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Presented below are four independent cases relating to the audit of shareholders equity.
Answer the questions at the end of each case.
I.
The retained earnings account for CURDAPIA CO. shows the following (debits) and credits:
Jan.
Balance
P2,917,0
1
00
a) Loss from fire
(3,175)
b)
Goodwill impairment
(322,000)
c)
Stock dividend
(500,000)
d)
(175,500)
e)
f)
(2,104,00
0)
795,000
g)
h)
i)
81,000
j)
78,000
k)
30,500
37,250
147,000
Oct.
Dec.
c) Issued 900 shares, valued objectively at P30,000, to the employees instead of paying
them cash wages.
d) Issued 37,500 shares in exchange for a building valued at P885,000 and land valued at
P240,000. (the building was originally acquired by the investor for P750,000 and has
P300,000 of accumulated depreciation; the land was originally acquired for P90,000.)
e) Received cash for 19,500 shares issued at P38 per share.
f) Issued 12,000 shares at P45 per share; received cash
4. The statement of financial position will report share premium of
A. P4,000,950
C. P4,001,700
B. P3,973,500
D. P3,326,700
IV.
TALO COMPANY has been paying regular quarterly dividends of P1.50 and wants to pay the
same amount in the third quarter of 2012. The following information relates to the companys
equity:
Jan.
Feb.
March
May
1
15
31
12
June
15
30
5. What is the total amount that Talo will have to pay in dividends in the third quarter in order
to pay P1.50 per share?
A. P790,875
C. P637,500
B. P712,500
D. P749,250
6. What is the total amount of dividends to be distributed during the year assuming no equity
transactions occur after June 30?
A. P3,163,500
C. P3,010,125
B. P3,085,125
D. P3,121,875
PROBLEM 2:
The NEPAL COMPANY is authorized to issue 600,000 shares of P10 par value ordinary share
capital. Nepals accounting year ends on December 31. The following transactions occurred in
2012, the companys first year of operations.
a. Issued 20,000 shares at P20 per share; received cash
b. Issued 2,500 shares to attorneys for services in securing the corporate charter and for
preliminary legal costs of organizing the corporation. The value of the services was
P85,000.
c. Issued 300 shares, valued objectively at P15,000, to the employees instead of paying
them cash wages.
d. Issued 325,000 shares in exchange for a building valued at P3,000,000 and land valued at
P4,000,000. (The building was originally acquired by the investor for P2,500,000 and has
P1,000,000 of accumulated depreciation; the land was originally acquired for P1,500,000.)
1. What is the ordinary share capital balance on December 31, 2012?
A. P3,453,000
C. P3,490,000
B. P3,478,000
D. P4,278,000
2. The amount of share premium to be reported on Nepals statement of financial position at
December 31, 2012, is
A. P3,962,000
C. P3,022,000
B. P4,047,000
D. P4,022,000
3. The amount of organization expense to be charged against Nepals income for 2012 is
A. P85,000
C. P25,000
B. P0
D. P60,000
PROBLEM 3:
The following are PAKISTAN COMPANYs equity accounts at December 31, 2011:
Ordinary share capital, par value P10; authorized 200,000
shares; issued
and outstanding
P1,200,00
0
Share premium
Retained earnings
180,000
720,000
Pakistan Company uses the cost method of accounting for treasury shares.
The
a.
b.
c.
Debits
P160,000
195,000
Credits
P375,000
500,000
42,000
90,000
75,000
23,0
00
P
917,000
P
917,000
SINGAPORE CORPORATION recently hired a new accountant with very limited experience in
corporation accounting. During the first month, he made the following entries for the
corporations share capital.
January 2
Cash
200,000
Share capital
Issued 10,000 of P5 par value ordinary
shares at P20 per share
10
200,000
Cash
600,000
Share capital
Issued 15,000 of P30 par value preference
shares at P40 per share
600,000
15
Share Capital
Cash
Purchased 1,000 ordinary shares for the
treasury at P8 per share
8,000
8,000
31
Cash
1,000
Loss on sale of share capital
1,500
Share capital
2,500
Sold 500 treasury shares at P2 per share
Required:
Prepare the necessary correcting entries.
PROBLEM 7:
The shareholders equity of the OMAN COMPANY as of December 31, 2011, was as follows:
Ordinary shares, P10 par, authorized 300,000 shares; 250,000
shares
issued and outstanding
Share premium issuance
Retained Earnings
P2,500,00
0
3,500,000
1,740,000
On June 1, 2012, Oman reacquired 40,000 ordinary shares at P40. The following transactions
occurred with regard to these shares.
July 1
August 1
September 1
The following entries were made by the companys accountant to record the preceding
transactions.
2012
June 1
Treasury
shares
1,600,000
1,600,00
0
Cash
July 1
Cash
720,000
Treasury shares
August 1
Cash
720,000
513,000
Treasury shares
September
1
Ordinary
shares
Treasury shares
513,000
10,000
10,000
2.
3.
4.
5.
A. P160,000
C. P210,000
B. P190,000
D. P200,000
Ordinary shares
A. P2,490,000
C. P2,460,000
B. P2,500,000
D. P2,210,000
Share premium issuance
A. P3,486,000
C. P3,620,000
B. P3,500,000
D. P3,606,000
Share premium treasury shares
A. P120,000
C. P240,000
B. P0
D. P710,000
Retained earnings (before appropriation for treasury shares)
A. P1,732,000
C. P1,597,000
B. P1,859,000
D. P1,718,000
PROBLEM 8:
The LAOS COMPANY wants to raise its working capital. After analysis of the available options,
the company decides to issue 6,000 shares of P30 per preference shares with detachable
warrants. The package of the shares and warrants sells for P120. The warrants enable the
holder to purchase 6,000 shares of P10 par ordinary shares at P40 per share. Immediately
following the issuance of the shares, the share warrants are selling at P10 per share. The
market value of the preference shares without the warrants is P90.
1. What amount should be assigned to the share warrants issued?
A. P60,000
C. P180,000
B. P72,000
D. P520,000
2. Assuming that only 80% of the warrants are exercised, the entry to record the exercise of
the warrants should include a
Debit to
Credit to
A. Share warrants outstanding,
Share premium, P201,600
P57,600
B. Cash, P192,000
Ordinary share capital,
P249,600
C. Share premium, P201,600
Ordinary share capital,
P48,000
D. Cash, P48,000
Warrants outstanding,
P57,600
PROBLEM 9:
The shareholders equity section of BAHRAIN CORPORATIONs statement of financial position as
of December 31, 2011, is as follows:
Ordinary share capital (P5 par, 250,000 shares
authorized,
137,500 issued and outstanding)
Share premium
P
687,500
275,00
0
Total paid-in-capital
Unappropriated retained earnings
Appropriated retained earnings
Total retained earnings
Total shareholders equity
P
962,500
P
667,500
250,0
00
917,50
0
P1,880,0
00
Bahrain Corporation had the following shareholders equity transactions during 2012:
Jan. 15 Completed the building renovation for which P250,000 of retained
earnings had been restricted. Paid the contractor P242,500, all of
which is capitalized.
March
3
May
18
June
19
July 31
Dec.
31
Dec.
31
1. The balance in the ordinary share capital account at December 31, 2012, should be
A. P1,095,000
C. P937,500
B. P1,087,500
D. P687,500
2. The balance in the share premium account at December 31, 2012, should be
A. P425,000
C. P275,000
B. P125,000
D. P260,000
3. The balance in the unappropriated retained earnings account at December 31, 2012,
should be
A. P921,250
C. P200,000
B. P713,750
D. P721,250
4. The total shareholders equity at December 31, 2012, should be
A. P2,233,750
C. P2,083,750
B. P2,283,750
D. P2,371,250
PROBLEM 10:
You have been assigned to the audit of MALAYSIA CO., a manufacturing company. You have
been asked to summarize the transactions for the year ended December 31, 2012, affecting
shareholders equity and other related accounts. The shareholders equity section of Malaysias
December 31, 2011, statement of financial position follows:
Ordinary share capital, P2 par value, 1,000,000 shares
authorized,
180,000 shares issued, 177,580 shares outstanding
Share premium issuance
Share premium treasury shares
Retained earnings
Cost of 2,420 treasury shares
Total shareholders equity
P
360,000
3,640,000
45,000
649,378
(145,200
)
P
4,549,178
You have extracted the following information from the accounting records and audit working
papers.
2012
Jan. 15
Feb. 1
Malaysia reissued 1,300 treasury shares for P40 per share. The 2,420
treasury shares on hand at December 31, 2011, were purchased in
one block in 2010.
Sold 180, P1,000, 9% bonds due February 1, 2022, at 103 with one
detachable share warrant attached to each bond. Interest is payable
annually on February 1. The fair market value of the bonds without
the share warrants is 95. The detachable warrants have a fair value
of P50 each and expire on February 1, 2013. Each warrant entities
2,800 ordinary shares were subscribed for at P44 per share 40% of
the subscription was collected
20
The balance due on 2,400 shares was received and those shares
were issued
Nov. 1
There were 110 shares warrants detached from the bonds and
exercised
15
15
Nov. 20
Based on the preceding information, determine the correct balance of each of the following
accounts.
1. Ordinary share capital
A. P5,569,000
C. P5,550,000
B. P5,219,000
D. P6,069,000
2. Share premium ordinary shares
A. P46,800,000
C. P52,116,000
B. P49,950,000
D. P50,116,000
3. Preference share capital
A. P2,000,000
C. P500,000
B. P0
D. P2,500,000
4. Share premium preference shares
A. P2,500,000
C. P2,000,000
B. P5,150,000
D. P0
PROBLEM 12:
SYRIA COMPANY was formed on July 1, 2009. It was authorized to issue 600,000 share of P10
par value ordinary shares and 200,000 shares of 8% P25 par value, cumulative and
nonparticipating preference shares. Syria Company has a July 1 June 30 fiscal year.
The following information to the shareholders equity accounts of Syria Company :
Ordinary Shares
Prior to the 2011 2012 fiscal year, Syria Company had 220,000 of outstanding ordinary
shares issued as follows:
a. 190,000 shares were issued for cash on July 1, 2009, at P31 per share.
b. On July 24, 2009, 10,000 shares were exchanged for a plot of land which cost the seller
P140,000 in 2003 and had an estimated market value of P440,000 on July 24, 2009.
c. 20,000 shares were issued on March 1, 2011; the shares had been subscribed for P42 per
share on October 31, 2010.
During the 2011 2012 fiscal year, the following transactions regarding ordinary shares took
place:
2011
Oct. 1
Nov. 30
Dec. 15
2012
June 20
Syria sold 1,000 of its own ordinary shares that it had purchased
on November 30, 2011, for P42,000.
Preference Shares
Syria issued 100,000 preference shares at P44 per share on July 1, 2010.
Cash Dividends
Syria has followed a schedule of declaring cash dividends in December and June with payment
being made to shareholders of record in the following month. The cash dividends which have
been declared since inception of the company through June 30, 2012, are shown below.
Declaration Date
12/15/10
06/15/11
12/15/11
Ordinary Shares
P0.30 per share
P0.30 per share
----
Preference Shares
P1.00 per share
P1.00 per share
P1.00 per share
No cash dividends were declared during June 2012 due to the companys liquidity problems.
Retained Earnings
As of June 30, 2011, Syrias retained earnings account had a balance of P1,380,000. For the
fiscal year ending June 30, 2012, Syria reported net income of P80,000
In March 2011, Syria received a term loan from JST National Bank. The bank requires Syria to
establish a sinking fund and restrict retained earnings for an amount equal to the sinking fund
deposit. The annual sinking fund payment of P100,000 is due on April 30 each year; the first
payment was made on schedule on April 30, 2012.
1. What is the ordinary share capital account balance at June 30, 2012?
A. P2,350,000
C. P2,510,000
B. P2,320,000
D. P2,500,000
2. The total share premium ordinary shares at June 30, 2012, is
A. P5,435,000
C. P4,970,000
B. P5,579,000
D. P5,693,000
3. The unappropriated retained earnings at June 30, 2012, should be
A. P788,000
C. P217,000
B. P571,000
D. P1,033,000
4. The total number of ordinary shares issued and outstanding at June 30, 2012, should be
A. P248,000
C. P232,000
B. P251,000
D. P235,000
5. The total shareholders equity at June 30, 2012, should be
A. P13,117,000
C. P12,783,000
B. P13,576,000
D. P13,000,000
PROBLEM 13:
At the beginning of year 1, an entity grants 200 shares each to 500 employees. The grant is
conditional upon the employees remaining in the entitys employ until the performance
condition described below is satisfied.
Performance Condition
The shares will vest at the end of:
Year 1 If the entitys earnings increase by 15%
Year 2 If the entitys earnings increase by more than an average of 11% per year
over the twoyear period.
Year 3 If the entitys earnings increase by more than an average of 8% per year
over the three
year period.
The shares have a fair value of P15 at the beginning of year 1, which equals the share price at
grant date. The entity does not expect to pay dividends over the three-year period.
The following events occurred:
Year 1
30 employees have left during year 1 and the entity expects, on the basis of a weighted
average probability, that a further 40 will leave during year 2.
The entitys earnings have increased by 14% by the end of year 1 and the entity expects
that the earnings will continue to increase at a similar rate in year 2. Therefore, the
entity expects that the shares will vest at the end of year 2.
Year 2
35 employees have resigned by the end of year 2 and the entity expects that a further
30 will leave during year 3.
Earnings have increased by only 7% during year 2. Hence, the shares do not vest at the
end of year 2 as expected by the end of year 1. The entity expects that by the end of
year 3, its earnings will increase by at least 5%, thereby achieving the average of 8%
per year.
Year 3
28 employees have resigned by the end of year 3.
The entitys earnings have increased by 6% during year 3. This results in an average
increase of 9% per year over the three-year vesting period.
Based on the preceding information, determine the following:
1. Cumulative compensation expense at the end of year 1
A. P407,000
C. P430,000
B. P645,000
D. P82,500
2. Cumulative compensation expense at the end of year 2
A. P1,290,000
C. P810,000
B. P330,000
D. P822,000
3. Cumulative compensation expense at the end of year 3
A. P1,221,000
C. P1,215,000
B. P1,290,000
D. P1,500,000
4. The year in which the share options vested to the entitys employees
A. Year 1
C. Year 3
B. Year 2
D. the options did not vest
On grant date, the entity estimates that the fair value of the share options, with an exercise
price of P20, is P10 per option. If the exercise price is P20, the entity estimates that the share
options have a fair value of P9 per options.
The following events occurred:
2012
60 employees have left. The entity expects, on the basis of a weighted average
probability, that a further 60 employees will leave during 2013 and 2014, respectively.
The entitys earnings increased by 12%, and the entity expects that earnings will
continue to increase at this rate over the next two years. The entity therefore expects
that the earnings target will be achived, and hence, the share options will have an
exercise price of P20.
2013
At year end, a further 70 employees have resigned. The entity expects that a further 60
employees will leave during 2014.
The entitys earnings increased by 13%, and it continues to expect that the earnings
target will be achieved.
2014
A further 56 employees have left by the end of the year
Due to a general decrease in market demand, the entitys earnings increased by only
3%. Because the earnings target was not achieved, the 100 vested share option for each
employee have exercise price of P30.
Based on the preceding information, determine the following:
1. Compensation expense for 2012
A. P270,000
C. P273,333
B. P192,600
D. P244,200
2. Compensation expense for 2013
A. P192,600
C. P273,333
B. P266,667
D. P270,000
3. Compensation expense for 2014
A. P273,333
C. P266,667
B. P270,000
D. P192,600
4. Share options outstanding at the end of 2013
A. P540,000
C. P266,667
B. P810,000
D. P459,267
5. Share option outstanding at the end of 2014
A. P810,000
C. P820,000
B. P0
D. P732,600
PROBLEM 16:
At the beginning of year 1, the entity grants 100 shares each to 500 employees, conditional
upon the employees remaining in the entitys employ during the vesting period. The shares will
vest at the end of year if the entitys earnings increase by more than 18%; at the end of year 2
if the entitys earnings increase by more than an average of 13% per year over the two-year
period; and at the end of year 3 if the entitys earnings increase by more than an average of
10% per year over the three-year period. The shares have a fair value of P20 per share at the
start of year 1, which equals the share price at grant date.
By the end of year 1, the entitys earnings have increased by 14%, and 20 employees have
left. The entity expects that earning will continue to increase at a similar rate in year 2, and
therefore expects that the shares will vest at the end of year 2. The entity expects, on the
basis of a weighted average probability, that a further 30 employees will leave during year 2.
By the end of year 2, the entitys earnings have increased by only 10% and therefore the
shares do not vest at the end of year 2. 42 employees have left during the year. The entity
expects that a further 15 employees will leave during year 3, and that the entitys earnings will
increase by at least 6%, thereby achieving the average 10% per year.
By the end of year 3, 10 employees have left and the entitys earnings had increased by 8%,
resulting in an average of 10.67% per year.
Based on the foregoing, answer the following:
1. What amount of compensation expense should be recognized in year 1?
2.
3.
4.
5.
A. P450,000
B. P480,000
What amount
A. P104,000
B. P134,000
What amount
A. P302,000
B. P432,000
What amount
A. P564,000
B. P584,000
What amount
A. P900,000
B. P980,000
C. P300,000
D. P320,000
of compensation expense should be recognized in year 2?
C. P114,000
D. P244,000
of compensation expense should be recognized in year 3?
C. P292,000
D. P312,000
should the entity report as share options outstanding at the end of year 2?
C. P544,000
D. P614,000
should the entity report as share options outstanding at the end of year 3?
C. P1,000,000
D. P856,000
PROBLEM 17:
At the beginning of year 1, Entity A grants share options to each of its 100 employees working
in the sales department. The share options will vest at the end of year 3, provided that the
employees remain in the entitys employ, and provided that the volume of sales of a particular
product increases by at least an average of 5% per year. If the volume of sales of the product
increases by an average of between 5% and 10% per year, each employee will receive 100
share options. If the volume of sales increases by an average of between 11% and 15% each
year, each employee will receive 200 share options. If the volume of sales increases by an
average of 16% or more, each employee will receive 300 share options.
On grant date, Entity A estimates that the options have a fair value of P20 per option. Entity A
also estimates that the volume of sales of the product will increase by an average of between
11% and 15% per year, and therefore expects that, for each employee who remains in service
until the end of year 3, 200 share options will vest. The entity also estimates, on the basis of a
weighted average probability, that 20% of employees will leave before the end of year 3. By
the end of year 1, seven employees have left and the entity still expects that a total of 20
employees will leave by the end of year 3. Hence, the entity expects that 80 employees will
remain in service for the three-year period. Product sales have increased by 12% and the
entity expects this rate of increase to continue over the next 2 years.
By the end of year 2, a further five employees have left, bringing the total to 12 to date. The
entity now expects only three more employees will leave during year 3, and therefore expects
a total of 85 employees will remain at the end of year 3. Product sales have increased by 20%,
resulting in an average of 16% over the two years to date. The entity now expects that sales
will average 16% or more over the three-year period, and hence expects each sales employee
to receive 300 share options at the end of year 3.
By the end of year 3, a further two employees have left. Hence, 14 employees have left during
the three-year period, and 86 employees remain. The entitys sales have increased by an
average of 16% over the three years.
Based on the preceding information, answer the following:
1. What is the compensation expense for year 1?
A. P106,667
C. P160,000
B. P53,333
D. P172,000
2. What is the compensation expense for year 2?
A. P286,667
C. P233,333
B. P180,000
D. P168,000
3. What is the compensation expense for year 3?
A. P114,667
C. P282,667
B. P176,000
D. P188,000
4. What is the cumulative compensation expense for years 1, 2, and 3?
A. P320,000
C. P344,000
B. P516,000
D. P172,000
5. At the end of year 2, the entity should report share options outstanding of
A. P328,000
C. P286,667
B. P226,667
D. P340,000
PROBLEM 18:
At the beginning of year 1, an entity grants to a senior executive 3,000 share options,
conditional upon the executive remaining in the entitys employ until the end of year 3. The
exercise price is P40. However, the exercise price drops to P30 if the entitys earnings increase
by at least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share options, with an exercise
price of P30, is P15 per option. If the exercise price is P40, the entity estimates that the share
options have a fair value of P12 per option.
During year 1, the entitys earnings increased by 12%, and the entity expects that earnings
will continue to increase at this rate over the next two years. The entity therefore expects that
the earnings target will be achieved, and hence the share options will have an exercise price of
P30.
During year 2, the entitys earnings increased by 13%, and the entity continues to expect that
the earnings target will be achieved.
During year 3, the entitys earnings increased by only 3%, and therefore the earnings target
was not achieved. The executive completes three years service, and therefore satisfies the
service condition. Because the earnings target was not achieved, the 3,000 vested share
options have an exercise price of P40.
Based on the preceding information, answer the following:
1. What is the compensation expense in year 1?
A. P12,000
C. P30,000
B. P15,000
D. P40,000
2. What is the compensation expense in year 2?
A. P12,000
C. P30,000
B. P15,000
D. P40,000
3. What is the compensation expense in year 3?
A. P12,000
C. P60,000
B. P15,000
D. P6,000
4. At the end of year 2, the entity should report share options outstanding of
A. P60,000
C. P30,000
B. P80,000
D. P24,000
5. What is the cumulative compensation expense for years 1, 2, and 3?
A. P36,000
C. P114,000
B. P60,000
D. P40,000
PROBLEM 19:
At the beginning of year 1, an entity grants to a senior executive 3,000 share options,
conditional upon the executive remaining in the entitys employ until the end of year 3.
However, the share options cannot be exercised unless share price has increased from P50 at
the beginning of year 1 to above P65 at the end of year 3. If the share price is above P65 at
the end of year 3, the share options can be exercised at any time during the next seven years,
i.e., by the end of year 10.
The entity applies a binomial option pricing model, which takes into account the possibility that
the share price will exceed P65 at the end of year 3 (and hence the share options become
exercisable) and the possibility that the share price will not exceed P65 at the end of year 3
(and hence the options will be forfeited). It estimates the fair value of the share options with
this market condition to be P20 per option.
Based on the preceding information, determine the compensation expense for years 1, 2, and
3.
PROBLEM 20:
An entity grants 100 cash share appreciation rights (SARs) to each of its 500 employees, on
condition that the employees remain in its employ for the next three years.
During year 1, 35 employees have left. The entity estimates that a further 60 will leave during
years 2 and 3. During year 2, 40 employees have left and the entity estimates that a further
25 will leave during year 3. During year 3, 22 employees have left. At the end of year 3, 150
employees exercised their SARs, another 140 employees exercised their SARs at the end of
year 4 and the remaining 113 employees exercised their SARs at the end of year 5.
The entity estimates the fair value of the SARs at the end of each year in which a liability
exists as shown below. At the end of year 3, all SARs held by the remaining employees vested.
The intrinsic values of the SARs at the date of exercise (which equal the cash paid out) at the
end of years 3, 4, and 5 are also shown below.
Year
1
2
3
4
5
Fair Value
P14.40
15.50
18.20
21.40
Intrinsic Value
P15.00
20.00
25
A. P55,000
C. P52,000
B. P67,600
D. P60,000
6. If the employee has chosen the share alternative, the amount of share premium to be
recognized is
A. P7,600
C. P60,000
B. P55,600
D. P67,600
PROBLEM 22:
The following information has been taken from the ledger accounts of CHINA CORPORATION:
Total net income since incorporation
Total cash dividends paid
Carrying value of the companys investment in Yogi
Company declared
as property dividend
Proceeds from sale of donated shares
Total value of stock dividends distributed
Gains on treasury share transactions
Unamortized premium on bonds payable
Appropriated for contingencies
P3,200,000
150,000
600,000
150,500
420,000
375,000
413,200
700,000
P365,000
P
5,000
3,000
2,000
150,000
13,000
173,000
538,000
P 100,000
2,500
83,000
185,50
0
P352,50
0
P
1,250,000
90,000
6,000,000
180,000
500,000
1,200,000
10,000,000
320,000
The minutes of meetings of the board of directors reveal that on December 5, 2012, the
companys board declared a 10% cash dividend payable to shareholders and subscribers of
record on December 20, 2012. The dividend checks are to be distributed on January 10, 2013.
The companys accountant has not recorded this dividend declaration.
What is the amount of unrecorded dividend payable?
A. P516,000
C. P487,000
B. P519,000
D. P394,000
PROBLEM 26:
The capital accounts of BHUTAN COMPANY on June 30, 2012, are as follows:
Ordinary shares, P10 par, 50,000 shares issued and
outstanding
Share premium
Retained earnings
P 500,000
250,000
3,135,000
Feb.
15
March
31
May
13
June
16
30
1. What is the amount of dividend per share that Afghanistan paid on March 31?
A. P1.50
C. P1.59
B. P0.85
D. P1.70
2. What is the amount of dividend that Afghanistan will have to pay in the third quarter in
order to pay the same dividend rate as that paid in previous quarters?
A. P2.850.000
C. P3,163,500
B. P2,997,000
D. P3,585,300
3. What is the total amount of dividends to be paid during the current year?
A. P10,305,900
C. P13,305,900
B. P12,040,500
D. P12,654,000
PROBLEM 28:
BRUNEI COMPANY has 50,000 shares of P10 par value share capital outstanding. In declaring
and distributing a 50% share dividend, Brunei initially issued only 20,000 new shares; the
other share dividend shares were not issued because some investors did not own Brunei
shares in even multiplies of 10. To these shareholders, Brunei issued fractional share warrants.
Prepare journal entries necessary to record the following:
a) Declaration of the share dividend
b) Issuance of the full and fractional share dividends
c) Issuance of full shares through the surrender of the required fractional warrants. (Assume
that 80% of the fractional share warrants were ultimately turned in for shares).
PROBLEM 29:
You have been asked to audit the TURKEY COMPANY. During the course of your audit, you are
asked to prepare comparative data from the companys inception to the present. You have
determined the following:
a) Turkey Company's charter became effective on January 2, 2008, when 20,000 shares of
P10 ordinary shares and 10,000 shares of 7% cumulative, nonparticipating, preference
shares were issued. The ordinary shares were sold at P12 per share, and the preference
shares were sold at par value of P100 per share.
b) Turkey was unable to pay preference dividends at the end of its year. The owners of the
preference shares agreed to accept 2 ordinary shares for every 50 preference shares
owned in discharge of the preference dividends due on December 31, 2008. The shares
were issued on January 2, 2009/ the fair market value was P30 per share for ordinary
shares on the date of issue.
c) Turkey Company acquired all the outstanding shares of Akinka Corporation on May 1,
2010, in exchange for 10,000 ordinary shares of Turkey.
d) Turkey split its ordinary shares 3 for 2 on January 1, 2011, and 2 for 1 on January 1, 2012.
e) Turkey offered to convert 20% of the preference shares to ordinary shares on the basis of
2 ordinary shares for 1 preference share. The offer was accepted, and the conversion was
made on July 1, 2012.
f) No cash dividends were declared on ordinary shares until December 31, 2012. Cash
dividends per share of ordinary shares were declared and paid as follows:
2010
2011
2012
June 30
-P1.50
P1.25
Dec. 31
P3.20
P2.50
P1.00
20,400
10,000
C.
25,000
10,000
D.
20,200
9,800
2. 2010
A.
Ordinary
30,000
Preference
10,000
B.
30,200
9,800
C.
35,000
10,000
D.
30,400
10,000
A.
Ordinary
45,300
Preference
10,000
B.
45,600
10,000
C.
76,000
10,000
D.
52,500
9,800
A.
Ordinary
95,200
Preference
8,000
B.
49,600
10,000
C.
93,200
7,840
D.
93,200
8,000
3. 2011
4. 2012
II.
The amount of cash dividends declared and paid to shareholders for each of the
following years:
5. 2010
A. P112,000
C. P97,280
B. P96,640
D. 96,000
6. 2011
A. P182,400
C. P159,600
B. P83,600
D. P121,600
7. 2012
A. P214,200
C. P153,200
B. P217,200
D. P209,200
PROBLEM 30:
The following are the shareholders equity accounts of INDIA COMPANY at December 31, 2012.
Ordinary shares, P10 par; authorized 200,000 shares; issued
P900,00
90,000 shares
0
Preference shares, 12% P25 par; authorized 100,000 shares;
issued 15,000 shares; cumulative
375,000
Share premium
2,500,0
00
Retained earnings
4,750,0
00
Treasury shares (7,500 ordinary shares)
371,250
The preference shares are participating in distribution in excess of a 15% dividend rate on the
ordinary shares. No dividends have been paid in 2010 or 2011. On December 31, 2012, India
wants to pay a cash dividend of P2 a share to ordinary shareholders.
1. What is the amount to be paid to preference shareholders?
A. P153,750
C. P108,750
B. P90,000
D. P135,000
2. What is the amount to be paid to ordinary shareholders?
A. P105,750
C. P99,000
B. P123,750
D. P165,000
PROBLEM 31:
UZBEKISTAN COMPANY reported the following amounts in the shareholders equity section of
its December 31, 2011, statement of financial position:
Preference shares, 10%, P10 par (100,000 shares authorized,
20,000 shares issued)
Ordinary shares, P5 par (50,000 shares authorized 10,000
shares issued)
Share premium
Retained earnings
TOTAL
P200,000
50,000
96,000
600,00
0
P
946,000
Issued 500 ordinary shares to the corporation promoters in exchange for property
valued at P170,000 and services valued at P70,000. The property had cost the
promoters P90,000 3 years before and was carried on the promoters books at
P50,000.
February 23 Issued 10,000 preference shares with a par value of P100 per share. The shares
were issued at a price of P150 per share, and the company paid P75,000 to an
agent for selling the shares.
March 10
Sold 3,000 ordinary shares for P390 per share. Issue costs were P25,000
April 10
4,000 ordinary shares were sold under share subscription at P450 per share. No
shares are issued until a subscription contract is paid in full. No cash was
received.
July 14
Exchanged 700 ordinary shares and 1,400 preference shares for a building with a
fair market value of P510,000. The building was originally purchased for P380,000
by the investors and has a book value of P220,000. In addition, 600 ordinary
shares were sold for P240,000 in cash.
August 3
Received payments in full for half of the share subscriptions and payments on
account on the rest of the subscriptions. Total cash received was P1,400,000.
Shares were issued for the subscriptions paid in full.
December 1 Declared a cash dividend of P10 per share on preference shares, payable on
December 31 to shareholders of record on December 15, and a P20 per share
cash dividend on ordinary shares, payable on January 5 of the following year to
shareholders of record on December 15.
31
PROBLEM 33:
ARMENIA CO. began operations on January 1, 2011, by issuing at P30 per share one-half of the
900,000 shares of P10 par value ordinary shares that had been authorized for sale. In addition,
Armenia has 500,000 shares of P50 par value, 6% preference shares authorized. During 2011,
Armenia had P3,200,000 of net income and declared P2,000,000 of dividends.
During 2012, Armenia had the following transactions:
January 9
Issued an additional 100,000 ordinary shares for P18 per share.
April 2
July 20
October 21 sold an additional 25,000 preference shares for P55 per share
December 31
Reported P2,400,000 of net income and declared a dividend of P700,000 to
shareholders of record on January 15, 2013, to be paid on February 4, 2013.
Based on the preceding data, determine the December 31, 2010, balances of the following:
1. Preference shares
A. P5,000,000
C. P6,250,000
B. P3,750,000
D. P4,875,000
2. Share premium preference shares
A. P10,250,000
C. P1,250,000
B. P2,050,000
3. Ordinary shares
A. P1,000,000
B. P6,300,000
4. Share premium ordinary shares
A. P9,800,000
B. P9,000,000
5. Retained earnings (unappropriated)
A. P2,900,000
B. P2,100,000
D. P1,125,000
C. P4,500,000
D. P5,500,000
C. P11,050,000
D. P9,925,000
C. P3,200,000
D. P1,200,000
PROBLEM 34:
YEMEN CORPORATION has incurred losses from operations for many years. At the
recommendation of the newly hired president, the board of directors voted to implement a
quasi-reorganization, subject to shareholders and creditors approval. Immediately, prior to
the quasi-reorganization, on June 30 2012, Yemens statement of financial position was as
follows:
Assets
Current assets
Property, Plant and Equipment (net)
Other noncurrent assets
Total Assets
P1,375,000
3,375,000
500,000
P
5,250,000
P1,500,000
4,000,000
750,000
(1,000,00
0)
P
5,250,000
The shareholders and creditors approved the quasi-reorganization effective July 1, 2012, to be
accomplished by a reduction in property, plant, and equipment (net) of P875,000, a reduction
in other noncurrent assets of P375,000, and a reduction in par value from P10 to P5.
1. Yemens July 1, 2012, statement of financial position after the quasi-reorganization should
show total assets of
A. P4,000,000
C. P4,375,000
B. P2,500,000
D. P3,875,000
2. The balance in the share premium account after the quasi-reorganization on July 1, 2012,
should be
A. P750,000
C. P500,000
B. P2,000,000
D. P0
3. Yemens deficit after the quasi-reorganization on July 1, 2012, should be
A. P1,000,000
C. P500,000
B. P250,000
D. P0
PROBLEM 35:
Shown below are ALBANIA COMPANYs condensed statements of financial position immediately
before and one year after it had completed a quasi-reorganization.
Dec. 31,
2012
Dec. 31,
2013
(Before
Quasi)
Current assets
Property, Plant, and Equipment (net)
TOTAL assets
P900,000
5,100,000
P
6,000,000
P 1,350,000
3,870,000
P5,220,000
Ordinary shares
Share premium
P7,200,000
660,000
P4,650,000
90,000
Retained earnings
Total shareholders equity
(1,860,000)
P
6,000,000
480,000
P
5,220,000
In 2013, Albania reported net income of P480,000 and depreciation expense of P330,000. The
quasi-reorganization on December 31, 2012, included the write down of the companys
inventories by P360,000. No purchases or sales of property, plant, and equipment items and
no share transactions occurred in 2013.
Prepare all the journal entries made at the time of the quasi-reorganization.
PROBLEM 36:
BALILI, INC. began operations in January 2010, and reported the following results for each of its
three years of operations.
2010
2011
2012
P300,000
30,000
3,950,000
Net loss
Net loss
Net income
P
6,000,000
8,000,000
Balili, Inc. has never paid a cash or share dividend and there has been no change in the capital
accounts since it began operations.
1. What is the book value of the preference shares on December 31, 2012?
A. P105
C. P100
B. P110
D. P115
2. What is the book value of the ordinary shares on December 31, 2012?
A. P13.40
C. P14.15
B. P14.52
D. P13.78
Assume that the preference shares have a liquidation value of P105 per share.
3. What is the book value of the preference shares on December 31, 2012?
A. P115
C. P110
B. P120
D. P105
4. What is the book value of the ordinary shares on December 31, 2012?
A. P13.78
C. P13.40
B. P14.15
D. P13.02
PROBLEM 37:
You are auditing the financial statements of the ITALY COMPANY as of December 31, 2012. The
companys general ledger shows the following liability and equity accounts at the end of the
reporting period.
Accounts payable
Accrued expenses
Reserve for bond retirement
Preference shares, 6% cumulative, P100 par; 6,000 shares
authorized;
4,000 shares issued; 3,700 shares outstanding
Ordinary shares, P10 par; 200,000 shares authorized;
80,000 shares
issued and outstanding
Share premium
Retained earnings
Treasury preference shares, at cost
P 530,000
41,600
320,000
400,000
800,000
154,600
262,520
36,000
A. P116
C. P110
B. P115
D. P122
2. What is the book value of the ordinary shares on December 31,2012?
A. P18.47
C. P18.36
B. P18.68
D. P18.40