Retained earnings

Retained Earnings
Mrs. Paz Castro

Overview
 A 2-for-2 share split gives shareholders one
additional share of ordinary shares for each
share they own.
 Share dividends also give shareholders
additional shares based on the value of their
holdings, but have a different effect on the
shareholders’ equity section of the statement
of financial position.
 A cash dividend is a distribution of cash based
on the number of shares owned.

 Retained earnings represent the component of the
shareholders’ equity arising from the retention of
assets generated from the profit-directed activities of
the corporation.
 At the end of the accounting period, the Income
Summary account of a corporation is closed to the
Retained Earnings account.
 The Retained Earnings account is credited with the
corporation’s profit or debited with the loss.

 Distributions to shareholders of cash, property or
stocks from unrestricted retained earnings on the
basis of all issued and fully paid shares, and all
subscribed par value shares except treasury shares
are called dividends.
 Dividend declarations reduce retained earnings.
 Other less common situations that cause increases
and decreases in retained earnings: debits resulting
from reissuance of treasury stocks below cost and
loss on retirement of treasury stocks and debits or
credits for prior period errors.

 Prior period errors are errors discovered in
the current period that are of such significance
that the financial statements of one or more
prior periods can no longer be considered to
have been reliable at the date of their issue.
Credit entries increase the retained earnings
balance and debits decrease it.
 A debit balance in the Retained Earnings
account resulting from accumulated losses is
called a deficit.

 Retained earnings may be restricted or
appropriated, and unrestricted or
unappropriated.
 Unrestricted retained earnings are free and
can be declares as dividends.
 Retained earnings restrictions may be legal,
contractual or voluntary.

Dividends in General
 An owners’ equity account representing claim on all
assets in general and not on any asset in particular.
 Shareholders are not guaranteed dividends and
dividends do not become a liability of the company
until the board of directors has formally declared a
dividend distribution.
 Section 43 of the Corporation Code states that
dividends should only be declared out of the
unrestricted retained earnings.

 Dividends may take the form of cash, property or
additional shares of stock of the corporation.
 Any form of dividend declaration should be based on
the total subscription of a shareholder and not merely
on the shares already paid.
 Subscribers are considered shareholders from the
time their subscriptions are accepted by the
corporation and not from the time they are issued
stock certificates.

 DATE OF DECLARATION
 The board of directors will adopt a resolution
declaring that a dividend is to be paid.
 The resolution will specify the amount, type and
date of payment of this dividend. It will also set a
date of record.
 Cash dividends are declared solely by the board
of directors while share dividends will
necessitate the concurrence of at least two-thirds
of the outstanding shareholders.

 Legally, declared dividends are obligations of the
firm. Dividends to be paid in cash or property
became a liability on this date. Shares
distributable is also recognized.
 An entry is made debiting Retained Earnings and
crediting a dividend liability of Shares
Distributable account. Some companies debit a
Dividends Declared account instead of the
Retained Earnings account. This account is
nevertheless closed to the Retained Earnings
account at the end of the year.

 Paragraph 10 of IFRIC 17 provides that the
liability to pay a dividend shall be recognized
when the dividend is appropriately authorized and
is no longer at the discretion of the entity, which is
the date:
 When declaration of the dividend, e.g. by
management or the board of directors, is approved by
the relevant authority, e.g. the shareholders, if the
jurisdiction requires such approval, or
 When the dividend is declared, e.g. by management
or the board of directors, if the jurisdiction does not
require further approval.

 IFRIC 17 Distributions of Non-cash Assets to Owners was
developed by the International Financial Reporting
Interpretation Committee and issued by the Internal
Accounting Standards Board in Nov. 2008. Its effectivity
date is July 1 2009.
 DATE OF RECORD
 A list of shareholders entitled to the declared dividends is
prepared at the date of record.
 If an investor buys a share of stock after this date, he will
not receive the dividends. This share is said to be traded
ex-dividend.

 No entry is required on this date.
 DATE OF PAYMENT
 The corporation settles its liability on this date.
 An entry is made debiting the dividend liability or
shares distributable account and crediting cash,
property distributed or share capital.

Cash Dividends
 Majority of dividends distributed by corporations is
paid in cash.
 A company must have both an appropriate amount of
retained earnings and the necessary amount of cash.
 A corporation, however, may successfully accumulate
earnings and at the same time not be sufficiently liquid
to pay large dividends.
 Dividends on par value shares are stated as a certain
percentage of the par value.

 As to no-par value shares, the dividends are stated at
a certain amount per share.
 When the board of directors declares a cash dividend,
an entry is made debiting Retained Earnings and
crediting Cash Dividends Payable.
 Ex.: A nationally-known business books distribution
company declared a cash dividend of P12 per share of
ordinary shares of July 1. the dividends are payable on
August 1 to shareholders of record on July 21. The
company

has 100,000 ordinary shares issued of which
7,000 shares are held in treasury. The entries to
record the dividend declaration and payment are
as follows:
Retained Earning 1,116,000
Cash Dividends 1,116,000
To record declaration of dividend.
 The account, Cash Dividend, may be used in
place of the debit to Retained Earnings. At the
end of the accounting period, this temporary
shareholders’ equity account will be closed by
debiting Retained Earnings and crediting Cash
Dividends Declared.

Cash Dividends Payable 1,116,000
Cash 1,116,000
To record payment of dividend.
 Cash dividends payable are reported as current
liabilities in the statement of financial position.
 With the exception of treasury shares, all issued
and fully paid shares, and all subscribed par
value shares are entitled to dividends when
declared.
 No-par value shares are considered as legally
issued only when fully paid.

 Unissued shares, subscribed no-par shares and
treasury shares are not entitled to dividends.

Property Dividends
 Per IFRIC 17, paragraph 11, an entity shall measure a
liability to distribute non-cash assets as dividends to
its owners at the fair value of the assets to be
distributed.
 Ex.: Yummy Food Industries has 5,000 shares investment
in another entity accounted for as nonmarketable equity
investment. The carrying amount of this investment is
P500,000. On Dec. 1, 2013, the company declared as
property dividends this investment to all its outstanding par
value shares to be distributed on Dec. 15, 2013.

The fair market value of the investment at the
declaration date was P950,000. There was no
change in fair value on settlement date. The
entries to record the dividend declaration and
distribution are as follows:
Retained Earnings 950,000
Property Dividends Payable 950,000
To record declaration of dividend.
Property Dividends Payable 950,000
Investment in Equity Securities 500,000
Gain on Distribution of Property
Dividends 450,000
To record distribution of dividend.

 Because of the use of fair value, a problem will arise at
settlement date if the fair value of the assets to be
distributed has changed. The following offers the pertinent
guidance:
 Per IFRIC 17, paragraph 13, at the end of each reporting period
and at the date of settlement, the entity shall review and adjust
the carrying amount of the dividend payable, with any changes in
the carrying amount of the dividends payable recognized in equity
as adjustments to the amount of the distribution.
 Paragraph 14, when an entity settles the dividends payable, it
shall recognize the difference, if any, between the carrying
amount of the assets distributed and the carrying amount of the
dividend payable in profit or loss.

 IFRS 5, paragraph 5A, states that the
classification, presentation and measurement
requirements in this IFRS is applicable to a non-
current asset (or disposal group) that is classified
as held for distribution to owners.
 Paragraph 15A provides that an entity shall
measure a non-current asset (or disposal group)
classified as held for distribution to owners at the
lower of its carrying amount and fair value less
costs to distribute.

Share Dividends
 A corporation may distribute to shareholders
additional shares of the company’s own share
as share dividends.
 This type of dividend affects only the accounts
within the shareholders’ equity.
 Share dividends increase the total share
capital and decrease the retained earnings
account.
 Because both of these are components of
shareholders’ equity, total shareholders’ equity
is unchanged.

 From the shareholders’ point of view, a share dividend
does not change their percentage interests in the
corporation although total outstanding shares have
increased.
 SMALL SHARE DIVIDENDS
 Additional shares issued are less than 20% of the
previously outstanding shares.
 Recorded by transferring from retained earnings to share
capital (ordinary shares and share premium accounts) the
fair market value of the additional shares to be issued.

 In cases when the fair market value is lower than
the par or stated value, the par or stated value will
be the basis for recording.
 Ex.: Oishi!, a Japanese fastfood chain, is blessed with
years of profitable operations for its commitment to
serve affordable and healthy Japanese food favorites.
The shareholders’ equity of the company before
declaration of a 10% share dividend is as follows:
Ordinary shares, P50 par, 20,000 shares issued and outstanding P1,000,000
Share Premium 200,000
Total Share Capital P1,200,000

 The declaration of a 10% share dividend will require
the issuance of an additional 2,000 shares. Assume
that the company’s share is being traded at the stock
exchange and that the stock market price per share is
P110. The fair market value of the shares to be
distributed is P220,000. The entries will be:
Shares Distributable 100,000
Share Premium 120,000
To record declaration of 10% share dividends.
Ordinary Shares 100,000
To record issuance of share dividends.

 Retained Earnings (or the temporary account, Share
Dividends Declared) is debited for the fair market
value of the share dividends. Shares Distributable is
credited for the par value of shares to be distributed
and Share Premium for the balance.
 If a statement of financial position is prepared
between the declaration date and the distribution date
of a share dividend, the Shares Distributable account
will be shown in the shareholders’ equity immediately
after the Ordinary Shares account.

 When the share is distributed, only the components of
the shareholders’ equity changes; retained earnings
decreased by P220,000 and total share capital
increased by P220,000. The total shareholders’ equity
did not change.
Before
Dividends
After
Dividends
Increase
(Decrease)
Ordinary Shares, P50 par, 20,000
shares issued and outstanding
P1,000,000 P1,100,000 P100,000
Share Premium 200,000 320,000 120,000
Total Share Capital P1,200,000 P1,420,000 P220,000
Retained Earnings 650,000 430,000 (220,000)
Total Shareholders’ Equity P1,850,000 P1,850,000 -

 The receipt of a share dividend does not alter the
relative position of a shareholder. No profit is
realized by the shareholders.
 LARGE SHARE DIVIDEND
 If the share dividend is 20% or more of the
previously outstanding shares such that the effect
is to reduce materially the market value per
share, then only the par or stated value is
credited to ordinary shares with a corresponding
debit to retained earnings.

 Ex.: Assume that Oishi! declared a 20% share
dividend on its 20,000 issued and outstanding P50 par
value shares. The company will issue additional 4,000
shares due to the share dividend. The entries will be:
To record declaration of 20% share dividends.
Ordinary Shares 200,000
To record issuance of share dividends.
 The account titles used to record a large share
dividends. The balance in the account Share Premium
remained the same; this is because large share
dividends are recorded at par value.

Before
Dividends
After
Dividends
Increase
(Decrease)
Ordinary Shares, P50 par, 20,000
P1,000,000 P1,200,000 P200,000
Share Premium 200,000 200,000 -
Total Share Capital P1,200,000 P1,400,000 P200,000
Retained Earnings 650,000 450,000 (200,000)
Total Shareholders’ Equity P1,850,000 P1,850,000 -
Shares Issued and Oustanding 20,000 24,000 4,000

Liquidating Dividends
 Returns of capital to the investing
shareholders.
 This type of dividend can be legally paid only
under either of the following circumstances:
 When the corporation is under dissolution and
liquidation, or
 When the corporation is engaged in the
exploration of natural resources.

Share Splits
 Corporations reduce the par or stated value of
its share capital and issues additional shares
to its shareholders through the practice
referred to as share splits.
 The par or stated value per share will
decrease with a corresponding increase in the
number of authorized, issued and outstanding
shares. In effect, there is not change in the
balances of the shareholders’ equity accounts.

 The following are some reasons behind a
share split:
 To adjust the market price of the company’s
shares to a level where more individuals can
afford to invest in the stock.
 To spread the shareholder base by increasing the
number of outstanding shares.
 To benefit existing shareholders by allowing them
to take advantage of an imperfect adjustment
following the split.

 When shares are selling below a desired price
or when management wishes to take control of
the company, the corporation may consider a
reverse split that can be accomplished by
increasing the par or stated value of its share
and reducing the shares outstanding. There
will be no entry required; a memo entry is
sufficient.

 Ex.: The International School of Business and
Sciences, Inc. has 10,000 P10 par value ordinary
shares issued and outstanding when the board of
directors decided to split the share 5-for-1. this
means that a shareholder would receive 5 shares
with a new par value of P20 for each share held.
Ordinary shares will remain unchanged at
P1,000,000. the issued and outstanding shares
will now be 50,000 and the par value reduced to
P20 per share.

Summary of the Effects of
Dividends and Share Splits
Effect on: Declaration
of Cash
Dividends
Payment
of Cash
Dividend
s
Declaration and Distribution of
Small Share
Dividends
Large Share
Dividends
Share
Split
Retained Earnings Decrease - Decrease Decrease -
Ordinary Shares - - Increase Increase -
Share Premium - - Increase - -
Total Shareholders’
Equity
Decrease - - - -
Total Liabilities Increase Decrease - - -
Total Assets - Decrease - - -
Shares Outstanding - - Increase Increase Increase

Dividends on Preference and
Ordinary Shares
 A corporation may issue both preference and
ordinary shares.
 When the board of directors declares cash
dividends, preference shareholders are
entitled to dividends before ordinary
shareholders receive any distribution.
 The dividend is stated as a percentage of the
par value preference shares.
 The corporation is not obliged to declare
dividends annually.

 When the board does not declare dividends,
the dividends for cumulative preference
shares accumulate; these are called
dividends in arrears.
 Preference shares may contain one of the
following combinations of features:
 Non-cumulative and non-participating
 Non-cumulative and participating
 Cumulative and non-participating
 Cumulative and participating

 NON-CUMULATIVE PREFERENCE SHARES
 Entitle the holders only to the payment of current
dividends, if and when dividends are declared, to the
extent of the preference rate, before the ordinary
shareholders are paid. If there is no dividend declaration
for that year, then the dividend for that year is forfeited.
 CUMULATIVE PREFERENCE SHARES
 Entitle the holder to payment not only of current dividends
but also of back dividends or dividends in arrears, if and
when dividends are declared, before the ordinary
shareholders are paid.

 NON-PARTICIPATING PREFERENCE
SHARES
 Entitle the holders only to the extent of the
stipulated preference dividend.
 PARTICIPATING PREFERENCE
SHARES
 Entitle the holders to participate with the holders
of ordinary shares pro-rata in the remainder after
the ordinary shareholders have received their
initial share based on the preference rate.

 Ex.: Book Publishers, Inc. has the following
selected accounts in its shareholders’ equity:
12% Preference Shares, P100 par,
authorized 4,000 shares, 2,000 shares
issued and outstanding P200,000
Ordinary Shares, P100 par, authorized
6,000 shares, 3,000 shares issued and
outstanding 300,000
The board failed to declare dividends for the past
two years. The current year’s results of
operations gave the board reasons to declare

 Case 1. non-cumulative and non-
participating preference shares
 Dividends per share is obtained by dividing the total
dividend distribution per class of share by its
corresponding outstanding shares.
Preferenc
e
Ordinar
y
Total
Outstanding Share Capital P200,000 P300,000 P500,000
Current Preference Dividends P 24,000 P 24,000
Remainder to Ordinary . P176,000 176,000
Total P 24,000 P176,000 P200,000
Dividends per share P 12.00 P 58.67

 In the absence of an agreement, preference shares
are assumed to be non-cumulative and non-
participating. This is in accordance with the provision
that each share shall be equal in all respects to every
other share except as otherwise provided by the
articles of incorporation and stated in the certificate of
stock (Section 6, paragraph 5, Corporation Code).
 Case 2. non-cumulative and participating
preference shares
Preferenc
e
Ordinar
y
Total
Current Preference Dividends P 24,000 P 24,000

 Case 3. cumulative and non-participating
preference shares
Remainder for Participation 140,000
Preference 56,000
Ordinary . 84,000 .
Total P 80,000 P120,000 P200,000
Dividends per Share P 40,00 P 40.00
Preferenc
e
Ordinar
y
Total
Preference Dividends in Arrears P 48,000 P 48,000
Current Preference Dividends 24,000 24,000
Remainder to Ordinary . P128,000 128,000

 Case 4. cumulative and participating
preference shares
Preferenc
e
Ordinar
y
Total
Preference Dividends in Arrears P 48,000 P 48,000
Current Preference Dividends 24,000 24,000
Current Ordinary Dividends P 36,000 36,000
Remainder for Participation 92,000
Preference 36,000
Ordinary . 55,200 .

Prior Period Errors
 Per IAS No. 8, Accounting Policies, Changes
in Accounting Estimates and Errors, prior
period errors are omissions from and other
misstatements of the entity’s financial
statements for one more prior periods that are
discovered in the current period.
 Errors may occur as a result of mathematical
mistakes, mistakes in applying accounting
policies, misinterpretations of facts, fraud or
oversights.

 Material prior periods must be restated to
report financial position and results of
operations as they would have been
presented had the error never taken place.
 Reported by adjusting the opening balances of
retained earnings and affected assets and
liabilities.
 The correction of a prior period error is
excluded from profit or loss for the period in
which the error is discovered.

 If an error resulted in an understatement of
profit in previous periods, a correcting entry
would be needed to increase retained
earnings.
 If an error overstated profit in prior periods,
then retained earnings would have to be
decreased.
 Ex.: In 2012, the bookkeeper of Castro Realty,
Inc. debited Advertising Expense and credited
Cash to record the purchase of a small parcel of
land to be used as the company’s sale training

venue. The entry should have been a debit to
Land and a credit to Cash of P250,000. The effect
of this prior period error is to overstate 2012
advertising expense and ultimately, understate
2012 profit by the same amount. Land is also
understated by P250,000. The external auditors
discovered the prior period error in 2013. The
correcting entry will be:
Land 250,000

 This entry increased assets and shareholders’
equity by P250,000. Advertising expense, a
temporary account, is closed to income summary
and income summary is in turn closed to retained
earnings; therefore, any corrections to income or
expense of the prior periods should be made
directly to the retained earnings account. The
preceding analysis purposely did not include the
income tax effects of the error.

Restrictions on Retained Earnings
 A corporation may be required by law or contractual
arrangements to set aside a portion of the retained
earnings for specified purposes.
 In addition, the board of directors may voluntarily
designate a portion of retained earnings for future
expenses, contingencies or other purposes (SFAS
No. 18, paragraph 31).
 This portion of the retained earnings is referred to as
restricted or appropriated retained earnings.

 Ex.: ABC Technologies, Inc. bought 1,000 of its
shares at P150,000. A portion of the retained
earnings is restricted for the cost of the treasury
purchased.
Appropriated Retained Earnings 150,000
To restrict retained earnings for the cost of treasury
shares purchased.
 It simply communicates that the restricted portion
is not available for dividend declarations. Once
the purpose of the restriction has been served,
the appropriate retained earnings should be
reversed to unappropriated retained earnings.

 If the treasury stocks are subsequently reissued,
the restricted balance is reversed as follows:
Appropriate Retained Earnings 150,000
To remove restriction on retained earnings.

Statement of Retained Earnings
 Not required per revised IAS No. 1.
 Normally divided into 2 major sections:
 Appropriated
 Presents the beginning balance of the retained
earnings appropriated account, any additions or
deductions during the period, and ending balance.
 Unappropriated
 Shows the beginning balance of the retained earnings
unappropriated account, correction of prior period
error, profit or loss for the period, dividends, transfer
to and from the appropriated and unappropriated
accounts, and the ending balance.

Bookstore Corporation
Statement of Retained Earnings
For the Year Ended Dec. 31, 2013
Appropriated:
Balance, 1/1/13 as reported P 180,000
For Treasury Stocks, 4/8/13 100,000
Retained Earnings Appropriated, 12/31/13 P 280,000
Unappropriated:
Balance, 1/1/13, as previously reported P1,414,500
Correction of Prior period error 100,000
Balance, 1/1/13, as restated P1,514,000
Add: Profit 480,000
Total P1,994,500
Less: Cash Dividends Declared P 65,000

Statement of Changes in
Shareholders’ Equity
 Significant changes in shareholders’ equity
should be reported in the period in which they
occur.
 May be prepared in columnar format, where
each column represents a major shareholders’
equity classification.
 The ending balances of the accounts are
presented at the bottom of the statement.
These accounts and their related balances
compose the shareholders’ equity section of
the statement of financial position.

Victory Property Corporation
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2013
Preference Shares
P100 par
Ordinary Shares
P10 par
Share Premium-
Ordinary
Balance, Jan. 1 P500,000 P1,000,000 P300,000
Profit
Cash Dividends on
Preference
Cash Dividends on
Ordinary
Issue of Ordinary,
5,000 shares
50,000 5,000
5% Share Dividend on
Ordinary, 5,250 shares
52,500 26,250
Purchase of Treasury
Stock
Approp. For Treasury
Stock
. . .

Victory Property Corporation
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2013
Unapprop.
Retained
Earnings
Approp.
Retained
Earnings
Treasury
Preference
Shares
Total
Balance, Jan. 1 P150,000 P1,950,000
Profit 85,000 85,000
Cash Dividends on Preference (25,000) (25,000)
Cash Dividends on Ordinary (40,000) (40,000)
Issue of Ordinary, 5,000
shares
55,000
5% Share Dividend on
Ordinary, 5,250 shares
(78,750)
Purchase of Treasury Stock (30,000) (30,000)

Shareholders’ Equity
Share Capital
Preference Shares-P100 par, 10,000 shares
authorized, 5,000 shares issued and 4,750 shares
outstanding
P 500,000
Ordinary Shares-P10 par, 150,000 shares authorized,
110,250 shares issued and outstanding
P1,102,500
Share Premium-Ordinary 331,250 1,433,750
Total Share Capital P1,933,750
Retained Earnings
Unappropriated P61,250
Appropriated for Treasury Stock 30,000 91,250
Total Share Capital and Retained Earnings P2,025,000

Book Value per Share
 The amount that would be paid on each share
if the corporation is liquidated.
 The amount available to shareholders is
exactly the amount reported as shareholders’
equity.
 When only a single class of share is
outstanding, the book value per share is
computed by dividing the total shareholders’
equity by the number of shares outstanding.

 Ex.: Assume that Guns Security Agency has a
total shareholders’ equity of P180,000 and 5,000
shares of ordinary shares outstanding. The book
value per share is P36 (P180,000/5,000 shares).
 When both preference and ordinary shares
are outstanding, the preference shareholders
have preference over ordinary shareholders
as to the distribution of assets upon corporate
liquidation.

 The preference shareholders have the right to
receive assets equal to the par value or a
larger stated liquidation value per share.
Liquidation value is the cash price or other
consideration that can be received in a forced
sale of assets such as that occurring when a
firm is in the process of going out of business.
 Typically, the liquidation value is less than
what could be received from selling assets in
the ordinary course of business.

 The book value per share of the preference
shares is the sum of its liquidation value, if
applicable, plus any current and dividends in
arrears divided by the number of preference
shares outstanding.
 Ordinary shareholders’ equity is obtained by
deducting from total shareholders’ equity the
preference shareholders’ equity.
 The book value per share of the ordinary
shares is computed by dividing the ordinary
shareholders’ equity by the number of ordinary

 Ex.: Hizon Advertising and Marketing, Inc. is one
of the leading firms doing highly creative tri-media
product exposures in Cebu. The shareholders’
equity section of the company’s statement of
financial position is as follows:
6% Cumulative non-participating Preference Shares, P1,000 par,
5,000 shares authorized, 400 shares issued and outstanding
P 400,000
Ordinary Shares, P100 par, 20,000 shares authorized, 5,500
550,000
Share Premium – Preference 40,000
Share Premium – Ordinary 720,000
Total Shareholders’ Equity P2,560,000

 Suppose that the preference shares has a
liquidation value of P1,300 and dividends are in
arrears for 3 years. The computation of the
preference book value per share follows:
Preference Shares:
Liquidation Value, P1,300 x 400 shares P520,000
Dividends in Arrears, 6% x P400,000 x 3 yrs. 72,000
Current Dividends, 6% x P400,000 24,000
Preference Shareholders’ Equity P616,000
Book Value per Share, P616,000/400 shares P 1,540

 The ordinary book value per share is obtained as
follows:
 Book value per share may be used as the initial
bargaining price in negotiating the purchase of a
corporation whose shares are not traded in the
stock exchange.
Ordinary Shares:
Total Shareholders’ Equity P2,560,000
Less: Preference Shareholders’ Equity 616,000
Ordinary Shareholders’ Equity P1,944,000
Book Value per Share, P1,944,000/5,500 shares P 353.45

 On the other hand, investors in the stock market
may utilize book value as one of the basis for
evaluating whether a stock is undervalued or not.
 It is also significant in many contracts and in court
cases where the rights of the individual parties
are based on cost information.

Homework 7
 Indicate whether the following actions would (+)
increase, (-) decrease, or (0) not affect the corporation’s
total assets, liabilities and shareholders’ equity.
Assets Liabilitie
s
Shareholders
’ equity
1. Declaring a cash dividend
2. Paying the cash dividend declared in # 1
3. Declaring a share dividend
4. Issuing share certificates for the share
dividend declared in # 3
5. Authorizing and issuing share certificates
in a share split

 Ysmael Corporation’s board of directors
declared a P750,000 cash dividend on Sept.
1, 2011, payable on Oct. 1, to shareholders of
record on Sept. 15. Prepare all appropriate
entries needed on the declaration, record and
payment dates.

Seatwork 7
 Indicate the effects of each of the following transactions
on Assets, Liabilities, Share Capital and Retained
Earnings. Use + for increase, - for decrease and 0 for no
effect.
Assets Liabilitie
s
Share
Capita
l
Retaine
d
Earning
s
1. Declaring of cash dividends
2. Payment of cash dividends
3. Declaration of share dividends
4. Issuance of share dividends
5. A share split
6. Cash purchase of treasury stock

 The dates of importance in connection with a
cash dividend of P35,000 on a corporation’s
ordinary shares are Jan. 2, Jan. 22, and Feb.
1. Journalize the entries required on each
date.

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