Reference no: EM132937688

Problem 1 - On September 30, 2020 Royal Company issued 3,000 shares of its P10 par ordinary shares in connection with a share dividend. No entry was made on the share dividends declaration date. The market value per share immediately after the issuance was P15. Royal's shareholders' equity accounts immediately before issuance of the share dividends were as follows:

Ordinary share, P10 par, 50,000 shares authorized; 25,000 issued 250,000

Paid in capital in excess of par 300,000

Retained earnings 350,000

Treasury shares, 5,000 shares at cost (40,000)

Required -

1. Retained earnings balance after the share dividend declaration

2. Assuming that instead of declaring and issuing 3,000 shares, the company declared and issued 4,000 shares as share dividend, what should be the Retained earnings balance immediately after the share dividend declaration?

Problem 2 - Sprite Company declares a 10% scrip dividends on July 1, 2020 payable a year after with 12% interest. The total par value of the outstanding shares of Sprite is P10,000,000.

Required -

1. Total appropriation to the retained earnings as a result of the scrip dividends declaration.

2. Interest expense from the scrip dividends should be recognized in 2021 profit or loss.