CENTER FORACCOUNTANCYREVIEW&TRAINING

ES T A B L I S H E D 2003
2ndFlr.,ManangoBldg., City Road., Centro East, Santiago City, Philippines; Mobile No.: 09108298588

AUDITING PROBLEMS
Jimmy I. Peru, MBM, MICB, CPA

“Stockholders’ Equity”

Problem # 1 month. The cash dividends which have been declared

since inception of the company through June 30,
BEBE CO. was formed on July 1,2010. It was 2013, are shown below:
authorized to issue 1,800,000 shares of P10 par
value ordinary shares and 600,000 shares of 8 Declaration Date SC-Ordinary SC-Preference
percent P25 par value, cumulative and non
participating preference shares. BEBE CO. has a July 12/15/11 P0.30 /share P1.00 /share
1-June 30 fiscal year. 06/15/12 P0.30 /share P1.00 /share
12/15/12 --- P1.00 /share
The following information relates to the shareholders’
No cash dividends were declared during June 2013
equity accounts of BEBE CO.:
due to the company’s liquidity problems.
Ordinary Shares
Retained Earnings
Prior to the 2012-2013 fiscal year, BEBE CO. had
As of June 30, 2012, BEBE CO.’s retained earnings
660,000 ordinary shares issued as follows:
account had a balance of P4,140,000. For the fiscal
year ending June 30, 2013, BEBE CO. reported net
1. 510,000 shares were issued for cash in July 1,
income of P240,000.
2010, at P31 per share.

Required:
2. On July 24, 2010, 30,000 shares were
exchanged for a plot of land which cost the seller
Compute the adjusted balances of the following as of
P420,000 in 2004 and had an estimated market
June 30,2013:
value of P1,320,000 on July 24,2010.
A. Share Capital – Preference
3. 120,000 shares were issued on March 1, 2011,
for P42 per share. B. Share Capital – Ordinary

During the 2012-2013 fiscal year, the following C. Share Premium – Preference
transactions regarding ordinary shares took place:
D. Share Premium – Ordinary
November 30,2012 - BEBE CO. purchases 12,000 of
its own shares on the open market at P39 per share E. Share Premium – Treasury

F. Retained Earnings
December 15,2012 - BEBE CO. declared a 5% share
dividend for shareholders of record on January15, G. Treasury shares
2013, to be issued on January 31, 2013. BEBE CO.
was having a liquidity problem and could not afford a H. Total Shareholders’ Equity
cash dividend at the time. BEBE CO.’s ordinary
shares were selling at P53 per share on December PROBLEM NO. 2
15, 2012.
The shareholder’s equity section of BAHRAIN
June 20,2013 - BEBE CO. sold 3,000 of its own CORPORATION’s statement of financial position as of
ordinary shares that it had purchased on N December 31, 2012, is as follows:
November 30, 2012, for P126,000.
Share capital – Ordinary
(P10 par, 750,000 shares authorized, 412,500
Preference Shares
issued and outstanding) P4,125,000
Sharedpremium 825,000
BEBE CO. issued 240,000 preference shares at P44 Totalpaid-incapital P4,950,000
per share on July 1, 2011. Unappropriatedretainedearnings P2,002,500
Appropriated retained earnings 750,000
Cash Dividends Total retained earnings 2,752,500
Total shareholders’ equity P7,702,500
BEBE CO. has followed a schedule of declaring cash
dividends in December and June, with payment Bahrain Corporation had the following
being made to shareholders of record in the following shareholders’ equity transactions during 2013:

VJ De Leon AP - 01 Page 1
Jan. 15 - Completed the building renovation for Retained Earnings
which P750,000 of retained earnings had been Date Item Debit Credit Balance
restricted. Paid the contractor P727,500, all of which
2011
is capitalized.
Jan. 1 Bal 195,000
Dec. 31 Net Income 84,000 279,000
Mar. 3 - Issued 150,000 additional ordinary shares
for P18 per share 2012
Jan. 10 Div. paid 46,500 232,500
May 18 - Declared a dividend of P1.50 per share to Mar. 6 APIC 63,000 295,500
be paid on July 31,2013, to shareholders of record Dec. 31 Net Loss 53,400 242,100
on June 30, 2013
2013
Jan. 10 Div. paid 46,500 195,600
June 19 - Approved additional building renovation to
Dec. 31 Net Loss 57,900 137,700
be funded internally. The estimated cost of the
project is P600,000, and retained earnings are to be Required:
restricted for that amount.
A. What is the corrected 2011 net income?
July 31 - Paid the dividend
B. What is the corrected 2012 net loss?
Nov. 12 - Declared a property dividend to be paid on
January 5,2014. The dividend is to consist of C. What is the corrected 2013 net loss?
equipment that has a carrying amount of P360,000
D. What is the corrected retained earnings on
and a fair value of P472,500 on November 12. December 31, 2012?

Dec. 31 - Net income for 2013 (before recognition of
impairment loss on the equipment declared as
property dividend) is P1,327,500. The equipment’s
fair value less cost to distribute on December 31 is
P330,000
Required:
A. SC – Ordinary on December 31, 2013, is
B. Share premium on December 31,2013, is
C. Unappropriated RE on December 31, 2013, is
D. The total SHE on December 31, 2013, is
PROBLEM NO. 3
A CPA was engaged by BIRDIE Company in 2013 to
examine its books and record and to make whatever
corrections are necessary. An examination of the
accounts discloses the following:
a) Dividends had been declared on December 15 in
2011 and 2012 but had not been entered in the
books until paid.
E. What is the corrected retained earnings on
December 31, 2013?
PROBLEM NO. 4
TANYA Company was organized on January 02,
2012, with authorized share capital of 50,000 shares
of 10%, P200 par value preference and 200,000
shares of 10 par value ordinary. During the
company’s first two years of operations, the
following equity transactions occurred.
2012
Jan. 02 – Sold 10,000 ordinary shares at 16
02 – Sol 3,000 preference shares at 216
Mar. 02 – Sold ordinary shares as follows: 10,800
shares at 22; 2,700 shares at 25
July 10 – Acquired a nearby place of land, appraised
at 400,000, for 600 preference shares and 27,000
ordinary shares. (Preference share capital was
recorded at 216, the balance being assigned to
ordinary)
Dec. 16 – Declared the regular preference share
dividend and a 1.50 ordinary share dividend.
28 – Paid the dividends declared on 12/16
31 – The income summary account showed a
credit balance of 450,000

b) Improvements in building and equipment of 2013

32,400 had been debited to expenses at the end of
April 2010. Improvements are estimated to have 12-
year life. The company uses the straight line method
in recording depreciation and computed depreciation
to the nearest month.
c) The physical inventory of merchandise had been
understated by 9,600 at the end of 2011 and by
14,250 at the end of 2012.
Feb. 27 – Reacquired 12,000 ordinary shares at 19
June 17 – Resold 10,000 treasury shares at 23
July 31 – Resold the remaining treasury shares at 18
Sep. 30 – Sold 11,000 addl. ordinary shares at 21
Dec. 16 – Declared the regular preference share
dividend and an 0.80 ordinary share dividend
28 – Paid the dividends declared on Dec. 16.
31 - The income summary account showed a
credit balance of 425,000

d) The merchandise inventories at the end of 2012 Based on the above information, determine the
and 2013 did not include merchandise that was then balances of the following:
in transit and to which the company had title. These
shipments of 6,300 and 8,700 were recorded as A. Preference share capital
purchases in January of 201 and 2014, respectively.
B. Ordinary share capital
e) The company had failed to record sales
commission’s payable of 10,800 and 3,300 at the C. Total share premium
end of 201 and 2013, respectively.
D. Unappropriated retained earnings
f) The company had failed to recognize supplies on
hand of 2,550 and 5,160 at the end of 2012 and E. Total Shareholders’ equity
2013, respectively
The retained earnings account appeared as shown
below on the date the CPA began the examination.

VJ De Leon AP - 01 Page 2