Book Value And Preference Dividends Problems.doc

BOOK VALUE AND PREFERENCE DIVIDENDS Problem 27-1 Tarr Company reported the following shareholders’ equity on December 31, 2015 : Preference Share capital - 12%, 50 par, 20,000 shares Ordinary Share capital, P25 par, 100,000 shares Share Premium Retained Earnings Retained Earnings appropriated Revaluation Surplus

1,000,000 2,500,000 200,000 400,000 100,000 300,000

Dividends on preference share have not been paid since 2013. The preference share has a liquidating value of P55 and a call price of P58. What is the Book Value per preference share ? a. b. c. d.

61 56 55 58

Solution : Preference Share Liquidation Premium - excess of liquidating value over par (20,000 x 5) Preference Dividend for current year (1,000,000 x 12%) Total Preference shareholder’s equity Book Value per preference share (1,220,000/20)

1,000,000 100,000 120,000 1,220,000 61

Problem 27-2 Hoyt Company rwported the following shareholders equity at year end : 5% cumulative preference share capital, par value P100 per share: 25,000 shares issued and outstanding Ordinary Share Capital , par value P35 per share 100,000 shares issued outstanding Share Premium Retained Earnings

2,500,000 3,500,000 1,250,000 3,000,000

Dividends in arrears on the preference share amounted to P250,000 . If the entity were to be liquidate, the preference shareholders would receive par value plus a premium of P500,000. What is the book value per ordinary share ?

a. b. c. d.

77.50 75.00 72.50 70.00

Solution : Total shareholder’s equity Preference Shareholder’s Equity Preference share capital Preference dividends in arrears Liquidation premium Ordinary Shareholder’s equity Divide by ordinary shares outstanding Book Value per ordinary share

10,250,000 2,500,000 250,000 500,000

3,250,000 7,000,000 100,000

70.00

Problem 27-3 Dix Company reported the following shareholder’s equity on December 31, 2015 : 8% cumulative preference share capital, P50 par, Liquidating value P55 per share ; Authorized, isuued and outsanding 20,00o shares Ordinary share capital, P25 par; 200,000 share authorized; 100,000 shares issued and outstanding Retained Earnings

1,000,000 2,500,000 400,000

Dividends on preference share have been paid though 2013 but have not declared for 2014 and 2015. On December 31, 2015, what is the book value per ordinary share? a. b. c. d.

25.00 27.20 26.40 29.00

Solution : Total equity Preference shareholders equity : Preference share capital Liquidating premium (20,000 x 5) Preference dividend in arrears

3,900,000 1,000,000 100,000

(1,000,000 x 8% x 2)

160,000

1,260,000 2,640,000 100,000 26.40

Problem 27-4 Boe Company reported the following shareholders’ equity on December 31, 2015 : 6% non cumulative preference share capital, P100, par Liquidation value of P105 per share Ordinary Share capital, P100 par Retained Earnings

1,000,000 950,000

Preference dividends have paid up to December 31,2015 what is the book value per ordinary share ? a. b. c. d.

131.70 130.00 129.70 128.00

Solution: Total shareholder’s Equity Preference shareholders’ equity : Preference Share Capital Liquidation Premium (10,000x50) Ordinary Shareholder’s equity Divide by ordinary shares Book value per ordinary share

4,950,000 1,000,000 50,000 1,050,000 3,090,000 30,000 130

Problem 27-5 Nike Company paid cash dividends of P600,000 and reported net income of P1,550,000. The ordinary share holders equity at year ended was P5,000,000. The ordinary shares outstanding. What is the book value per ordinary share ? a. b. c. d.

25.00 22.00 3.00 7.75

Solution : Book value per ordinary share (5,000,000/200,000 shares)

25

Problem 27-6 Lawin Company provided the following information for 2014 and 2015: Ordinary shareholders equity, December 31, 2014 Ordinary shareholders equity, December 31, 2015 Outstanding Ordinary Share, December 31, 2015 Preference Dividends paid for 2015

4,400,000 5,000,000 160,000 100,000

What is the book value per ordinary share for 2015 ? a. b. c. d.

27.50 31.25 30.62 26.88

Solution : Book value per ordinary share (5,000,000/160,000)

31.25

Problem 27-7 On December 31, 2015 and 2016, Can Company had outstanding 40,000 6 % cumulative preference shares of P100 par value and 200,000 ordinary shares of P10 par value. On December 31, 2015 preference dividends in arrears amounted to P120,00. Cash dividends declared in 2016 totaled P440,000. What amount should be reported as dividend payable to preference and ordinary shares, respectively in 2016 ? a. b. c. d.

440,000 and 0 360,000 and 80,000 320,000 and 120,000 240,000 and 200,000

Solution : Total dividend declared Preference Dividends In arrears on December 31, 2015 2016 dividend (6% x 4,000,000) Balance to ordinary share

440,000 120,000 240,000

360,000 80,000

Problem 27-8 Marie company had outstanding 50,000 8% preference share with 100 par value and 125,000 P30par value ordinary shares. Dividends have been paid every year except last

year and the current year. The preference shares are cumulative and non-participating. The entity distributed P2,500,000 as dividend in the current year . What is the dividend payable to the ordinary shareholders? a. 2,100,000 b. 1,700,000 c. 2,500,000 d. 0 Solution : Total dividends distributed in the current year Preference dividend (8% x 5,000,000 x 2)

2,500,000 (800,000) 1,700,000

Problem 27-9 Lawin Company provided the following information for 2014 and 2015: Ordinary shareholders equity, December 31, 2014 Ordinary shareholders equity, December 31, 2015 Outstanding Ordinary Share, December 31, 2015 Preference Dividends paid for 2015

4,400,000 5,000,000 160,000 100,000

What is the book value per ordinary share for 2015 ? a. b. c. d.

27.50 31.25 30.62 26.88

Solution : Book value per ordinary share (5,000,000/160,000)

31.25

Problem 27-10 Wendy Company had outstanding 300,000 ordinary shares of P20 par and 60,000 preference shares no-par 8 % with a stated value of P50. The preference shares are cumulative and nonparticipating. Dividends have been paid in every except the past two years and the current year. The entity paid dividend of P500,000 in the current year. What is the dividend payable to the preference shareholders in the current year ? a. b.

500,000 480,000

c. d.

240,000 720,000

Solution : The dividend of 500,000 is paid to preference only because the total preference dividends amount to 8% x P3,000,000 or P720,000 Problem 27-11 Segunda Company reported the following shareholders equity at year end : 5% cumulative preference share capital, par value P100 per share: 25,000 shares issued and outstanding Ordinary Share Capital , par value P35 per share 100,000 shares issued outstanding Share Premium Retained Earnings

2,500,000 3,500,000 1,250,000 3,000,000

Dividends in arrears on the preference share amounted to P250,000 . If the entity were to be liquidate, the preference shareholders would receive par value plus a premium of P500,000. What is the book value per ordinary share ? a. 77.50 b. 75.00 c. 72.50 d. 70.00 Solution : Total shareholder’s equity Preference Shareholder’s Equity Preference share capital Preference dividends in arrears Liquidation premium Ordinary Shareholder’s equity Divide by ordinary shares outstanding Book Value per ordinary share

10,250,000 2,500,000 250,000 500,000

3,250,000 7,000,000 100,000

70.00

Problem 27-12 On December 31,2014 and 2015, Apex Company had 30,000 P100 par value 5% cumulative preference shares outstanding. No dividends were in arrears on December 31, 2015, the entity did not declare a dividend of P100,000 on the preference shares.

How is the preference dividend in arrears reported in 2015? a. b. c. d.

Accrued liability of P150,000 Disclosure of P150,000 Accrued liability of P200,000 Disclosure of P200,000

Solution : Preference share capital (30,000 x 100) Preference dividend in 2014(3,000,000 x 5%) Preference dividend in 2015 Total preference dividend Less: Preference dividend in 2015 Preference Dividends in arrears-December 31, 2015

3,000,000 150,000 150,000 300,000 100,000 200,000

Problem 27-13 The directors of Lora Company wish to declare a dividend whereby ordinary shareholders are to receive a total per share dividend of P4. The shareholders’ equity at year-end appears as follows : Preference share capital, P100 par, 7% participating up To 10%, non-cumulative, 100,000 shares authorized, 25,000 shares issued Ordinary Share Capital, P25 par, 250,000 shares Authorized and Issued Share Premium Retained Earnings

2,500,000 6,250,000 1,250,000 5,000,000

What is the total amount of the dividend that must be declared to meet the per share goal of the board of directors ? a. b. c. d.

1,175,000 1,700,000 1,000,000 1,250,000

Solution : Ordinary dividend (250,000 x 4) Preference dividend (2,500,000 x 10%) Total Dividend

1,000,000 250,000 1,250,000

Problem 27-14 Bonanza Company provided the following shareholders equity on December 2015 Preference share capital, P100 par, 80 shares issued, 12% cumulative and fully participating Ordinary share capital, P50 par, 200,000 shares issued Share Premium Retained Earnings

8,000,000 10,000,000 5,000,000 7,000,000

Dividends on the preference shares are in arrearsfor two years including the current year. On December 31, 2015 the entity intends to pay cash dividend of P10 per share to the ordinary shareholders What is the total amount of dividends to be declared for the preference and ordinary shares ? a. b. c. d.

4,560,000 3,920,000 3,600,000 5,520,000

Solution : Ordinary dividend(200,000 x 10) Preference Dividends 2014(12% x 8,000,000) 2015(20 % x 8,000,000)

2,000,000 1,600,000

960,000 2,560,000 4,560,000

Problem 27-15 Yodel company had 50,000 ordinary shares of P100 par value and 25,000 preference shares of P100 par value, 6% cumulative and participating. Dividends on the preference shares are two years in arrears including the current year. The entity distributed P1,350,000 as dividends in the current year. What is the dividend payable to the ordinary shareholders? a. b. c. d.

1,050,000 1,200,000 800,000 550,000

Solution :

Dividends Amount 6% x 2,500,00 x 2 6% x 5,000,000 Balance prorata

1,350,000 (300,000) (300,000) 750,000

Preference

Ordinary

300,000 300,000 250,000 500,000 550,000 800,000

Basic Earnings Per Share Problem 28-1 On December 31, 2015 and 2014, Gow Company had 100,000 ordinary shares and 10,000 cumulative preference shares of 5%, P100 par value. No dividends were declared on either the preference or ordinary shares in 2015 or 2014. Net income for the current year was P900,000. What is the amount reported as basic earnings per share? a. b. c. d.

8.50 9.50 9.00 5.00

Solution : Preference Share Capital (10,000 x P100)

1,000,000

Net income Preference dividend(1,000,000 x P15%)

900,000 (50,000)

Net Income to ordinary Shares

850,000

Basic Earnings per share (850,000/100,000 ordinary shares)

8.50

Problem 28-2 Madden Company had 500,000 ordinary shares issued and outstanding on December 31, 2014. During 2015, no additional ordinary shares were issued. On January 1, 2015, the entity issued 400,000 non cumulative and non convertible preference share shares. During 2015, the entity declared and paid P200,000 cash dividends on the ordinary share and P110,000 annual dividend on the preference share. Net Income for 2015 was 750,000.

What is the amount should be reported as basic earnings per share ? a. b. c. d.

1.88 1.60 1.28 1.50

Solution : Net Income Preference Dividends Net Income to ordinary shares Basic earnings per share (640,000/500,000)

750,000 (110,000) 640,000 1.28

Problem 28-3 Martinez Company had 500,000 ordinary shares and 70,000 cumulative preference shares of 10%, P100 par value. No dividends were declared on either the preference or ordinary shares in 2015 or 2014. Net income for the current year was P800,000 What is the amount reported as basic earnings per share? a. b. c. d.

5.00 1.65 1.25 5.25

Solution : Preference Share Capital (70,000 x P100)

7,000,000

Net income Preference dividend(1,000,000 x P15%)

800,000 (50,000)

Net Income to ordinary Shares

750,000

Basic Earnings per share (750,000/500,000 ordinary shares)

1.25

Problem 28-4 Royal Company reported the following capital structure on January 1, 2015 : Ordinary Share Capital Preference Share Capital

Shares issued and outstanding 200,000 50,000

On October 1, 2015, the entity issued a 10% stock dividend on ordinary shares, and paid the annual cash dividend of P200,000 on preference shares. The preference shares are non cumulative, non participating and non convertible. Net income for the year ended December 31, 2014 was P1,920,000. What is the amount should be reported as basic earnings per share ? a. b. c. d.

8.20 8.72 9.36 7.82

Solution : Ordinary Shares-January 1, 2015 Stock Dividends on October 1, 2015 Total ordinary shares outstanding Net income Preference Dividends Basic EPS (1,720,000/220,000)

200,000 20,000 220,000 1,920,000 (200,000) 1,720,000 7.82

Problem 28-5 Ute Company had the following capital structure during 2014 and 2015: Preference share capital, P10 par, 4 % cumulative, 25,000 shares issued and outstanding Ordinary Share capital, P5 par, 200,000 shares Issued and outstanding

250,000 1,000,000

The entity reported net income of P500,000 for the year ended December 31, 2015. The entity paid no preference dividends during 2014 and paid P16,000 in preference dividends during 2015. What amount should be reported as basic earnings per share?

a. b. c. d.

2.42 2.45 2.48 2.50

Solution: Net Income Preference dividend for one year(250,000 x 4%) Net Income to ordinary shares Basic Earnings Per Share (490,000/200,000)

500,000 (10,000) 490,000 2.45

Problem 28-6 Canyon Company reported in the financial statements for the year ended December 31, 2015 basic earnings per share of P85. On July 1, 2016 the entity made a 3 for 1 bonus issue. What amount of earnings per share for 2015 should be reported as comparative information in the financial statement for 2016 ? a. b. c. d.

21.25 37.50 34.00 28.30

Solution : Basic Earnings per share – 2015 (85/4)

21.25

Problem 28-7 Smart Company reported profit before tax of P5,800,000 and income tax expense of P1,500,000 for the current year. In addition, the entity paid during the year an ordinary dividends of P400,000 and preference dividends of P500,000 on the redeemable preferences share. The entity had P1,000,000 of P5 par value ordinary share in issue. What amount should be reported as basic earnings per share for the year ? a. b. c. d.

21.50 19.00 8.60 7.60

Solution :

Ordinary Share Outstanding (1,000,000/5) Basic Earnings per share (4,300,000/200,000)

200,000 21.50

Problem 28-8 During the current year, Globe Company had the following two classes of share capital issued and outstanding for the entire year : Ordinary share capital, 200,00 shares, P10 par Preference Share capital, 2,000 shares, P1000 par, 12% convertible share for share into ordinary share

2,000,000 200,000

The net income for the current year was P1,800,000 and the net income tax rate was 30 % In the computation of basic earnings per share, what is the amount to be used as earnings ? a. 1,824,000 b. 1,776,000 c. 1,224,000 d. 1,800,000 There was no SOLUTION Problem 28-9 During the current year, Innova Company had outstanding 200,000 ordinary shares and 20,000 cumulative preference shares with a P10 per share dividend. Each preference share is convertible into five ordinary shares. The entity had a P3,000,000 net loss for the year. No dividends were paid or declared. What amount should be reported as basic loss per share? a. b. c. d.

15.00 16.00 10.00 10.67

Solution : Net Loss Preference Dividends (20,000 x 10 )

3,000,000 200,000

Total loss to ordinary shares

3,200,000

Basic loss per share (3,200,000/200,000)

16.00

Problem 28-10 United company reported the following data at year end : 8% cumulative preference share capital, P50 par value Ordinary share capital, P1 par, 10,000,000 shares Share premium Retained Earnings Net income for the current year, including an expropriation loss of P8,000,000

4,500,000 10,000,000 20,500,000 132,000,000 35,000,000

What amount should be reported as basic earnings per share ? a. b. c. d.

3.46 4.04 4.63 4.67

Solution : Net Loss Preference Dividends (4,500,000 x 8% ) Total loss to ordinary shares Basic loss per share (34,640,000/10,000,000)

35,000,000 (360,000) 34,640,000 3.46

Problem 28-11 On January, Pink Company had 200,000 ordinary shares and 100,00 4 % P100 par value cumulative preference shares outstanding. No dividends were declared on either the preference or ordinary shares in 2014 and 2015. On February 10, 2016, prior to the issuance of the financial statements for the year ended December 31, 2015, the entity declared a 100% share split on ordinary shares. Net income for 2015 was P7,500,000. What is amount should be reported as basic earnings per share ? a. b. c. d.

35.50 37.50 17.75 18.75

Solution :

Net Loss Preference Dividends (4% x 10,000,000

7,500,000 (400,000)

Net income to ordinary shares Divide by ordinary shares (200,000 + 200,000) Basic EPS

7,100,000 400,000 17.75

Problem 28-12 The income statement of laguna Company for the current year showed net income of P15,000,000. The net income for reflects an income tax rate of 30%. The net income included a casually loss of P5,000,000 before income tax. The entity reported the following shareholders equity at year ended : Prefrence share capital 10% cumulative, P50 Par value, 100,000 shares Ordinary share capital, P100 par value Share premium Retained earnings Treasury ordinary shares, 50,000 at cost

5,000,000 30,000,000 10,000,000 18,000,000 4,000,000

What amount should be reported as basic earnings per share ? a. b. c. d.

58.00 60.00 73.60 48.33

Solution : B EPS (!4,500,000/250,000)

58.00

Problem 28-13 On January 1, 2015, Sabina Company had ordinary share capital outstanding of P100 par value, 200,000 shares or a total par value of P20,000,000. On July 1, 2015, a bonus issue was made in the ratio of one additional ordinary share for each original share. The net income for the current year was P12,000,000. What amount should be reported as B EPS ? a. 30 b. 40

c. 20 d. 60 Solution : Ordinary Shares Bonus Issue Total ordinary shares

200,000 200,000 400,000

Basic EPS (12,000,000/400,000)

30

Problem 28-14 On January 1, 2015, Holloween Company had ordinary share capital outstanding of P100 par value, 600,000 shares or a total par value of P20,000,000. On July 1, 2015, a bonus issue was made in the ratio of one additional ordinary share for each original share. The net income for the current year was P48,000,000. What amount should be reported as B EPS ? a. b. c. d.

30 40 20 60

Solution : Ordinary Shares Bonus Issue Total ordinary shares

600,000 200,000 800,000

Basic EPS (48,000,000/800,000)

60

Problem 28-15 Lloizza Company had the following capital structure during 2014 and 2015: Preference share capital, P10 par, 4 % cumulative, 25,000 shares issued and outstanding Ordinary Share capital, P5 par, 200,000 shares Issued and outstanding

250,000 1,000,000

The entity reported net income of P500,000 for the year ended December 31, 2015. The entity paid no preference dividends during 2014 and paid P16,000 in preference dividends during 2015.

What amount should be reported as basic earnings per share? a. 2.42 b. 2.45 c. 2.48 d. 2.50 Solution: Net Income Preference dividend for one year(250,000 x 4%) Net Income to ordinary shares Basic Earnings Per Share (490,000/200,000)

500,000 (10,000) 490,000 2.45