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Case 2. The XYZ Co. had a credit balance in its Retained Earnings account of P 1,700,000. It desired to
declare a dividend and retain only P 100,000 in its Retained Earnings account.

The capital structure of XYZ Co. (before the dividend) is:

Share capital, preference, 10%, participating, cumulative P 2,000,000
Share capital, ordinary 5,000,000

No dividend was declared in 2022.

The corporation is planning to declare a dividend in 2023 at 20% on outstanding ordinary shares.

How much of the Retained Earnings will be required for the dividend?
Is the desired P 100,000 balance in the Retained Earnings account after dividend payment
realizable?

 

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To calculate the amount of Retained Earnings required for the dividend, we need to consider the dividend rate and the number of outstanding ordinary shares.

The dividend rate is given as 20% on outstanding ordinary shares. Therefore, we need to multiply the dividend rate by the number of outstanding ordinary shares to find the total dividend amount.

Outstanding ordinary shares = 5,000,000

Dividend amount = 20% * 5,000,000 = 1,000,000

So, the Retained Earnings required for the dividend is P 1,000,000.

Now, let's determine if the desired P 100,000 balance in the Retained Earnings account after dividend payment is realizable.

Starting with a credit balance in Retained Earnings of P 1,700,000 and deducting the dividend amount of P 1,000,000, we get:

Retained Earnings after dividend payment = 1,700,000 - 1,000,000 = P 700,000

Since the resulting balance after the dividend payment is P 700,000, which is higher than the desired balance of P 100,000, it is indeed realizable to retain P 100,000 in the Retained Earnings account.