000,000
Subscribed share capital 1,000,000
Treasury shares, 5,000 at cost 600,000
Share premium 500,000
Retained earnings 1,500,000
At this time, the board of directors declared and issued a dividend from the treasury shares of
one share for each ten shares held. The market value of the share is P150.
480,000
525,000
350,000
420,000

Problem 23-17 (AICPA Adapted)

On December 31,2016, Blake Mining Company declared a cash dividend of P800,000 to
shareholder’s of record on January 15,2017 and payable on February 15,2017.
The entity reported the following information on December 31,2016:
Accumulated depletion 200,000
Share capital 1,000,000
Share premium 300,000
Retained earnings 600,000
How much is the liquidating dividend?
600,000
300,000
200,000
50,000

Problem 23-18 (PHILCPA Adapted)

Cerritors Company began operations on January,. During the first three years of operations, the
entity reported net income and declared dividend follows:

Net income Dividend declared

2013 800,000 0
2014 2,500,000 1,000,000
2015 3,000,000 1,000,000
The entity provided the following information for 2016:
Income before income tax 4,800,000
Prior period error- understatement
Of 2014 depreciation before tax 400,000
Cumulative decrease in income from change
In inventory method before tax 700,000
Dividend declared (of this amount P500,000
Will be paid on January 15, 2017) 2,000,000
Income tax rate 30%
What amount should be reported as retained earnings on December 30, 2016?
4,890,000
4,300,000
6,000,000
5,390,000

Problem 23-19 (IAA)

Nam Company reported the following shareholder’s equity on January 1,2016:
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

On January 1,2016, the entity sold 20,000 additional ordinary shares for P90 per share.
Late in 2016, it was learned that because of mathematical error, an overstatement of
depreciation expense by P500,000 had occupied in 2015.
The entity reported net income of P4,000,000 for 2016.
The entity declared cash dividend of P1,000,000 on preference shares and P2,000,000 on
ordinary shares during 2016.
The income tax rate is 30%.
What is the balance of retained earnings on December 31,2016?
5,850,000
6,000,000
5,150,000
5,000,000

Problem 23-20 (PHILCPA Adapted)

Albay Company had the following shareholder’s equity on January 1,2016:
Preference share capital, P100 par, 10% cumulative 2,000,000
Ordinary share capital, no par, P5 stated value 5,150,000
Share premium 3,500,000
Retained earnings 4,000,000
Treasury ordinary shares 400,000
On January 15,2016, the entity formality retired all the 30,000 treasury shares.
The treasury shares were acquired in January 2015. The shares were originally issued at P10
per share.
The entity owned 10,000 shares of Digos Company purchased in 2015 for P800,000. The Digos
share were included in noncurrent equity securities.
On December 31,2016, the entity declared a dividend in kind of one share of Digos for every
hundred ordinary shares held by a shareholders.
The fair value of the Digos share is P90 on December 31,2016. The dividend in kind was
distributed on March 15,2017 when the fair value of Digos share is P95.
On December 31,2016 the entity declared the yearly cash dividend on preference share,
payable on January 15,2016.
On January 15,2017, before the accounting records were closed for 2016, the entity became
aware that rent income for the year ended December 31,2015 was overstated by P1,000,000.
The after tax effect on 2015 net income was P700,000.
After correcting the rent income, net income for 2016 was P3,000,000.

What amount should be charged to retained earnings for the retirement of treasury shares on
January 15,2016?
100,000
400,000
250,000
0

What amount should be charged to retained earnings for the property dividend on ordinary
share on December 31,2016?
950,000
900,000
800,000
400,000

What amount should be charged to retained earnings for the preference dividend declared on
December 31,2016?
100,000
150,000
200,000
300,000
What amount should be reported as retained earnings on December 31,2016?
5,000,000
5,200,000
5,100,000
4,800,000