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 1,000,000

Ordinary Share capital, P25 par, 100,000 shares 2,500,000
Share Premium 200,000
Retained Earnings 400,000
Retained Earnings appropriated 100,000
Revaluation Surplus 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. 61
b. 56
c. 55
d. 58

Solution :
Preference Share 1,000,000
Liquidation Premium - excess of liquidating value over par
(20,000 x 5) 100,000
Preference Dividend for current year (1,000,000 x 12%) 120,000
Total Preference shareholder’s equity 1,220,000

Book Value per preference share (1,220,000/20) 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 2,500,000
Ordinary Share Capital , par value P35 per share
100,000 shares issued outstanding 3,500,000
Share Premium 1,250,000
Retained Earnings 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 10,250,000

Preference Shareholder’s Equity
Preference share capital 2,500,000
Preference dividends in arrears 250,000
Liquidation premium 500,000 3,250,000
Ordinary Shareholder’s equity 7,000,000
Divide by ordinary shares outstanding 100,000
Book Value per ordinary share 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 1,000,000
Ordinary share capital, P25 par; 200,000 share authorized;
100,000 shares issued and outstanding 2,500,000
Retained Earnings 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. 25.00
b. 27.20
c. 26.40
d. 29.00

Solution :

Total equity 3,900,000

Preference shareholders equity :
Preference share capital 1,000,000
Liquidating premium (20,000 x 5) 100,000
Preference dividend in arrears
(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 1,000,000
Ordinary Share capital, P100 par
Retained Earnings 950,000

Preference dividends have paid up to December 31,2015 what is the book value per
ordinary share ?

a. 131.70
b. 130.00
c. 129.70
d. 128.00

Solution:

Total shareholder’s Equity 4,950,000

Preference shareholders’ equity :
Preference Share Capital 1,000,000
Liquidation Premium (10,000x50) 50,000 1,050,000
Ordinary Shareholder’s equity 3,090,000
Divide by ordinary shares 30,000
Book value per ordinary share 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. 25.00
b. 22.00
c. 3.00
d. 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 4,400,000

Ordinary shareholders equity, December 31, 2015 5,000,000
Outstanding Ordinary Share, December 31, 2015 160,000
Preference Dividends paid for 2015 100,000

What is the book value per ordinary share for 2015 ?

a. 27.50
b. 31.25
c. 30.62
d. 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. 440,000 and 0
b. 360,000 and 80,000
c. 320,000 and 120,000
d. 240,000 and 200,000

Solution :

Total dividend declared 440,000

Preference Dividends
In arrears on December 31, 2015 120,000
2016 dividend (6% x 4,000,000) 240,000 360,000
Balance to ordinary share 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 2,500,000
Preference dividend (8% x 5,000,000 x 2) (800,000)
1,700,000

Problem 27-9

Lawin Company provided the following information for 2014 and 2015:

Ordinary shareholders equity, December 31, 2014 4,400,000

Ordinary shareholders equity, December 31, 2015 5,000,000
Outstanding Ordinary Share, December 31, 2015 160,000
Preference Dividends paid for 2015 100,000

What is the book value per ordinary share for 2015 ?

a. 27.50
b. 31.25
c. 30.62
d. 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. 500,000
b. 480,000
c. 240,000
d. 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 2,500,000
Ordinary Share Capital , par value P35 per share
100,000 shares issued outstanding 3,500,000
Share Premium 1,250,000
Retained Earnings 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 10,250,000

Preference Shareholder’s Equity
Preference share capital 2,500,000
Preference dividends in arrears 250,000
Liquidation premium 500,000 3,250,000
Ordinary Shareholder’s equity 7,000,000
Divide by ordinary shares outstanding 100,000
Book Value per ordinary share 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. Accrued liability of P150,000

b. Disclosure of P150,000
c. Accrued liability of P200,000
d. Disclosure of P200,000

Solution :
Preference share capital (30,000 x 100) 3,000,000

Preference dividend in 2014(3,000,000 x 5%) 150,000

Preference dividend in 2015 150,000

Total preference dividend 300,000

Less: Preference dividend in 2015 100,000
Preference Dividends in arrears-December 31, 2015 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 2,500,000
Ordinary Share Capital, P25 par, 250,000 shares
Authorized and Issued 6,250,000
Share Premium 1,250,000
Retained Earnings 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. 1,175,000
b. 1,700,000
c. 1,000,000
d. 1,250,000

Solution :

Ordinary dividend (250,000 x 4) 1,000,000

Preference dividend (2,500,000 x 10%) 250,000
Total Dividend 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 8,000,000
Ordinary share capital, P50 par, 200,000 shares issued 10,000,000
Share Premium 5,000,000
Retained Earnings 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. 4,560,000
b. 3,920,000
c. 3,600,000
d. 5,520,000

Solution :

Ordinary dividend(200,000 x 10) 2,000,000

Preference Dividends
2014(12% x 8,000,000) 960,000
2015(20 % x 8,000,000) 1,600,000 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. 1,050,000
b. 1,200,000
c. 800,000
d. 550,000

Solution :
 Dividends Preference Ordinary

Amount 1,350,000
6% x 2,500,00 x 2 (300,000) 300,000
6% x 5,000,000 (300,000) 300,000

Balance prorata 750,000 250,000 500,000

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. 8.50
b. 9.50
c. 9.00
d. 5.00

Solution :

Preference Share Capital (10,000 x P100) 1,000,000

Net income 900,000

Preference dividend(1,000,000 x P15%) (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. 1.88
b. 1.60
c. 1.28
d. 1.50

Solution :
Net Income 750,000
Preference Dividends (110,000)

Net Income to ordinary shares 640,000

Basic earnings per share (640,000/500,000) 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. 5.00
b. 1.65
c. 1.25
d. 5.25

Solution :
Preference Share Capital (70,000 x P100) 7,000,000

Net income 800,000

Preference dividend(1,000,000 x P15%) (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 :

Shares issued and outstanding

Ordinary Share Capital 200,000
Preference Share Capital 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. 8.20
b. 8.72
c. 9.36
d. 7.82

Solution :
Ordinary Shares-January 1, 2015 200,000
Stock Dividends on October 1, 2015 20,000
Total ordinary shares outstanding 220,000

Net income 1,920,000

Preference Dividends (200,000)
1,720,000

Basic EPS (1,720,000/220,000) 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 250,000
Ordinary Share capital, P5 par, 200,000 shares
Issued and outstanding 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 500,000

Preference dividend for one year(250,000 x 4%) (10,000)
Net Income to ordinary shares 490,000

Basic Earnings Per Share (490,000/200,000) 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. 21.25
b. 37.50
c. 34.00
d. 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. 21.50
b. 19.00
c. 8.60
d. 7.60

Solution :
Ordinary Share Outstanding (1,000,000/5) 200,000
Basic Earnings per share (4,300,000/200,000) 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 2,000,000

Preference Share capital, 2,000 shares, P1000 par,
12% convertible share for share into ordinary share 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. 15.00
b. 16.00
c. 10.00
d. 10.67

Solution :

Net Loss 3,000,000

Preference Dividends (20,000 x 10 ) 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 4,500,000

Ordinary share capital, P1 par, 10,000,000 shares 10,000,000
Share premium 20,500,000
Retained Earnings 132,000,000
Net income for the current year, including an
expropriation loss of P8,000,000 35,000,000

What amount should be reported as basic earnings per share ?

a. 3.46
b. 4.04
c. 4.63
d. 4.67

Solution :

Net Loss 35,000,000

Preference Dividends (4,500,000 x 8% ) (360,000)

Total loss to ordinary shares 34,640,000

Basic loss per share (34,640,000/10,000,000) 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. 35.50
b. 37.50
c. 17.75
d. 18.75

Solution :
Net Loss 7,500,000
Preference Dividends (4% x 10,000,000 (400,000)

Net income to ordinary shares 7,100,000

Divide by ordinary shares (200,000 + 200,000) 400,000

Basic EPS 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 5,000,000
Ordinary share capital, P100 par value 30,000,000
Share premium 10,000,000
Retained earnings 18,000,000
Treasury ordinary shares, 50,000 at cost 4,000,000

What amount should be reported as basic earnings per share ?

a. 58.00
b. 60.00
c. 73.60
d. 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 200,000

Bonus Issue 200,000
Total ordinary shares 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. 30
b. 40
c. 20
d. 60

Solution :

Ordinary Shares 600,000

Bonus Issue 200,000
Total ordinary shares 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 250,000
Ordinary Share capital, P5 par, 200,000 shares
Issued and outstanding 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 500,000

Preference dividend for one year(250,000 x 4%) (10,000)
Net Income to ordinary shares 490,000

Basic Earnings Per Share (490,000/200,000) 2.45