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Shareholder S Equity Reviewer
Shareholder S Equity Reviewer
PROBLEM NO. 1
Alcoy Corporation’s post-closing trial balance at December 31, 2006 was as
follows:
Alcoy Corporation
Post-Closing Trial Balance
December 31, 2006
Debit Credit
Accounts payable P 495,000
Accounts receivable P 963,000
Reserve for depreciation 360,000
Reserve for doubtful accounts 54,000
Premium on common stock 1,800,000
Gain on sale of treasury stock 450,000
Bonds payable 720,000
Building and equipment 1,980,000
Cash 396,000
Cash dividends payable on preferred stock 7,200
Common stock (P1 par value) 270,000
Inventories 1,116,000
Land 684,000
Available-for-sale securities at fair value 513,000
Trading securities at fair value 387,000
Net unrealized loss on available-for-sale
securities 45,000
Preferred stock (P50 par value) 900,000
Prepaid expenses 72,000
Donated capital 800,000
Stock warrants outstanding 208,000
Retained earnings 415,800
Treasury stock – common, at cost 324,000
Totals P6,480,000 P6,480,000
At December 31, 2006, Alcoy had the following number of common and
preferred shares:
Common Preferred
Authorized 900,000 90,000
Issued 270,000 18,000
Outstanding 252,000 18,000
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The dividends on preferred stocks are P0.40 cumulative. In addition, the
preferred stock has a preference in liquidation of P50 per share.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
PROBLEM NO. 2
Your audit client, Argao, Inc., is a public enterprise whose shares are
traded in the over-the-counter market. At December 31, 2005, Argao had
3,000,000 authorized shares of P10 par value common stock, of which
1,000,000 shares were issued and outstanding. The stockholders’ equity
accounts at December 31, 2005 had a following balances.
Common stock P10,000,000
Additional paid-in capital 3,750,000
Retained earnings 3,250,000
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stock has a liquidation value equal to its par value.
On November 10, 2006, Argao sold 5,000 shares of treasury stock for
P21 per share.
On January 20, 2007, before the books were closed for 2006, Argao
became aware that the ending inventories at December 31, 2005 were
understated by P150,000 (after tax effect on 2005 net income was
P90,000). The appropriate correction entry was recorded the same day.
After correcting the beginning inventory, net income for 2006 was
P2,250,00.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
3. Treasury stock
a. P160,000 c. P55,000
b. P 80,000 d. P50,000
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4. Total stockholders’ equity
a. P22,190,000 c. P24,690,000
b. P24,770,000 d. P24,840,000
PROBLEM NO. 3
The stockholders’ equity section of the Asturias Inc. showed the following
data on December 31, 2005: Common stock, P3 par, 300,000 shares
authorized, 250,000 shares issued and outstanding, P750,000; Paid-in
capital in excess of par, P7,050,000; Additional paid-in capital from stock
options, P150,000; Retained earnings, P480,000. The stock options were
granted to key executives and provided them the right to acquire 30,000
shares of common stock at P35 per share. Each option has a fair value of
P5 at the time the options were granted.
Dec. 1 The market price per share dropped to P33 and options came
due. Because the market price was below the option price, no
remaining options were exercised.
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Dec. 31 Net income for 2006 was P250,500.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
1. Common stock
a. P777,300 c. P833,850
b. P848,700 d. P850,050
4. Retained earnings
a. P580,500 c. P730,500
b. P858,000 d. P654,150
PROBLEM NO. 4
Balamban Corporation was authorized at the beginning of 2004 with
540,000 authorized shares of P100, par value common stock. At December
31, 2004, the stockholders’ equity section of Balamban was as follows:
Common stock, par value P100 per share; authorized
540,000 shares; issued 54,000 shares P5,400,000
Additional paid-in capital 540,000
Retained earnings 810,000
Total stockholders’ equity P6,750,000
On May 10, 2005, Balamban issued 90,000 shares of its common stock for
P10,800,000. A 5% stock dividend was declared on September 30, 2005
and issued on November 10, 2005 to stockholders of record on October 31,
2005. Market value of common stock was P110 per share on declaration
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date. The net income of Balamban for the year ended December 31, 2005
was P855,000.
May 15 Balamban sold 2,700 shares of its treasury stock for P120
per share.
Jun 30 Issued to stockholders one stock right for each share held to
purchase two additional shares of common stock for P125 per
share. The rights expire on December 31, 2006.
Aug. 15 45,000 stock rights were exercised when the market value of
common stock was P130 per share.
Sep. 30 72,000 stock rights were exercised when the market value of
the common stock was P140 per share.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
1. Common stock
a. P38,520,000 c. P38,340,000
b. P26,640,000 d. P38,250,000
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3. Retained earnings
a. P1,080,000 c. P1,017,000
b. P1,002,600 d. P1,008,000
4. Treasury stock
a. P18,000 c. P85,500
b. P90,000 d. P 0
PROBLEM NO. 5
Bogo Corporation began operations on January 1, 2006. The company was
authorized to issue 60,000 shares of P10 par value common stock and
120,000 shares of 10%, P100 par value convertible preferred stock.
Feb. 15 Sold 9,000 shares of common stock at P390 per share. The
corporation paid issue costs of P75,000.
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Total cash received was P4,200,000. Shares of stock were
issued for the fully paid subscriptions. The balance is
collectible next year.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
1. Common stock
a. P204,000 c. P264,000
b. P144,000 d. P186,000
4. Retained earnings
a. P1,050,000 c. P 930,000
b. P1,170,000 d. P1,458,000
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PROBLEM NO. 6
The Borbon Corporation has requested you to audit its financial statements
for the year 2006. During your audit, Borbon presented to you its balance
sheet as of December 31, 2005 containing the following capital section:
Additional information:
1) Of the preferred stock, 3,000 shares were sold for P18 per share on
August 30, 2006. Borbon credited the proceeds to the Preferred Stock
account. The treasury shares as of December 31, 2005 were acquired
in one purchase in 2005.
6) On December 31, 2006, the Reserve for Fire Insurance was decreased
by P30,000, which represents the carrying value of a machine
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destroyed by fire on that date. Estimated fire cleanup costs of P6,000
does not appear on the records.
8) Net income for the year ended December 31, 2006 was P1,297,500 per
company’s records.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted
balances of the following as of December 31, 2006. (Disregard tax
implications)
4. Treasury stock
a. P45,000 c. P36,000
b. P90,000 d. P 0
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PROBLEM NO. 7
The stockholders equity of Cordova Corporation showed the following data
on December 31, 2005:
12% preferred stock, P30 par, 135,000 shares
issued and outstanding P4,050,000
Common stock, P50 par, 180,000 shares issued
and outstanding 9,000,000
Premium on preferred stock 1,080,000
Premium on common stock 3,240,000
Retained earnings 1,395,000
The 2006 transactions of the company affecting its stockholders’ equity are
summarized chronologically as follows:
1. Issued 27,000 shares of preferred stock at P40.
2. Issued 94,500 shares of common stock at P70.
3. Retired 5,400 shares of preferred stock at P45.
4. Purchased 13,500 shares of its common stock at P80.
5. Split common stock two for one (par value reduce to P25).
6. Reissued 13,500 shares of treasury stock – common at P50.
7. Stockholders donated to the company 9,000 shares of common stock
when shares had a market price of P52. One half of these shares were
subsequently issued for P54.
8. Dividends were paid at the end of the calendar year on the common
stock at P2 per share and on the preferred stock at the preferred rate.
9. Net income for the year was P2,520,000.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
1. Preferred stock
a. P4,617,000 c. P4,968,000
b. P4,698,000 d. P4,860,000
2. Common stock
a. P15,615,000 c. P13,968,000
b. P13,500,000 d. P13,725,000
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3. Additional paid-in capital
a. P6,777,000 c. P6,679,800
b. P6,858,000 d. P6,814,800
PROBLEM NO. 8
You were able to gather the following information in connection with your
audit of the stockholders’ equity section of the balance sheet of Liloan, Inc.
The company is a manufacturer of school and office equipment. As of
December 31, 2005, the stockholder’s equity of the company is presented
below:
Cumulative preferred stock (P15 par value; 100,000
shares authorized, 12,000 shares issued and
outstanding) P 180,000
Common stock (P10 par value; 1,000,000 shares
authorized, 330,000 shares issued and outstanding 3,300,000
Retained earnings 1,866,000
P5,346,000
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d. On December 20, Liloan contracted with Ms. Buti for the sale of
30,000 previously unissued shares at P25 per share to be issued
when the purchase price is fully paid. At December 31, only
P585,000 had been paid. Buti agreed to pay the balance on or before
January 31, 2007.
QUESTIONS:
Based on the above and the result of your audit, determine the following as
of December 31, 2006:
1. Preferred stock
a. P360,000 c. P264,000
b. P300,000 d. P324,000
2. Common stock
a. P3,435,000 c. P3,735,000
b. P4,020,000 d. P3,637,500
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PROBLEM NO. 9
In connection with your audit of the Poro Company, you were asked to
prepare comparative data from the company’s inception to the present.
The following were gathered during your audit:
b. Poro was unable to pay preferred dividends at the end of its first year.
The owners of the preferred stock agreed to accept 2 shares of common
stock for every 50 shares of preferred stock owned in discharge of the
preferred dividends due on December 31, 2002. The shares were
issued on January 2, 2003. The fair market value was P30 per share
for common on the date of issue.
d. Poro split its common stock 3 for 2 on January 1, 2005, and 2 for 1 on
January 1, 2006.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
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2. Outstanding number of preferred shares as of December 31, 2006
a. 40,000 c. 32,000
b. 24,000 d. 96,000
PROBLEM NO. 10
You were able to gather the following information in connection with your
audit of Sogod Corporation:
On March 31, 2006, 18,000 option shares were exercised when the
market value of common stock was P40 per share.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
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2. Net compensation expense for 2005
a. P262,500 c. P120,000
b. P210,000 d. P150,000
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