No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
ACCOUNTING FOR DIVIDENDS
Dividends
• Distributions of earnings or capital to the shareholders in proportion to their shareholdings.
Illustrative 1 (Distribution of Cash Dividend)
Trese Company declared P7,200,000 cash dividends to its preference and ordinary shareholders
out of its profit in 2023. No dividends have been, declared since 2021. Trese Company’s
shareholders’ equity immediately before dividend declaration is as follows:
10% Preference share capital, P800 par P 8,000,000
Ordinary share capital, P400 par 32,000,000
Retained earnings 20,000,000
Total shareholders’ equity P 60,000,000
Required:
1. How much is the dividend to ordinary shareholders if the preference shares are
noncumulative?
a. 7,200,000
b. 6,400,000
c. 5,080,000
d. 6,000,000
2. How much is the dividend to ordinary shareholders if the preference shares are
cumulative?
a. 2,400,000
b. 5,600,000
c. 4,800,000
d. 6,400,000
3. How much is the dividend to ordinary shareholders if the preference shares are
noncumulative and fully participating?
a. 7,560,000
b. 5,120,000
c. 6,400,000
d. 5,760,000
4. How much is the dividend to ordinary shareholders if the preference shares are
cumulative and fully participating?
a. 4,480,000
b. 5,760,000
c. 5,125,000
d. 6,400,000
5. The dividend to ordinary shareholders if the preference shares are cumulative and
participating up to 16% is
a. 5,120,000
b. 5,480,000
c. 4,480,000
d. 4,320,000
1|P a g e TSIY/RSORIANO
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
Illustrative 2 (Distribution of Property Dividend)
Nuno Company, a real estate developer, is owned by five founding shareholders.
On December 1, 2026, the entity declared a property dividend of a “one-bedroom flat” for each
shareholder. The property dividend is payable on January 31, 2027.
On December 1, 2026, the carrying amount of one-bedroom flat is P 1,000,000 and the fair value
is P 1,500,000.
However, the fair value is P 1,800,000 on December 31, 2026 and P 1,900,000 on January 31,
2027.
Required:
1. What is the dividend payable on December 1, 2026?
a. 5,000,000
b. 9,000,000
c. 7,500,000
d. 0
2. What is the dividend payable on December 31, 2026?
a. 5,000,000
b. 9,000,000
c. 7,500,000
d. 0
3. What amount of gain is included in profit or loss as a result of the settlement of the
property dividend on January 31, 2027?
a. 2,500,000
b. 2,000,000
c. 4,000,000
d. 4,500,000
Illustrative 3 (Distribution of Property Dividend)
On November 1, 2026, Crispin Company declared a property dividend of equipment payable on
March 1, 2027.
The carrying amount of the equipment is P 3,000,000 and the fair value is P 2,500,000 on
November 1, 2026.
However, the fair value less cost to distribute the equipment is P 2,200,000 on December 31,
2026 and P 2,000,000 on March 1, 2027.
Required:
1. What is the dividend payable on December 31, 2026?
a. 2,500,000
b. 3,000,000
c. 2,200,000
d. 0
2. What is the measurement of the equipment on December 31, 2026?
a. 2,500,000
b. 3,000,000
c. 2,200,000
d. 2,000,000
3. What amount of loss on distribution of property dividend is recognized on March 1,
2027?
a. 300,000
b. 500,000
c. 200,000
d. 0
2|P a g e TSIY/RSORIANO
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
Illustrative 4 (Choice of Either Cash or Property Dividend)
On December 31, 2027, Liza Company declared dividends on ordinary shares payable on March
31, 2028.
Liza decided to give the shareholders a choice between a total cash dividend of P 2,000,000 or a
property dividend in the form of noncash asset from the inventory with a carrying amount of P
2,500,000 and fair value less costs to distribute of P 3,000,000.
The entity estimated that 70% of the shareholders will take the option of the cash dividend and
30% will elect the noncash asset.
Required:
1. What amount should be debited to retained earnings on December 31, 2027?
a. 2,500,0000
b. 3,000,000
c. 2,300,000
d. 2,000,000
2. If the entity elected the cash alternative, what will be the journal entry on March 31,
2028?
3. If the entity elected the noncash alternative and the fair value of the inventory remained
at P 3,000,000, what will be the journal entry on March 31, 2028?
4. If the entity elected the noncash alternative and the fair value of the inventory is P
3,300,000 on March 31, 2028, what will be the journal entry on that date?
Illustrative 5 (Distribution of Share Dividend)
At the beginning of the current year, Basilio Company declared a 10% stock dividend. The market
price of the entity’s 30,000 outstanding shares of 20 par value was P 90 per share on that date.
The stock dividend was distributed on July 1, when the market price was P 100 per share.
What amount should be credited to share premium for the stock dividend?
a. 210,000
b. 270,000
c. 240,000
d. 300,000
Illustrative 6 (Distribution of Share Dividend)
At the current year end, Maliksi Company issued 4,000 ordinary shares of P 100 par value in
connection with a stock dividend. The market value per share on the date of declaration was P
150.
The shareholders’ equity accounts immediately before issuance of the stock dividend shares were
as follows:
Ordinary share capital P 100 par, 50,000 shares authorized, 20,000
shares outstanding P 2,000,000
Share Premium 3,000,000
Retained Earnings 1,500,000
What amount should be debited to retained earnings immediately after the stock dividend?
a. 400,000
b. 900,000
c. 600,000
d. 0
3|P a g e TSIY/RSORIANO
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
Illustrative 7 (Distribution of Share Dividend)
Kulimlim Company declared a 5% stock dividend on 100,000 issued and outstanding shares of P
20 par value, which had a fair value of P 50 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?
a. 250,000
b. 150,000
c. 100,000
d. 0
Illustrative 8 (Computation of Maximum Dividend/Liquidating Dividend)
The following accounts appear in the statement of financial position of Pepper Company at year-
end:
Resource Property P 10,000,000
Accumulated Depletion 2,000,000
Retained Earnings 3,000,000
Capital Liquidated 500,000
How much is the maximum dividend?
a. 4,500,000
b. 5,000,000
c. 3,000,000
d. 15,000,000
Illustrative 9 (Scrip Dividend)
On July 31, 2029, scrip dividends are declared in the amount of P 300,000 payable in 5 months
at 18% interest.
Required:
1. What is the journal entry on July 31, 2029?
2. What is the journal entry on December 31, 2029, the date of redemption?
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