Audit Equities PDF

CHAPTER 9 – Audit of Shareholders’ Equity
Problem 1
You have been assigned to the audit of Aguillon Inc., a manufacturing company. You have
been asked to summarize the transactions for the year ended December 31, 2004, affecting
shareholders’ equity and other related accounts. The shareholders’ equity section of
Aguillon’s December 31, 2003, balance sheet follows:
Shareholders’ Equity
Contributed capital:
Ordinary share P2 par value, 500,000 shares authorized,
90,000 shares issued, 88,790 shares outstanding P 180,000
Paid-in capital in excess of par 1,820,000
Paid-in capital from treasury share 22,500
Total contributed capital P2,022,500
Retained earnings 324,689
Total contributed capital and retained earnings P2,347,189
Less: Cost of 1,210 shares of treasury share 72,600
Total shareholders’ equity P2,274,589
You have extracted the following information from the accounting records and audit working
papers.
2004
Jan. 15 Aguillon reissued 650 shares of treasury share for P40 per share. The 1,210
shares of treasury share on hand at December 31, 2001, were purchased in
one block in 2001. Aguillon used the cost method for recording the treasury
shares purchased.
Feb. 2 Sold 90, P1,000, 9% bonds due February 1, 2005, 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
97. The detachable warrants have a fair value of P60 each and expire on
February 1, 2005. Each warrant entitles the holder to purchase 10 shares of
Ordinary share at P40 per share.
Mar. 6 Subscriptions for 1,400 shares of Ordinary share were issued at P44 per
share, payable 40% down and the balance by March 20.
20 The balance due on 1,200 shares was received and those shares were issued.
The subscriber who defaulted on the 200 remaining shares forfeited the down
payment in accordance with the subscription agreement.
Nov. 1 There were 55 share warrants detached from the bonds and exercised.
Net income for the year is P600,000.
Questions- Based on the information above, answer the following questions:
1. The Ordinary Share at December 31, 2004 is:

a. P 215,000 b. P 204,000 c. P 191,000 d. P 183,500
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2. The Additional paid capital in excess of par at December 31, 2004 is:
a. P 1,903,000 b. P 1,894,600 c. P 1,870,400 d. P 1,835,800
3. The APIC – treasury share at December 31, 2004 is:

a. P 22,500 b. P 13,000 c. P 9,500 d. P 0
4. The Ordinary Share Warrants Outstanding at December 31, 2004 is:

a. P 5,400 b. P 3,300 c. P 2,100 d. P 0
5. The Subscribed Ordinary Share at December 31, 2004 is:

a. P 2,800 b. P 2,400 c. P 400 d. P 0
6. The APIC – forfeited share at December 31, 2004 is:

a. P 0 b. P 3,520 c. P 3,920 d. P 5,280
7. The Treasury Share at December 31, 2004 is:

a. P 0 b. P 72,600 c. P 39,000 d. P 33,600
8. The Total Shareholders’ Equity at December 31, 2004 is:

a. P 2,984,309 b. P 2,659,620 c. P 2,384,309 d. P 2,059,620
Solution
Jan 15 Cash (650 shares x P40) 28,000
Paid-in capital from treasury share 13,000
Treasury Share 39,000
Cost of treasury share: P72,000/1,210 shares = P60 per share
Cost of shares sold: 650 shares x P60 = P 39,000
Feb 2 Cash (P90,000 x 103) 92,700
Discount on bonds payable 2,700
Bonds payable 90,000
Ordinary share warrants 5,400
Price of bonds without warrants attached: 97 x P90,000 = P87,300
Value of detached warrants: 90 x P60 = P 5,400
Because value of bonds plus value of detachable warrants is equal to the total issuance price
(P87,300 + P5,400 = P92,700), the value assigned to the bonds and warrants is the fair value of
each.
Mar 6 Cash 24,640
Ordinary share subscription receivable 36,960
Ordinary share subscribed 2,800
Paid-in capital in excess of par 58,800
Mar 20 Cash 31,680
Mar 20 Ordinary share subscribed 2,400
Ordinary share 2,400
Mar 20 Ordinary share subscribed 400
Paid in capital from forfeited share subscription 3,520
Nov 1 Cash (550 s P40) 22,000
Ordinary share warrants (55 x P60) 3,300
Answer:
1. D 2. B 3. C 4. C 5. D 6. B 7. D 8. D
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Problem 2
The shareholder’s equity of the Amongan Lumber Co. on June 30, 2004, was as follows:
Contributed capital:
5% preference share, P50 par, cumulative, 30,000 shares issued,
dividends 5 years in arrears P1,500,000
Ordinary share, P30 par, 100,000 shares issued 3,000,000
P4,500,000
Deficit from operations (600,000)
Total shareholder’s equity P3,900,000
On July 1, the following actions were taken:
a. Ordinary shareholders turned in their old Ordinary share and received in exchange new
ordinary share, 1 share of the new share being exchanged for every 4 shares of the old.
New ordinary share was given a stated value of P60 per share.
b. One-half share of the new ordinary share was issued on each share of preference share
outstanding in liquidation of dividends in arrears on preference share.
c. The deficit from operations was applied against the paid-in capital arising from the
ordinary share restatement.
Transactions for the remainder of 2004 affecting the shareholders’ equity were as follows:
Oct. 1 10,000 shares of preference share were called at P55 plus dividends for 3
months at 5%. Share was formally retired.
Nov. 10 60,000 shares of new ordinary share were sold at P65.
Dec. 31 Net income for the 6 months ended on this date was P400,000. (Assume that
revenues and expenses were closed to a temporary account, Income
summary. Use this account to complete the closing process.) The semiannual
dividend was declared on preference shares, and a P0.75 dividend on ordinary
shares, dividends being payable January 20, 2003.
Questions
Based on the information above, answer the following questions:
1. The balance of 5% Preference Share at December 31, 2004 is:

a. P 1,500,000 b. P 1,000,000 c. P 500,000 d. P 0
2. The balance of Ordinary Share at December 31, 2004 is:

a. P 3,000,000 b. P 4,000,000 c. P 4,500,000 d. P 6,000,000
3. The balance of Additional paid in capital at December 31, 2004 is:

a. P 0 b. P 300,000 c. P 1,500,000 d. P 1,800,000
4. The balance of Retained Earnings at December 31, 2004 is:

a. P 0 b. P (600,000) c. P 243,750 d. P 293,750
Solution
July 1 Ordinary share, P30 par 3,000,000
Ordinary share, P60 stated value 1,500,000
Exchanged 100,000 shares of old ordinary share with a par value of P30 for 25,000 shares of new ordinary
share with a stated value of P60.
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July 1 Retained earnings 900,000
Ordinary share, P60 stated value 900,000
Eliminate dividends in arrears on preference share through issuance of 15,000 shares of new ordinary
share.
July 1 Paid-in capital in excess of stated value 1,500,000
Retained earnings 1,500,000
Applied deficit against paid-in capital created through recapitalization
Oct 1 5% Preference share 600,000
Cash 556,250
Retired 10,000 shares of preference share
10,000 shares preference share retired:
Amount paid (10,000 shares x P55) P550,000
Dividends for 3 months (P500,000 x .05 x 3/12) 6,250 P 556,250
Nov 10 Cash 3,900,000
Ordinary share, P60 stated value 3,600,000
Paid-in capital in excess of stated value 300,000
Sold 60,000 shares of ordinary share P65.
Dec 31 Income summary 400,000
Recorded earnings for the 6-month period ended December 31.
Dec 31 Dividends (Retained earnings) 100,000
Dividend payable – preference 25,000
(20,000 x P50 x .05 x ½)
Dividend payable – ordinary 75,000
(100,000 shares x P.75)
SHAREHOLDERS’ EQUITY
Contributed Capital
5% preference share 1,000,000
Ordinary share 6,000,000
Paid-in capital in excess of stated value – ordinary 300,000
Total 7,300,000
Retained earnings (accumulated since July 1, 2002) 243,750
Total Shareholders’ Equity 7,543,750
On July 1, 2004, 100,000 shares of ordinary share, P30 par, were exchanged for 25,000 shares of ordinary share
with a P60 stated value, thus creating additional paid-in capital. Such paid-in capital was applied to the elimination
of a P600,00 deficit on this date and also the liquidation of dividends in arrears on preference share of P900,000
through the issue of 15,000 shares of new ordinary. Earnings since July 1, 2004, were P400,000. Charges for
dividends since this date were P106,250, and the call premium on 10,000 shares of preference share redeemed
was P50,000, resulting in a retained earnings balance of P243,750.
Answer:
1. B 2. D 3. B 4. C
Problem 3
Alcain COMPANY’s shareholders’ equity account balance at December 31, 2003, were as
follows:
Additional paid-in capital 1,600,000
The following 2004 transactions and other information relate to the shareholders’ equity
accounts:
a. Alcain had 400,000 authorized shares of P5 par ordinary share, of which 160,000 shares
were issued and outstanding.
b. On March 5, 2004, Alcain acquired 5,000 shares of its ordinary share for P10 per share
to hold as treasury share. The shares were originally issued at P15 per share. ALCAIN
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uses the cost method to account for treasury share. Treasury share is permitted in
Alcain’s state of incorporation.
c. On July 15, 2004, Alcain declared and distributed a property dividend of inventory. The
inventory had a P75,000 carrying value and a P60,000 fair market value.
d. On January 2, 2002, Alcain granted share options to employees to purchase 20,000

share of Alcain’s ordinary share at P18 per share, which was the market on that date.
The option may be exercised within a three year period beginning January 2, 2004. The
measurement date is the same as the grant date. On October 1, 2004, employees
exercised all 20,000 options when the market value of the share was P25 per share.
ALCAIN issued new shares to settle the transaction.
e. Alcain’s net income for 2004 was P240,000.
Questions
Based on the information above and other analysis as necessary, answer the following
question:
1. Alcain’s Ordinary share balance at December 31, 2004 is:

a. P 1,300,000 b. P 1,160,000 c. P 900,000 d. P 800,000
2. Alcain’s Additional paid-in capital balance at December 31, 2004 is:

a. P 1,860,000 b. P 1,960,000 c. P 2,000,000 d. P 2,100,000
3. Alcain’s Retained Earnings balance at December 31, 2004 is:

a. P 2,085,000 b. P 2,025,000 c. P 2,010,000 d. P 1,770,000
4. Alcain’s Treasury Share balance at December 31, 2004 is:

a. P 0 b. P 50,000 c. P 75,000 d. P 125,000
5. Alcain’s Shareholders’ Equity balance at December 31, 2004 is:

a. P 4,910,000 b. P 4,820,000 c. P 4,735,000 d. P 4,720,000
Solution
a. Memo entry
b. Treasury share 50,000
Cash 50,000
c. Retained earnings 75,000
Property dividends payable 75,000
d. Cash 360,000
APIC 260,000
e. Income summary 240,000
Answer:
1. C 2. A 3. C 4. B 5. D
Problem 4
Ashary COMPANY is a publicly held company whose shares are traded in the over the
counter market. The shareholders’ equity account at December 31, 2003, had the following
balances:
Preference share, P100 par value. 6% cumulative;
5,000 shares authorized; 2,000 shares issued
and outstanding P 200,000
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Ordinary share, P1 par value; 150,000 shares
authorized; 100,000 issued and outstanding 100,000
Additional paid-in capital 800,000
Transactions during 2004 and other information relating to the shareholders’ equity account
were as follows:
 February 1, 2004 – Issued 13,000 shares of ordinary share to Keith Company in

exchange for land. On the date issued, the share had a market price of P11 per share.
The land had a carrying value on Keith’s books of P135,000, and the assessed value for
property taxes of P90,000.
 March 1, 2004 – Purchased 5,000 shares of its own ordinary share to be held as
treasury for P14 per share. Ashary uses the cost method to account for treasury share.
Transactions in treasury share are legal in Ashary’s state of incorporation.
 May 10, 2004 – Declared a property dividend of marketable securities held by Ashary to
ordinary shareholders. The securities had a carrying value of P600,000, fair value on
relevant dates were:
Date of declaration (May 10, 2004) P 720,000

Date of record (May 25, 2004) 758,000
Date of distribution (June 1, 2004) 736,000
 October 1, 2004 – Reissued 2,000 shares of treasury share for P16 per share.
 November 4, 2004 – Declared a cash dividend of P1.50 per share to all ordinary
shareholders of record November 15, 2004. The dividend was paid on November 25,
2004.
 December 20, 2004 – Declared the required annual cash dividend on preference share
for 2004. The dividend was paid on January 5, 2005.
 January 16, 2005 – Before closing the accounting records for 2004, Ashary became
aware that no amortization had been recorded for 2004 for a patent purchased on July
1, 2003. The patent was properly capitalized at P320,000 and had an estimated useful
life of eight years when purchased. Ashary’s income tax rate is 30%.
 Net income after tax for 2004 was P838,000.
Questions
1. The total additional paid-in capital at year-end is:
a. P 881,000 b. P 877,000 c. P 922,000 d. P 934,000
2. The total fundamental errors is

a. P 14,000 b. P 20,000 c. P 27,200 d. P 40,000
3. The total cash dividends – ordinary at year-end is:

a. P 172,500 b. P 169,500 c. P 165,000 d. P 162,000
4. The total property dividends – ordinary at year-end is:

a. P 600,000 b. P 720,000 c. P 736,000 d. P 758,000
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5. The number of ordinary share issued and outstanding at year-end is:
a. 102,000 b. 110,000 c. 111,000 d. 113,000
Solution
Feb 1 - Land 143,000
APIC – CS 130,000
Mar 1 - Treasury share 70,000
Cash 70,000
May 10 - Retained earnings 600,000
Property dividend payable 600,000
Oct 1 - Cash 32,000
Treasury share 28,000
APIC – TS 4,000
Nov 4 - Retained earnings 165,000
Cash 165,000
Dec 20 - Retained earnings 12,000
Dividends payable 12,000
Income tax payable 6,000
Patents 20,000
Dec 31 - Income summary 838,000
Answer:
1. D 2. A 3. C 4. A 5. B
Problem 5
During your audit of Asumbra Company for the year 2004, its initial year of operations, you
find the following entries in its “Shareholders’ Equity” account:
____________________SHAREHOLDERS’ EQUITY___________________
Jan. 01Issuance of 150,000 shares of capital share, P10 par;
authorized 500,000 shares in exchange for real
estate property with a market value of P2 million 1,500,000
Jan. 15Sale of 200,000 shares of capital share at P12 per

share 2,400,000
Mar. 01Purchase 20,000 shares of its own share at P15 per

Share 300,000
May 15Loss on sale of motor equipment 100,000
Jun 10 Proceeds from sale of 10,000 treasury shares 170,000
Dec 31 Declared cash dividends payable quarterly

beginning April 1, 1998 200,000
Dec 31 Net profit for the year 790,000
Questions
1. The adjusted balance of the “Shareholders’ Equity” account of the company’s balance
sheet as of December 31, 2004 is:
a. P 4.36 million b. P 4.46 million c. P 4.76 million d. P 4.91 million
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2. The book value per share of the company’s share as of December 31, 2004 is
a. P 14.44 b. P 14.00 c. P 13.12 d. P 12.82
Solution
Land 2,000,000
APIC 500,000
Cash 2,400,000
APIC 400,000
Cash 300,000
Loss on sale 100,000
Cash 170,000
APIC – TS 20,000
Cash 200,000
Answer:
1. C 2. B
Problem 6
You are auditing the balance sheet of the Ballares Company on December 31, 2004, which
has the following items on the equity side of the balance sheet:
Current Liabilities 2,858,000

Bonds Payable 3,000,000
Reserve for Bonds Retirement 1,600,000
6% Cumulative Preference Share, P100 par value
(entitled to P110 and accumulated dividends
per share in voluntary liquidation). Authorized,
30,000 shares; issued, 20,000 shares; in treasury,
1,500 shares 1,850,000
Ordinary share, P100 par value, authorized,
100,000 shares; issued and outstanding, 40,000
shares 4,000,000
Premium on preference share 100,000
Premium on ordinary share 673,000
The company proposes to finance a plant expansion program by issuing an additional

20,000 shares of ordinary share. Ordinary shareholders of record October 1, 2004 were
notified that they will be permitted to subscribe to the new issue at P150 per share up to
50% of their holdings. The market value of the share on October 1, 2004, was P172.50.
The share goes ex-rights in the market on October 3, 2004.
Questions
1. Total shareholders’ equity as of December 31, 2004 is:
a. P 2,035,000 b. P 5,535,000 c. P 7,500,000 d. P 9,535,600
2. Total book value of the 40,000 shares of ordinary share is:

a. P 9,535,000 b. P 7,500,600 c. P 2,035,000 d. P 1,875,150
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3. The book value per share of ordinary share as of December 31, 2004 is:
a. P 203.55 b. P 187.52 c. P 172.50 d. P 165.00
Solution
1 D. Reserve for bond retirement P1,600,000
6% cumulative Preference share 1,850,000
Premium on preference share 100,000
Premium on ordinary share 673,000
Less equity identified to preference share
Liquidation value (18,500 shares x P110) 2,035,000
2 B Total BV of the 40,000 shares of ordinary share P7,500,600
3 B BV per share of ordinary share P7,500,600/ 40,000 P187.52
Problem 7
On January 1, 2003, the shareholders’ equity of Bantaya Company’s balance sheet revealed
the following information:
P5 Convertible Preference Share (P40 par value; 50,000 shares

authorized, 20,000 shares issued and outstanding) 800,000
Ordinary share (P5 stated value; 200,000 shares
authorized, 120,000 shares issued and outstanding) 600,000
Paid-in capital in excess of par 3,000,000
Total shareholders’ equity 8,900,000
In addition, the following information is known:
a. On February 2, 2003, 15,000 ordinary shares were acquired by the company for P33 per
share.
b. On September 30, 2003, 5,000 preference shares were converted to ordinary shares.
One share of preference share is convertible into one share of ordinary share. At the
time of conversion, the ordinary share had a market value of P42 per share.
c. On December 21, 2003, the company received a share subscription of 10,000 ordinary
shares at a subscription price of P33 per share. The subscription contract required a
cash down payment equal to 60% of the subscription price, with the balance due on
February 1, 2004.
d. On February 1, 2004, 8,500 ordinary shares were issued according to the subscription
contract. Because of default by a subscriber, 1,500 shares were not issued. The
subscription contract requires the subscriber to forfeit all cash advance.
e. On April 15, 2004, 10,000 shares held in treasury were reissued at P50 per shares.
f. On May 16, 2004, a special dividend of preference share was distributed to ordinary
shareholders. One hundred shares of ordinary share entitled a shareholder to one share
of preference share. The market price of preference share was P40 per share at that
time.
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g. Net income for 2003 was P660,000 and for 2004, P890,000.
Questions
1. The total preference share at December 31, 2003 is:
a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500
2. The total ordinary share at December 31, 2003 is:

a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500
3. The total additional-paid in capital at December 31, 2003 is:

a. P 3,637,300 b. P 3,625,000 c. P 3,612,700 d. P 3,455,000
4. The total retained earnings at December 31, 2003 is:

a. P 4,706,887.50 b. P 5,160,000.00 c. P 5,491,925.00 d. P 5,596,887.50
5. The Treasury share at December 31, 2003 is:

a. P 495,000 b. P 330,000 c. P 165,000 d. P 0
6. The total preference share at December 31, 2004 is:

a. P 548,600 b. P 600,000 c. P 625,000 d. P 651,400
7. The total ordinary share at December 31, 2004 is:

a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500
8. The total additional paid-in capital at December 31, 2004 is:

a. P 3,637,300 b. P 3,625,000 c. P 3,612,700 d. P 3,455,000
9. The total retained earnings at December 31, 2004is:

a. P 5,998,900.00 b. P 5,491,925.00 c. P 4,965,000.00 d. P 4,706,887.50
10. The Treasury share at December 31, 2004 is:

a. P 495,000 b. P 330,000 c. P 165,000 d. P 0
Solution
2003
Cash 495,000
Preference share 200,000
Subscription receivable 132,000
Cash 198,000
Subscribed ordinary share 50,000
Income summary 660,000
2002
Cash 112,200
APIC – forfeiture of share 29,700
Cash 500,000
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Preference share 51,400
Income summary 890,000
Answer:
1. A 2. B 3. D 4. B 5. A 6. D 7. D 8. C 9. A 10. C
Problem 8
You are a senior accountant responsible for the annual audit of Calunsag Company for the
year ended December 31, 2003. The information available to you is presented below. You
may assume that any pertinent information not presented below has already been checked
found satisfactory.
Excerpts from trial balance, December 31, 2003:

Debit Credit
Allowance for decline in value of inventory 36,500
Capital share (1,000 shares) 100,000
The books have not been closed, but all adjusting entries which the company expects to
make have been posted. Their trial balance shows a P60,000 net profit for the year.
Ledger details of Retained Earnings:

RETAINED EARNINGS
08/06/03 CD 2,000 12/31/02 Balance 134,500
10/10/03 J 10,000 04/29/03 CR 500
12/31/03 J 30,000
NOTE: The balance at 12/31/02 agrees with last year’s working papers.
Analysis of selected cash Receipts:
Date Account credited Amount Explanation

04/29/03 Capital Share P10,000 Sold P100 par share at 105
Retained Earnings 500
10/10/03 Building P530,000 See corollary entry dated
October 10, 2003.
Analysis of selected cash disbursement:
Date Account debited Amount Explanation

08/06/03 Retained Earnings P2,000 Freak accident to company
truck not covered by insurance;
repairs by JET & Co.
Selected entries in the general journal:
Date Entry and explanation Debit Credit

10/10/03 Allowance for depreciation 370,000
Retained Earnings 10,000
Building 380,000
Sale of main office Building.
12/31/03 Retained Earnings 30,000

Allowance for Decline in Market
Value of Inventory 30,000
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Provision to value materials Inventory at lower of cost or NRV, in accordance
with Company pricing policy.
Questions
1. The Ordinary Share balance of Calunsag Company at December 31, 2003 is:
a. P 100,500 b. P 100,000 c. P 99,500 d. P 89,500
2. The Additional paid-in capital balance of Calunsag Company at December 31, 2003 is:
a. P 1,000 b. P 500 c. P 0 d. cannot be
determined
3. The Retained Earnings – January 1, 2003 balance of Calunsag Company is:

a. P 155,000 b. P 154,500 c. P 135,000 d. P 134,500
4. Net income of Calunsag Company at December 31, 2003 is:

a. P 18,000 b. P 20,000 c. P 28,000 d. P 48,000
5. The Retained Earnings – December 31, 2003 balance of Calunsag Company is:
a. P 182,500 b. P 175,000 c. P 172,500 d. P 152,500
Solution
Adj: Retained earnings 500
Additional paid-in capital 500
OE: Cash 530,000
Accum. dep’n 370,000
Building 910,000
CE: Cash 530,000
Accum. dep’n 370,000
Loss on sale 10,000
Building 910,000
Adj: Loss on sale 10,000
Adj: Repairs 2,000
Adj: Loss on market decline 30,000
Answer:
1. B 2. B 3. D 4. A 5. D
Problem 9
You were engaged by Catacutan Company, a publicity held company whose shares are
traded in the Philippines Share Exchange, to conduct an examination of its 2004 financial
statements. You were told by the company’s controller that there were numerous equity
transactions that took place in 2004. The shareholders’ equity accounts at December 31,
2003, had the following balances:
Preference share, P100 par value, 6% cumulative; 15,000

shares authorized; 9,000 shares issued and outstanding P 900,000
Ordinary share, P1 par value, 900,000 shares authorized:
600,000 shares issued and outstanding 600,000
Additional paid-in capital 1,200,000
You summarized the following transactions during 2004 and other information relating to
the shareholders’ equity in your working papers as follows:
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 January 6, 2004 – issued 22,500 shares of ordinary share to Difficult Company in
exchange or land. On the date issued, the share had a market price of P16.50 per share.
The land had a carrying value of P201,000, and an assessed value for property taxes of
P135,000.
 January 31, 2004 – Sold 1,350, P1,000, 12% bonds due January 31, 2006, at 98 with
one detachable share warrant to each bond. Interest is payable annually on January 31.
The fair value of the bonds without the share warrants is 95. The detachable warrant
entitles the holder to purchase 10 shares of ordinary share at P10 per share.
 February 22, 2004 – Purchased 7,500 shares of its own ordinary share to be held as
treasury share for P24 per share.
 February 28, 2004 – Subscriptions for 21,000 shares of ordinary share were received at
P26 per share, payable 50% down and the balance by March 15.
 March 15, 2004 – The balance due on 18,000 shares was received and those shares
were issued. The subscriber who defaulted on the 3,000 remaining shares forfeited the
down payment in accordance with the subscription agreement.
 April 30, 2004 – Declared a dividend of inventory to ordinary shareholders. The

inventory had a carrying value of P910,000:fair value on relevant dates were:
Date of declaration (April 30, 2004) P950,000

Date of record (May 15, 2004) 900,000
Date of distribution(May 31, 2004) 920,000
 August 30, 2004 – Reissued 3,000 shares of treasury share for P20 per share.
 September 14, 2004 – There were 945 warrants detached from the bonds and
exercised.
 November 30, 2004 – Declared a cash dividend of P2 per share to all ordinary
shareholders of record December 15, 2004. The dividend was paid on December 30,
2004.
 December 15, 2004 – Declared the required annual cash dividends on preference share
for 2004. the dividend was paid on January 15, 2004.
 January 8, 2005 – Before closing the accounting records for 2004. Catacutan became
aware that no amortization had been recorded for 2003 for a patent purchased on July
2, 2003. The patent was properly capitalized at P480,000 and had an estimated useful
life of eight years when purchased. Catacutan is subject to 32% regular corporate
income tax. The appropriate correcting entry was recorded on the same day.
 Adjusted net income after tax for 2004 was P1,860,900.
Questions
Based on the foregoing and the result of your audit, answer the following :
1. By how much should the retained earnings be decreased as a result of the property
dividend declaration on April 30, 2004?
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a. P 950,000 b. P 920,000 c. P 910,000 d. P 0
2. How much is the total dividends declared on preference and ordinary share in 2004?
a. P 2,294,900 b. P 2,263,900 c. P 2,254,900 d. P 2,200,900
3. Preference share at December 31, 2004 is

a. P 1,500,000 b. P 954,000 c. P 900,000 d. P 0
4. Ordinary share at December 31, 2004 is

a. P 640,500 b. P 645,450 c. P 649,950 d. P 652,950
5. How much is the total additional paid-in-capital as of December 31, 2004

a. P 2,163,300 b. P 2,178,220 c. P 2,765,600 d. P 2,774,000
6. The adjusted balance of retained earnings on December 31,2004 is

a. P 2,783,600 b. P 2,774,000 c. P 2,771,600 d. P 2,743,600
7. How much is the treasury share as of December 31, 2004?

a. P 180,000 b. P 120,000 c. P 108,000 d. P 0
8. How much is the total shareholders’ equity on December 31, 2004?

a. P 6,376,850 b. P 4,271,550 c. P 4,232,550 d. P 4,194,350
Solution
Jan 6 - Land 371,250
APIC 348,750
Jan 31 - Cash 1,323,000
Discount on BP 67,500
Bonds Payable 1,350,000
Proceeds 1,323,000
Less: Market Value of Bonds (P1,350,000 x 95%) 1,282,500
Allocated Cost of the warrants 40,500
Feb 22 - Treasury share 180,000
Cash 180,000
Feb 28 - Cash 273,000
APIC 525,000
Mar 15 - Cash 234,000
Subs. ordinary share 18,000
Subs. Ordinary share 3,000
APIC 75,000
APIC – forfeiture of share 39,000
Apr 30 - Dividends/RE 910,000
Inventory 910,000
Aug 30 - Cash 60,000
Sep 14 - Cash 94,500
APIC 113,400
Nov 30 - Dividends/RE 1,290,900
Cash 1,290,900
Dec 15 - Dividends 54,000
Dividends payable 54,000
14
Income tax payable (32%) 9,600
Patents 30,000
Income summary 1,860,900
Answer:
1. C 2. C 3. C 4. C 5. A 6. C 7. C 8. A
Problem 10
The Ceniza Company engaged Mr. Coliseo, a CPA, in 2003 to examine its books and records
and to make whatever adjustments are necessary.
The CPA’s examination disclosed the following:
a. Prior to any adjustments, the Retained Earnings account is reproduced below:
RETAINED EARNINGS
Balance
Date Particular Debit Credit Debit Credit
2001
Jan. 1 Balance 580,000
Dec. 31 Net income for the year 310,000 890,000
2002
Jan 31 Dividends paid 140,000 750,000
Apr. 3 Paid in capital in excess of par 90,000 840,000
Aug. 30 Gain on retirement of preference
Share at less than issue price 64,500 904,500
Dec. 31 Net loss for the year 205,000 699,500
2003
Jan 31 Dividends paid 100,000 599,500
Dec. 31 Net loss for the year 165,500 434,000
b. Dividends had been declared on December 31, 2001 and 2002 but had not been entered
in the books until paid.
c. The company purchased a machine worth P360,000 on April 30, 2000. The company
charged the purchase to expense. The machine has an estimated useful life of 3 years.
The company uses the straight line method and residual values are deemed immaterial.
d. The company received at transportation equipment as donation from one of its

shareholders on September 30, 2002. The equipment was used to deliver goods to
customers. The equipment costs P750,000 and has a remaining life of 3 years on the
date of donation. The equipment has a fair value of P240,000 and P30,000 was incurred
for registering the transfer of ownership. The company did not record the donation on its
books. The expenses paid related to the donated equipment were charged to expense.
e. The physical inventory of merchandise had been understates by P64,000 and by

P44,500 at the end of 2001 and 2003, respectively.
f. The merchandise inventoried at the end of 2002 and 2003 did not include merchandise
that was then in transit shipped FOB shipping point. These equipments of P43,400 and
P32,600 were recorded a purchases in January 2003 and 2004, respectively.
15
Questions
Based on the above audit findings, the adjusted balances of the following are: (Disregard
tax implication)
1. Retained earnings, 12/31/00

a. P 860,000 b. P 850,900 c. P 790,900 d. P 760,900
2. Net income for 2001

a. P 373,100 b. P 369,800 c. P 254,000 d. P 215,800

a. P 976,700 b. P 974,000 c. P 860,700 d. P 720,700
4. Net loss for 2002

a. P 379,000 b. P 359,700 c. P 349,700 d. P 269,700

a. P 341,000 b. P 411,000 c. P 481,000 d. P 495,000
6. Net loss for 2003

a. P 241,000 b. P 228,300 c. P 178,300 d. P 148,300

a. P 362,700 b. P 332,700 c. P 302,700 d. P 254,000
Solution
2001 2002 2003
Unadjusted net income/(loss) 310,000 (205,000) (165,500)
Adjustments:
“c” – Depreciation (120,000) (120,000) (40,000)
“d” – Error in charging to expense 30,000
Depreciation (20,000) (80,000)
“e” – Understatement of inv. – 2001 64,000 (64,000)
Understatement of inv. - 2003 44,500
“f” – Understatement of inv. - 2002 43,400 (43,400)
Understatement of inv. – 2003 32,600
Under. of purchases – 2002 (43,400) 43,400
Under. of purchases – 2003 ___________ ___________ (32,600)
Adjusted Net income 254,000 (379,000) (241,000)
Plus: Retained Earnings – beg unadj. 580,000
Prior period adjustment
Error in charging to expense 360,000
Unrecorded depreciation (80,000)
Retained Earnings – beg adjusted 860,000 974,000 495,000
Less: Dividends (140,000) (100,000) _________
Retained earnings – end 974,000 495,000 254,000
Answer:
1. A 2. C 3. B 4. A 5. D 6. A 7. D
Problem 11
The shareholders’ Equity of Cosare Corporation at December 31, 2003, showed
Capital share, Ordinary, P100 par value per share (Authorized

10,000 shares; issued and outstanding 6,000 shares) P600,000
16
Total P900,000
An audit disclosed that the treasurer was short in his cash to the extent of P50,000. He had
concealed his shortage by increasing inventory values by p15,000; land values by P20,000
and accounts receivables- trade by P15,000
Upon discovery of the shortage, the Treasure offered to surrender at book value 500 shares
of the Capital Share which he owns in the settlement of the shortage. The board of directors
accepted his offer and remitted cash to the Treasurer for any excess value over shortage.
The treasurer’s 500 shares, after being acquired by the company were distributed pro – rata
to the remaining shareholders.
Questions
1. What amount of money should the company pay the Treasurer?
a. P 50,000 b. P 25,000 c. P 15,000 d. P 0
2. What is the corporate retained earnings after distribution?

a. P 225,000 b. P 200,000 c. P 100,000 d. P 75,000
Solution
Inventory 15,000
Land 20,000
Accounts receivable 15,000
Cash 50,000
Inventory 15,000
Land 20,000
Accounts receivable 15,000
Cash 25,000
Answer:
1. B 2. A
Problem 12
You have been engaged to audit the financial statements of Cuajotor Corporation for the
calendar year 2003. The company was organized on January 2, 2002 and has not been
audited before.
The following items relating to equity and income statement accounts appear in your
Working Balance Sheet (WBS) and Working Income Statement (WIS)
WBS- December 31, 2003: Balance Per Books

Long- term liabilities P240,800
Capital Share issued 560,000
Additional Paid in capital 100,000
Revaluation increment- Land 90,000
WIS- Year ended December 31, 2003

Income before tax 150,000
Provision for income tax 45,000
Income before extraordinary items 105,000
Extraordinary items(net of tax) 77,000
Net income 28,000
17
Following are your audit findings:
1. Long- term liabilities- This consist
Mortgage payable P180,000

Accrued interest on mortgage payable 10,800
Reserve for general contingencies 50,000
Total P240,800
The company mortgage its land to the Philippine National Bank for P180,000 on
September 1, 2003. The mortgage liability is payable in 18 semi-annual installments of
P10,000 plus accrued interest of 18% to date. The first installments due March 1, 2004.
The reserve for general contingencies was set up by resolution of the Board of Directors
on December 27, 2003. its purpose is to provide for possible future losses due to the
risk of an impending business recession. A corresponding charge was made to general
contingency losses which is classified as an extraordinary item.
2. Capital Share issued- The company is authorized to issue 10,000 shares of P100 par
value ordinary share. Your analysis of the capital share issued account shows:
2003 DESCRIPTION AMOUNT
Jan. 1 Balance, 4,500 shares issued P450,000

Mar. 1 Sold 500 shares at P120 per share 60,000
Nov. 1 Assessment on shareholders P10 per share 50,000
Dec. 31 Balance P 560,000
3. Additional paid in capital - The account balance represents the fair value of property
donated to the company in 2002. There was no manager’s check account in 2002.
4. Revaluation increment (Land) – Land was written up to appraised value on December of

2003. The appraised value of P90,000 was determined by the company engineer. The
property was acquired in 2002 at a cost of P40,000.
5. Retained earnings, December 31, 2003 – Analysis of the retained earnings account for
2003 shows:
Balance, January 1, 2003 P18,000

Net income – 2003 28,000
Gain on sale of treasury share 8,000
Balance, December 31, 2003 P54,000
6. Over/Understatement – The following over/understatements were discovered in the

course of your audit:
2002 2003
Inventory, end 4,000 under 10,000 under
Depreciation expense 2,500 under 2,000 under
Accrued expenses payable end 1,000 under 1,600 over
18
7. Extraordinary items – Extraordinary items consists of:
General contingency losses P50,000

Write-off of obsolete inventory 20,000
Loss due to earthquake 40,000
Total 110,000
Less: Tax savings, 30% 33,000
Extraordinary items, net of tax 77,000
8. Provision for income tax - The income tax rate is 30%. There are no permanent
differences between financial and taxable income.
Required: For each item below, determine the amount per audit that should appear in your
working balance sheet and working income statement. Assume that client approves all
adjustments.
Questions
1. Capital share issued
a. P 580,000 b. P 550,000 c. P 510,000 d. P 500,000
2. Additional paid-in capital

a. P 168,000 b. P 150,000 c. P 110,000 d. P 100,000
3. Long-term liabilities
a. P 230,000 b. P 190,800 c. P 180,000 d. P 160,000
4. Current portion of long-term debt

a. P 80,000 b. P 20,000 c. P 10,000 d. P 0
5. Revaluation increment – Land

a. P 90,000 b. P 50,000 c. P 40,000 d. P 0

a. P 21,850 b. P 20,800 c. P 18,350 d. P 18,000
7. Extraordinary items (net of tax)

a. P 0 b. 42,000 c. 40,000 d. 28,000
8. Income before tax

a. P 96,600 b. 136,600 c. 134,600 d. 120,400
9. Provision for income tax

a. P 40,980 b. P 40,380 c. P 36,120 d. P 28,980
10. Net income

a. P 67,620 b. P 54,220 c. P 42,280 d. P 24,280

a. P 85,970 b. 72,220 c. 63,080 d. 47,720
Solution
19
Long-term liability 20,000
Mortgage Payable – current 20,000

Interest payable 10,800
Extraordinary item 35,000
Capital share 10,000
APIC 10,000
Capital share 50,000
APIC 50,000
APIC 100,000
APIC - Donated capital 100,000
Revaluation increment 40,000
Land 40,000
Gain on sale 8,000
APIC – TS 8,000
Beg. Inventory 4,000
Retained earnings - beg 2,800
Inventory 10,000
Cost of sales 10,000
Retained earnings – beg 1,750
Income tax payable 750
Depreciation 2,000
Accum. Depreciation 4,500
Retained earnings – beg 700
Income tax payable 300
Expenses 1,000
Accrued expenses 1,600
Expenses 1,600
Loss on inventory 20,000
Loss on damages 40,000
Extraordinary items 42,000
Answer:
1. D 2. A 3. D 4. B 5. D 6. P 18,350 7. P 0
8. P 96,600
Unadjusted NI 150,000
Under beg. Inv. ( 4,000)
Under ending invent. 10,000
Under depreciation ( 2,000)
Under AE – beg 1,000
Over AE – end 1,600
Loss on inventory (20,000)
Loss on damages (40,000)
Income before tax 96,600
Provision 28,980
Net income 67,620
9. P 28,980 10. A 11. P 85,970
Problem 13
Listed below are the transactions that affected the shareholders’ equity of Christian Paul
Corporation during the period 2003-2005. At December 31, 2002, the corporation’s
accounts included:
(P in 000s)
Ordinary share, 315 million shares at P1 par P 315,000
Paid-in capital – excess of par 1,890,000
20
a. November 2, 2003, the board of directors declared a cash dividend of P0.80 per share
on its ordinary shares, payable to shareholders of record November 16, to be paid
December 2.
b. On March 3, 2004, the board of directors declared a property dividend consisting of

bonds of Maria Mikaela County that Christian Paul was holding as an investment. The
bonds had a fair market value of P4.8 million, but were purchased two years previously
for P3.9 million. Because they were intended to be held-to-maturity, the bonds had not
been previously written up. The property dividend was payable to shareholders of
record March 14, to be distributed April 6.
c. On July 13, 2004, the corporation declared and distributed a 5% ordinary share dividend
(when the market value of the ordinary share was P21 per share). Cash was paid for
fractional share rights representing 750,000 equivalent whole shares.
d. On November 2, 2004, the board of directors declared a cash dividend of P0.80 per
share on its ordinary shares, payable to shareholders of record November 16, to be paid
December 2.
e. On January 16, 2005, the board of directors declared and distributed a 3-for-2 share
split effected in the form of a 50% share dividend when the market value of the ordinary
share was P23 per share.
f. On November 2, 2005, the board of directors declared a cash dividend of P0.65 per
share on its ordinary shares, payable to shareholders of record November 16, to be paid
December 2.
g. The reported net income of Christian Paul was P990 million, P1,185 million, and P1,365
million for 2003, 2004, and 2005, respectively.
Questions
1. The Retained earnings of Christian Paul Corporation at the end of 2005 is: (P in 000s)
a. P 5,276,700 b. P 5,276,600 c. P 5,112,600 d. P 5,095,850
2. The Additional paid-in capital of Christian Paul Corporation at the end of 2005 is: (P in
000s)
a. P 5,860,000 b. P 5,655,000 c. P 2,190,000 d. P 2,025,000
3. The Ordinary share of Christian Paul Corporation at the end of 2005 is: (P in 000s)
a. P 495,750 b. P 495,000 c. P 330,750 d. P 330,000
4. The total Shareholders’ Equity of Christian Paul Corporation at the end of 2005 is: (P in
000s)
a. P 11,097,450 b. P 7,797,600 c. P 7,796,700 d. P 7,615,850
Solution
(in 000’s)
A. Retained earnings 252,000
Cash 252,000
B. Retained earnings 3,900
Investment – HTM 3,900
C. Retained earnings 330,750
APIC 300,000
Cash 15,750
21
D. Retained earnings 264,000
Cash 264,000
E. Retained earnings 165,000 Ordinary share, old 330,000
Ordinary share 165,000 OR Retained earnings 165,000
Ordinary share, new 495,000
F. Retained earnings 321,750
Cash 321,750
Answer:
1. P 5,112,600 2. C 3. B 4. P 7,797,600
Problem 14
VELASCO COMPANY was formed on July 1, 2000. It was authorized to issue 300,000 shares
of P20 par value ordinary share and 100,000 shares of 8 percent P50 par value, cumulated
and nonparticipating preference share. VELASCO COMPANY has a July 1 – June 30 fiscal
year.
The following information relates to the shareholders’ equity accounts of VELASCO

COMPANY:
Ordinary share
Prior to the 2002-2003 fiscal year, Velasco Company had 110,000 shares of outstanding
ordinary share issued as follows:
1. 95,000 shares were issued for cash on July 1, 2000, at P62 per share.
2. On July 24, 2000, 5,000 shares were exchanged for a plot of land which cost the
seller P140,000 in 1994 and had an installment market value of P440,000 on July 24,
2000.
3. 10,000 shares were issued on March 1, 2001; the shares had been subscribed for
P84 per share on October 31, 2001.
During the 2002-2003 fiscal year, the following transactions regarding ordinary share took
place:
October 1, 2002
Subscriptions were received for 10,000 shares at P92 per share. Cash of P184,000 was
received in full payment for 2,000 shares and share certificates were issued. The
remaining subscription for 8,000 shares were to be paid in full by September 30, 2004,
at which time the certificates were to be issued.
November 30, 2002
Velasco Company purchased 2,000 shares of its own share on the open market at P78
per share. Velasco Company uses the cost method for treasury share.
December 15, 2002
Velasco declared a 5% share dividend for shareholders of record on January 15, 2003,
to be issued on January 31, 2003. Velasco Company was having a liquidity problem
and could not afford a cash dividend at that time. Velasco Company’s ordinary share
was selling at P104 per share on December 15, 2002.
June 20, 2003
22
Velasco Company sold 500 shares of its own ordinary share that it had purchased on
November 30, 2002, for P42,000.
Preference share
Velasco Company issued 50,000 shares of preference share at P88 per share on July 1,
2001.
Cash Dividends
Velasco Company 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, 2003,
are shown below:
Declaration Date Ordinary share Preference Share

12/15/01 P0.60 per share P2.00 per share
6/15/02 P0.60 per share P2.00 per share
12/15/02 - P2.00 per share
No cash dividends were declared during June 2003, due to the company’s liquidity problem.
Retained Earnings
As of June 30, 2002, Velasco Company’s retained earnings account had a balance of
P1,380,000. For the fiscal year ending June 30, 2003, Velasco Company reported net
income of P80,000.
In March of 2002, Velasco Company received a loan from Davao Bank. The bank requires
Velasco Company to establish a sinking fund and restrict retained earnings for an amount
equal to the 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, 2003.
Questions
1. What is the balance of the ordinary share account at June 30, 2003?
a. P 2,352,000 b. P 2,350,000 c. P 2,320,500 d. P 2,320,500
2. What is the balance of the Treasury Share account at June 30, 2003?
a. P 156,000 b. P 124,800 c. P 117,000 d. P 114,000
3. What is the entry to record the dividend in arrears on the preference share?
a. Retained earnings 100,000 c. Dividend payable 100,000
Dividend payable 100,000 Cash 100,000
b. Retained earnings 100,000 d. No journal entry
Cash 100,000
4. What is the total additional paid-in capital at June 30, 2003?

a. P 8,171,000 b. P 8,055,000 c. P 7,593,000 d. P 6,155,000
5. How much is the retained earnings at June 30, 2003?

a. P 1,250,000 b. P 1,150,000 c. P 788,000 d. P 688,000
23
6. What is the total shareholders’ equity at June 30, 2003?
a. P 13,736,000 b. P 13,116,000 c. P 13,000,000 d. P 12,900,000
Solution
Cash 5,890,000
APIC 3,990,000
Land 440,000
APIC 340,000
Cash 840,000
APIC 640,000
Cash 184,000
APIC 144,000
Subscription receiv. 736,000
Subscribed CS 160,000
APIC 576,000
Cash 156,000
(110,000 + 2,000 – 2,000 x 5% x P104)
APIC 462,000
Cash 42,000
APIC – TS 3,000
Cash 4,400,000 Dividends:
Preference share 2,500,000 Ordinary share
APIC – PS 1,900,000 12/15/01 110,000 x .60 = P 66,000
6/15/02 110,000 x .60 = 66,000
Retained earnings 432,000 Preference share
Cash 432,000 12/15/01 50,000 x 2 = 100,000
6/15/02 50,000 x 2 = 100,000
Income summary 80,000 12/15/02 50,000 x 2 = 100,000
Retained earnings 80,000 Total 432,000
RE – unappropriated 100,000
RE – appropriated 100,000
Answer:
1. B 2. C 3. D 4. B 5. C 6. A
Problem 15
On April 1,1994, the Jen-Jen, inc. issued P6,000,000 of 7% convertible bonds w/ interest
payment dates of April and Oct. 1. The bond were sold ion July 1,1994, and mature on April
1, 2014. The bond discount totaled P319,950. The bond contract entitles the bondholders to
received 10 shares of P20 par value ordinary share in exchange for each P1,000 bond. On
April 1, 2004, the holders of the bonds with total face value of P750,000 exercised their
conversion privilege. On July 1, 2004, the company reacquired at 125, bonds with a face
value of P375,000.
The balances in the capital accounts as of December 31, 2003 were
Ordinary share P20 par, authorized 3 million shares,

Issued and outstanding, 187,00 shares P 3,750,000
Premium on ordinary share 1,875,000
Market value of the ordinary share and bonds were as follows:
24
DATE BONDS ORDINARY SHARE
April 1, 2004 122 52
July 1, 2004 125 56
Questions:
Based on the above and the result of your audit, answer the following:
1. How much the total cash received from the sale of the P6,000,000 bonds on April 1,
1994?
a. P 6,000,000 b. P 5,680, 050 c. P 5,785,050 d. P 5,820, 050
2. How much is the interest expense for the year 1994?

a. P 323,100 b. P 315,000 c. P 218,100 d. P 201,900
3. How much is the carrying value of the bonds payable as of December 31, 1994?
a. P 6,311, 850 b. P 6,000,000 c. P 5,692,048 d. P 5,688,150
4. The entry to record the conversion on April 1, 2004 will include

a. A debit to bonds payable of P729,750.
b. A debit to discount on bonds payable of P20,250.
c. A credit to APIC of P579,750.
d. A credit to gain on bond conversion of P579,750.
5. How much is the gain (loss) on bond reacquisition on July 1, 2004?

a. P 103,622 b. P(103,622) c. P (83,878) d. 0
Solution
4/1/94 Cash 5,785,050 (squeezed figure)
Bonds payable 6,000,000
Interest expense 105,000
10/1/94 Interest expense 210,000
Cash 210,000
12/31/94 Interest expense 105,000
Interest payable 105,000
Interest expense 8,100
(P319,950/237 x 6 = P8,100)
4/1/04 Bonds payable 750,000
APIC 579,750
6/1/04 Bonds payable 375,000
Loss on retirement 103,622
Cash 468,750
Answer:
1. C 2. C 3. D 4. C 5. B
25

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CHAPTER 9 – Audit of Shareholders’ Equity

Net income for the year is P600,000.

Questions- Based on the information above, answer the following questions:

1. The Ordinary Share at December 31, 2004 is:

3. The APIC – treasury share at December 31, 2004 is:

4. The Ordinary Share Warrants Outstanding at December 31, 2004 is:

5. The Subscribed Ordinary Share at December 31, 2004 is:

6. The APIC – forfeited share at December 31, 2004 is:

7. The Treasury Share at December 31, 2004 is:

8. The Total Shareholders’ Equity at December 31, 2004 is:

On July 1, the following actions were taken:

1. The balance of 5% Preference Share at December 31, 2004 is:

2. The balance of Ordinary Share at December 31, 2004 is:

3. The balance of Additional paid in capital at December 31, 2004 is:

4. The balance of Retained Earnings at December 31, 2004 is:

d. On January 2, 2002, Alcain granted share options to employees to purchase 20,000

e. Alcain’s net income for 2004 was P240,000.

1. Alcain’s Ordinary share balance at December 31, 2004 is:

2. Alcain’s Additional paid-in capital balance at December 31, 2004 is:

3. Alcain’s Retained Earnings balance at December 31, 2004 is:

4. Alcain’s Treasury Share balance at December 31, 2004 is:

5. Alcain’s Shareholders’ Equity balance at December 31, 2004 is:

 February 1, 2004 – Issued 13,000 shares of ordinary share to Keith Company in

Date of declaration (May 10, 2004) P 720,000

 Net income after tax for 2004 was P838,000.

2. The total fundamental errors is

3. The total cash dividends – ordinary at year-end is:

4. The total property dividends – ordinary at year-end is:

Jan. 15Sale of 200,000 shares of capital share at P12 per

Mar. 01Purchase 20,000 shares of its own share at P15 per

May 15Loss on sale of motor equipment 100,000

Jun 10 Proceeds from sale of 10,000 treasury shares 170,000

Dec 31 Declared cash dividends payable quarterly

Dec 31 Net profit for the year 790,000

Current Liabilities 2,858,000

The company proposes to finance a plant expansion program by issuing an additional

2. Total book value of the 40,000 shares of ordinary share is:

2 B Total BV of the 40,000 shares of ordinary share P7,500,600

3 B BV per share of ordinary share P7,500,600/ 40,000 P187.52

P5 Convertible Preference Share (P40 par value; 50,000 shares

In addition, the following information is known:

2. The total ordinary share at December 31, 2003 is:

3. The total additional-paid in capital at December 31, 2003 is:

4. The total retained earnings at December 31, 2003 is:

5. The Treasury share at December 31, 2003 is:

6. The total preference share at December 31, 2004 is:

7. The total ordinary share at December 31, 2004 is:

8. The total additional paid-in capital at December 31, 2004 is:

9. The total retained earnings at December 31, 2004is:

10. The Treasury share at December 31, 2004 is:

Excerpts from trial balance, December 31, 2003:

Ledger details of Retained Earnings:

Analysis of selected cash Receipts:

Date Account credited Amount Explanation

Date Account debited Amount Explanation

Date Entry and explanation Debit Credit

12/31/03 Retained Earnings 30,000

3. The Retained Earnings – January 1, 2003 balance of Calunsag Company is:

4. Net income of Calunsag Company at December 31, 2003 is:

Preference share, P100 par value, 6% cumulative; 15,000

 April 30, 2004 – Declared a dividend of inventory to ordinary shareholders. The

Date of declaration (April 30, 2004) P950,000

 Adjusted net income after tax for 2004 was P1,860,900.