Chapter 3

CHAPTER 3
SHAREHOLDERS’ EQUITY
PROBLEMS
3-1. (Budomo Company)

• Cash (20,000 x 300) 6,000,000
Ordinary share 6,000,000
• Legal expense/Professional fees 90,000

Ordinary share (250 x 300) 75,000
Share premium - Ordinary 15,000
• Land 1,000,000
Building 2,950,000
Ordinary share (12,500 x 300) 3,750,000
• Cash (6,500 x 380) 2,470,000

Ordinary share (6,500 x 300) 1,950,000
3-2.
a. Cash (10,000 x 200) 2,000,000
Ordinary share (10,000 x 150) 1,500,000
Share premium-Ordinary 60,000

Cash 60,000
b. Land (3,500 x 560) 1,960,000

Ordinary share (3,500 x 200) 700,000
Share premium – Ordinary 1,260,000
c. Cash 18,000,000
Preference share 2,500,000
Share premium – Preference 2,000,000
MV: Pref – 5,000 x 800=4M
Ord – 100,000 x 120 = 12M
Allocation:
Pref: 18M x 4/16 = 4.5M
Ord: 18M x 12/16 = 13.5M
d. Subscription receivable 450,000

Cash 150,000
Subscribed ordinary share 500,000
Share premium – Ordinary 100,000
e. Land 5,000,000
Cash 40,000
Donated capital 4,960,000
Chapter 3 – Shareholders’ Equity
3-3. (Blazing Red Corporation)
Contributed capital
10% Preference share, cumulative and non-participating, P100 par
30,000 shares authorized; 12,000 shares issued and outstanding P1,200,000
Ordinary share, P10 par, 100,000 shares authorized, 30,000 shares
issued, 29,000 shares outstanding 300,000
Subscribed ordinary share, 4,500 shares 45,000
Subscription receivable – Ordinary (43,200)
Share premium – Preference 275,000
Share premium –Ordinary 77,000
Total contributed capital P1,853,800
Retained earnings
Appropriated for treasury share P 15,000
Unappropriated 335,000 350,000
Treasury shares, 1,000 ordinary shares, at cost ( 15,000)
Total shareholders’ equity P2,188,800
The total amount of P2,048,800 may also be obtained without necessarily preparing
the shareholders’ equity in good format (if not required) as follows:
Issue of 30,000 ordinary shares P 350,000

Issue of preference shares in exchange of equipment 1,475,000
Subscriptions for 4,500 ordinary shares at 16 72,000
Subscriptions receivable (60%) (43,200)
Purchase of 1,000 treasury shares at 15 (15,000)
Retained earnings 350,000
Total shareholders’ equity, December 31, 2013 P 2,188,800
3-4. (Millennium Company)

(a)
(1) Treasury share 140,000
Cash 140,000
(2) Cash 60,000

Treasury share 56,000
Paid in capital from treasury share 4,000
(3) Cash 65,000

Paid in capital from treasury share 4,000
(4) Ordinary share 10,000

Share premium 3,000
(b) Total shareholders’ equity, December 31, 2012 P2,200,000

(1) Purchase of treasury share (10,000 x 14) (140,000)
(2) Sale of treasury share (4,000 x 15) 60,000
(3) Sale of treasury share (5,000 x 13) 65,000
Profit for the year 280,000
Dividends declared (200,000)
Total shareholders’ equity, December 31, 2013 P2,265,000
26
The total shareholders’ equity may also be obtained by determining the balance of
the shareholders’ equity accounts, as follows:
Ordinary Share, P10 par (99,000 shares issued and outstanding) P 990,000
Share Premium 297,000
Retained Earnings 978,000
Total shareholders’ equity P2,265,000
3-5. (Consuelo Enterprises, Inc.)

(a) Preference share (4,000 x 20) 80,000
Share premium – Preference (4,000 x 1.60) 6,400
Cash (4,000 x 22) 88,000
(b) Preference share (4,000 x 20) 80,000

Cash (4,000 x 26) 104,000
(c) Preference share (4,000 x 20) 80,000

Cash (4,000 x 20.50) 82,000
PIC from retirement of preference 4,400
Average preference share premium per share

160,000 / 100,000 shares = 1.60
3-6. (Concepcion Enterprises, Inc.)

(a) Preference share (3,000 x 20) 60,000
Ordinary share (3,000 x 30) 90,000
(b) Preference share (3,000 x 20) 60,000

Ordinary share (1,500 x 30) 45,000
Share premium – Ordinary share 19,800
3-7. (Red Stone Company)

(a) Retained Earnings ( 10,000 shares x P20) 200,000
Share Dividends Distributable 100,000
Share Premium 100,000

Ordinary Share Capital 100,000
(b) Retained Earnings (30,000 x 10) 300,000


Ordinary Share Capital 300,000
(c) Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par
27
previously issued and outstanding.
3-8. (Dark Red Company)

Capital structure:
Preference Ordinary
Number of shares outstanding 20,000 250,000
Total par value P2,000,000 P2,500,000
(a) Preference share is non-cumulative and non-participating

2011 Preference Ordinary
Current preference dividends (9% x 2,000,000 = P0
180,000; dividends declared were P150,000 only. P 150,000
Dividend per share P7,50 P0

Current preference dividends (9% x 2,000,000) P 180,000
Excess (240,000 – 180,000) P60,000
Dividend per share P9.00 P0.24

Current preference dividends (9% x 2,000,000) P 180,000
Excess (540,000 – 180,000) P360,000
(b) Preference share is cumulative and non-participating.

Current on preference is P180,000 P150,000
Arrears, end (P180,000 – 150,000 = 30,000) P0
Dividend per share P7.50 P0

Arrears, beginning P 30,000
Current year 180,000
Total P210,000 P210,000
Excess to ordinary = 240,000 – 210,000 P30,000

Current year P180,000
Excess – to ordinary = 540,000 – 180,000 P360,000
(c) Preference share is cumulative and fully participating

Current dividends:
9% x 2,000,000 = P180,000 P 150,000 P0
Arrears, end = 180,000 – 150,000 = 30,000
Dividend per share P 7.50 P0
28

Arrears, beginning P30,000
Current on preference 180,000 P 210,000
To ordinary: initial limit 9% x P2,500,000
= P225,000, but remaining is only P30,000
Total dividends P210,000 P30,000
Dividend per share P10.50 P 0.12

Current dividends:
9% x 2,000,000 P 180,000
9% x 2,500,000 P 225,000
Excess: P135,000 x 2.0/4.5 60,000
135,000 x 2.5/4.5 75,000
Total P240,000 P300,000
3-9. (Red Violet Company)

Additional information: Preference has P100 par value per share.
Capital structure:
Preference Ordinary
Number of shares outstanding 20,000 250,000
Total par value P2,000,000 P2,500,000
(a) Preference is participating up to 14%.

Current dividends:
9% x P2,000,000 P180,000
9% x P2,500,000 P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which is
less than the limit of additional 5%;
therefore full excess is prorated.
P155,000 x 2M/4.5M 68,889
P155,000 x 2.5M/4.5M 86,111
Total P248,889 P311,111
(b) Preference is participating up to 12%.

Current dividends:
9% x P2,000,000 P180,000
9% x P2,500,000 P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which
exceeds the additional limit of 3%;
therefore, additional to preference is
limited to 3%; remainder goes to ordinary 60,000
3% x P2,000,000
P155,000 – 60,000 95,000
Total P240,000 P320,000
29
3-10. (Red Mama Company)

50% x 100,000 x 10 = 500,000

Ordinary Shares 400,000
Fractional Share Warrants Outstanding 100,000
Fractional Share Warrants Outstanding 100,000

Ordinary Share 80,000
PIC from Unexercised Fractional Share Warrants 20,000
3-11. (Red Ball Corporation)

October 31, 2013
Financial Assets at FV through Profit or Loss 10,000
Unrealized Gain on Financial Assets at FVPL 10,000
10,000 shares x (15 – 14)

Property Dividends Payable 150,000
10,000 shares x 15

Unrealized Gain on Financial Assets at FVPL 20,000
10,000 shares x (17 – 15)

February 28, 2014


Gain on Disposal of Financial Assets at FVPL 30,000
3-12. (Red Chili Company)
10/1/13 Depreciation Expense 33,750

Accumulated Depreciation – Equipment 33,750
450,000/10 x 9/12

Assets Held for Distribution 180,000

Accumulated Depreciation – Equipment 270,000
Property, Plant and Equipment 450,000
Cost P450,000
Acc. Deprn 450,000/10 x 6 270,000
Carrying value P180,000
FV(because it is higher) P190,000
30
12/31/13 Impairment Loss 20,000

180,000 – 160,000 = 20,000

190,000 – 160,000 = 30,000 decrease
1/31/14 Retained Earnings 15,000

175,000 – 160,000 = 15,000 increase

Gain on Disposal of Assets 15,000
3-13. (Red Ribbon Corporation)

Preference Ordinary Treasury Share
Shares Shares
Total SHE Issued Issued Shares Cost
12/31/12 Balances P16,500,000 30,000 100,000
2010 transactions:
a) 4,000 x 280 (1,120,000) (4,000)
b) 8,000 x 75 (600,000) 8,000 P600,000
c) 2:1 share split 100,000 8,000
d) 6,000 x 45 270,000 (6,000) (225,000)*
e) 4,000 x 46 4,000
f) 2,000 x 48 96,000 (2,000)
g) Profit 2,000,000
12/31/13 balances P17,146,000 26,000 200,000 12,000 P375,000
*P600,000 x 6,000/16,000 = 225,000
(a) Total shareholders’ equity P17,146,000

(b) Number of preference shares issued and outstanding 26,000
(c) Number of ordinary shares issued 200,000
Number of ordinary shares outstanding(200,000 – 12,000) 188,000
(d) Cost of remaining treasury shares P 375,000
3-14. (Red Heart Corporation)

(a)
06/15/12 Cash 6,000,000
09/30/12 Retained earnings (80,000 x 5% x 110) 440,000

Share dividends distributable (4,000 x 100) 400,000
11/10/12 Share dividends distributable 400,000

Ordinary share 400,000
12/31/12 Income summary 1,175,000

Retained earnings 1,175,000
31
03/01/13 Treasury share (3,000 x 95) 285,000

Cash 285,000
05/01/13 Cash (1,500 x 120) 180,000

Treasury share (1,500 x 95) 142,500
PIC from treasury share 37,500
08/10/13 Issued 82,500 rights to shareholders

entitling holders to purchase 2 additional
shares for P125 per share.
09/15/13 Cash (30,000 x 125) 3,750,000

Ordinary share (30,000 x 100) 3,000,000
10/31/13 Cash (80,000 x 125) 10,000,000

Ordinary share (80,000 x 100) 8,000,000
12/10/13 Retained earnings 962,500

Dividends payable (192,500 x 5) 962,500
12/20/13 Ordinary share (1,000 x 100) 100,000

Share premium – Ordinary (1,000 x 10)* 10,000
Paid in Capital from Treasury Shares 15,000
*Share premium per share
300,000/30,000 = 10
12/31/13 Income summary 1,200,000

Retained earnings 1,200,000
(b)
Shareholders’ Equity
Ordinary Share Capital, P100 par, 193,000 shares
issued; 500 shares in the treasury P19,300,000
Share Premium 4,080,000
Paid in Capital from Treasury Shares 52,500
Retained Earnings 1,422,500
Treasury Shares (47,500)
Total shareholders’ equity, December 31, 2013 P24,807,500
3-15. (Red Carpet Company)

(a) Total lump sum price is P147,000 (1,500 x 98), allocated as follows:
Securities Market value Allocation Allocated Price

Preference 90 147,000 x 90/100 132,300
Warrant 10 147,000 x 10/100 14,700
Entry Cash 147,000
Preference share (1,500 x 30) 45,000
Share premium – Preference 87,300
Share warrants outstanding 14,700
32
(b) Cash (600 x 40) 24,000

Share warrants outstanding 11,760
Ordinary share 6,000
3-16. (Red Hot Company)

(a) Value of each option P8
Number of shares granted x 30,000
Total value assigned to share options P240,000
Required service period ÷ 3years
Annual compensation expense P 80,000
(b)
1/1/13 Memo: Granted share options to selected
senior employees for the purchase of
30,000 ordinary shares at P50 per share,
from January 1 to December 31, 2015.
12/31/13 Compensation Expense 80,000
Share Options Outstanding 80,000


12/31/16 Share options outstanding 240,000

Cash (30,000 x 50) 1,500,000
Ordinary share (30,000 x 20) 600,000
Share premium - Ordinary 1,140,000
3-17. (Fire Red Company)

01/02/13 Memo: granted 40,000 share options to certain officers for the
purchase of the company’s P100 par ordinary shares at P430 per share.
12/31/13 Compensation expense 800,000
Share options outstanding 800,000
(40,000 x 80) ÷ 4 years

(40,000 x 80) ÷ 4 years
2015 Memo: 8,000 share options were cancelled.

Total accrued compensation expense
(34,000 x 80) x 3/4 2,040,000
Less: previously accrued 1,600,000
Compensation expense-2015 440,000

(34,000 x 80) / 4
33
06/30/17 Cash (34,000 x 430) 14,620,000

Share options outstanding (34,000 x 80) 2,720,000
Ordinary shares (34,000 x 100) 3,400,000
3-18. (Red Fox Corporation)

(a) Compensation Expense
2013 200 – 10 – 15 = 175 employees x 100 options=17,500
17,500 x 32 = 560,000; 560,000 x 1/3 186,667
2014 200–10–12–5=173 employees x 100 options=17,300

17,300 x 32 x 2/3 = 369,067; 369,067 – 186,667 182,400
2015 200-10-12-8=170 employees x 100 options=17,000

17,000 x 32 = 544,000; 544,000 – 369,067 174,933
(b)
01/01/13 Granted 100 share options to each of its 200 employees to buy
P100 par ordinary share at P220 per share. The options are
exercisable starting January 1, 2011 provided that the employees
are still in the service. Options expire on December 31, 2012.



2016 Cash (140 x 100 x 220) 3,080,000

Share options outstanding (14,000 x 32) 448,000
Ordinary share (14,000 x 200) 2,800,000
Share Premium - Ordinary 728,000
2017 Cash (10 x 100 x 220) 220,000

Ordinary share (1,000 x 200) 200,000

PIC from forfeited share options 64,000
3-19. (Cherry Red Company)

(a)
01/01/13 Memo: Granted 10,000 share options for the purchase of P100 par
ordinary shares at P120 per share. The options vest once the market
price of ordinary shares reached P200, up to Dec. 31, 2015 Options
expire at the end of 2016.
(10,000 x 20) / 3 years
34

(10,000 x 20) - 66,667
2015 Cash (10,000 x 120) 1,200,000

Ordinary Share Capital (10,000 x 100) 1,000,000
Share Premium-Ordinary 400,000
(b)
01/01/13 Memo: Granted 10,000 share options for the purchase of P100 par
ordinary shares at P120 per share. The options vest once the market
price of ordinary shares reached P200. Options expire at the end of
2016.
(10,000 x 20) / 3 years


2016 Cash (8,000 x 120) 960,000

Share Options Outstanding (80% x 200,000) 160,000
Ordinary Shares (8,000 x 100) 800,000
Share Premium-Ordinary 320,000
Share Options Outstanding (20% x 200,000) 40,000

PIC from Forfeited Share Options 40,000
(c) If the stock price reached P200 by June 2016, the same entries will be made
for year 2013 through 2015, as given in (b) The recorded share options,
however, will be cancelled at the end of 2016, as the options already expire.
12/31/16 Share Options Outstanding 200,000
PIC from Forfeited Share Options 200,000
3-20. (Red Day Company)

(a)
01/01/13 Granted 80 share options to each of 400 employees for the
purchase of P100 par ordinary shares at P140 per share. Options
shall vest in 2013 if earnings increase by 15% or at the end of
2014 if average annual earnings for 2013 and 2014 increased by an
average of 12%.

400 x 80 x 22 = 704,000
704,000/2 = 352,000

35
2015 Cash (32,000 x 140) 4,480,000

Ordinary Share (32,000 x 100) 3,200,000
Share Premium – Ordinary 1,984,000
(b) The full amount of P704,000 is recognized as compensation

expense since the options vest already in 2013.
3-21. (Bloody Red Company)
01/01/13 Memo: Issued to its CEO share options for the purchase of ordinary shares at
a strike price of P50. The options are exercisable beginning January 1, 2016
and expire on December 31, 2017. The number of share options will be based
on the level of sales for 2015.

15,000 sh x 30 x 1/3

15,000 sh x 30 x 2/3 300,000

Less: previously accrued 150,000
Compensation expense 150,000

18,000 sh x 30 x 3/3 540,000
Less: previously accrued 300,000
Compensation expense 240,000
3-22. (Striking Red Corporation)

(a)
Share Appreciation Rights Payable 66,667
10,000 x (140 -120) x 1/3

10,000 x (150 - 120) x 2/3 = 200,000
200,000 – 66,667 = 133,333

10,000 x (165 - 120) = 450,000
450,000 –200,000 = 250,000
(b) (1) Assuming that the rights were exercised on January 1, 2016, when the market
price is P165.
01/01/16 Share Appreciation Rights Payable 450,000
Cash 450,000
36
(b) (2) Assuming that the rights were exercised on December 31, 2016, when the
market price is P172.
12/31/16 Share Appreciation Rights Payable 450,000
Compensation Expense 10,000 (172 – 165) 70,000
Cash 10,000 x (172-120) 520,000
3-23. (Red Bull Corporation)
(a) Liability at December 31, 2013 = P89,333

December 31, 2014 = P208,000
December 31, 2015 = P394,000

10,000 x 26.80 x 1/3

10,000 x 31.20 x 2/3 = 208,000
208,000 – 89,333 = 118,667

10,000 x 39.40 = 394,000
394,000 –208,000 = 194,000
2016 Share Appreciation Rights Payable 394,000

Compensation Expense 56,000
Cash 10,000 x (165-120) 450,000
3-24. (Ruby Red Company)

(a) Fair value of the equity alternative
4,000 shares x 150 600,000
Fair value of debt component
3,600 shares x 158 568,800
Fair value of equity component 1/1/13 31,200
(b) 2013: 3,600 x 160=576,000; 576,000/3 192,000

31,200/3 10,400
Total compensation expense 202,400
2014: 3,600 x 165 x 2/3 = 396,000

396,000 – 192,000 204,000
31,200/3 10,400
2015: 3,600 x 168 = 604,800

604,800 – 396,000 208,800
31,200/3 10,400
2016: 2,700 x (172-168) 10,800
37
(c)
01/01/13 Granted each of the four executives the right to choose either
1,000 ordinary shares or to receive cash payment equal to 900
shares, conditional upon the completion of three years of service.



12/31/15 Share Options Outstanding ¼ x 31,200 7,800

Cash 151,200
PIC from Unexercised Share Options 7,800
31,200 / 4 = 7,800
604,800 / 4 =151,200

900 x 3 x (172 – 168)
12/31/16 Share Options Outstanding (31,200 x ¾) 23,400

Ordinary Share (3,000 x 100) 300,000
Share Premium – Ordinary 187,800
3-25. (Red Santa Company)

Appropriated Unappropriated
RE, January 1, 2013 P 4,000,000 P9,000,000
2013 Transactions
(1) 200,000 x 70% (140,000)
(2) Dividends
On preference: 200,000 x P100 x 8% (1,600,000)
On ordinary: 300,000 x P5 (1,500,000)
(3) 10,000 (150 – 130) (200,000)
(4) Release of appropriation (4,000,000) 4,000,000
(5) 45,000/300,000 = 15% bonus issue
45,000 x P150 (6,750,000)
(6) Appropriation for bond redemption 2,000,000 (2,000,000)
(7) Profit for the year 3,000,000
Balance, December 31, 2013 P2,000,000 P3,810,000
Total retained earnings, (P2,000,000 unavailable
for dividends) P5,810,000
38
3-26. (Red Hat Company)

Retained earnings balance as of December 31, 2014
3,900,000 – 600,000 – 240,000 P 3,060,000
Total shareholders’ equity as of December 31, 2014
6,000,000 + 8,000,000 + 3,060,000 P17,060,000
(a) Preference Ordinary
Par value of preference share P6,000,000
Dividends in arrears (6,000,000 x 9% x 3 yrs.) 1,620,000
Excess to ordinary (17,060,000 – 7,620,000) P9,440,000
Total equity P7,620,000 P9,440,000
Divide by the number of shares outstanding 60,000 800,000
Book value per share P 127 P 11.80
(b) Preference Ordinary
Liquidation value (60,000 shares x P105) P6,300,000
Dividends in arrears (P6,000,000 x 9% x 3 yrs.) 1,620,000
Excess to ordinary (17,060,000 – 7,920,000) P9,140,000
Total equity P7,920,000 P9,140,000
Divide by the number of shares outstanding 60,000 800,000
Book value per share P132 P11.425
3-27. (Red, Inc.)

Inventory 300,000
Land 1,500,000
Buildings 1,875,000
Machinery and Equipment 350,000
Accum. Depreciation – Buildings 875,000
Accum. Depreciation – Machinery & Equipment 150,000
Revaluation Surplus 3,700,000
Revaluation Surplus 2,300,000
3-28. (Skinny Red Company)

(a) Retained Earnings 400,000
Accumulated Depreciation 75,000
Current Assets 100,000
Building 375,000
Ordinary Share 6,000,000
Ordinary Share 4,000,000
Skinny Red Company

Statement of Financial Position
Current Assets P 400,000 Liabilities P1,000,000
Land 1,500,000 Ordinary Share 4,000,000
Building 4,625,000 Share Premium 600,000
Accumulated Depreciation ( 925,000)
Total P5,600,000 Total P5,600,000
39
MULTIPLE CHOICE QUESTIONS

Theory
MC1 C MC12 A
MC2 D MC13 C
MC3 B MC14 C
MC4 B MC15 A
MC5 B MC16 D
MC6 C MC17 B
MC7 C MC18 D
MC8 C MC19 C
MC9 C MC20 D
MC10 No Answer; Answer is MC21 C
Decrease; Increase
MC11 C MC22 C
Problems
MC23 C 230,000 + 525,000 + 5,000 = 760,000
MC24 B 480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000
MC25 D
MC26 D (60,000 x 2) – (5,000 x 2) = 110,000
MC27 D 125,000 x 3 = 375,000
MC28 A 375,000 – [(12,000 x 3) + 5,000] = 334,000
MC29 A 20,000 x 9 = 180,000; 180,000/2 = 90,000 x 1/2 = 45,000
MC30 C 600,000 x 5 = 3,000,000
MC31 B 1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000
MC32 A 7,000,000 + (35,000 x 70) = 9,450,000
MC33 B 2,000 x 8 = 16,000
MC34 C 70 – (70/2) = 35
MC35 B (5,000 x 80) – (5,000 x 40) = 200,000
MC36 B 600 x 10 x 60% = 3,600; 6,000 – 3600 = 2,400
MC37 D Interest expense for 2009 = 100,000 x 10% x 9/12 = 7,500
MC38 C 2,120,000 – (2,000 bonds x 1,040) = 40,000
MC39 B 945,000/ 70 = 13,500; 13,500/90,000 = 15%
MC40 D 80,000 + (2,000,000 x 8%) = 240,000; 300,000 – 240,000 = 60,000
MC41 D (3,000,000 x 5% x 2 years) – 100,000 = 200,000 arrears, end
MC42 B (110,000 + 10,000) x 2 = 220,000 issued; 220,000 – (4,000 x 2) = 212,000
MC43 A 24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000
72,000 + (12,000 x 4/6) = 80,000; 24,000 + (12,000 x 2/6) =28,000
80,000/4,000 = 20; 28,000/20,000 = 1.40
MC44 A 8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000
MC45 A (15 x 2)/5 = 6.00
MC46 B 25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000
1,000,000 + 250,000 = 1,250,000
MC47 C (40,000x105) – (600 x 110) + (400 x 95) + 830,000 – 200,000 = 4,802,000
MC48 C 5,520,000 – 25,000 – 170,000 + 40,000 + 900,000 = 6,265,000
MC49 D (2,000 x 85) – (800 x 42.50) = 136,000
MC50 D [3,000 x (50-20)] / 3 years = 30,000
MC51 C 4,500,000 x 95% = 4,275,000; 4,275,000/3 = 1,425,000
MC52 B 4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 – 1,425,000=1,395,000
MC53 B (4 x 200 x 300) x ½ = 120,000
MC54 D (90% x 7 x 200 x 300) – 120,000 = 258,000
MC55 B 360,000 – 70,000 = 290,000; 290,000/5,000 = 58
MC56 B 3,150,000/ 50,000 = 63
MC57 B 3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51
40
MC58 B RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x 3

years = 1,200,000, but dividends are limited to the extent of RE balance of
P1,000,000; Thus, equity of ordinary share is 13,500,000 – 5,000,000 –
1,000,000 = 7,500,000; 7,500,000/ 750,000 shares = P10
MC59 C 13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ; 7,200,000/750,000
shares = 9.60
MC60 D (200,000 x 2) + (200,000 x 5) – 950,000 = 450,000
41

Chapter 3 - Shareholder's Equity PDF

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Chapter 3 - Shareholder's Equity PDF

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3-1. (Budomo Company)

• Legal expense/Professional fees 90,000

• Cash (6,500 x 380) 2,470,000

Share premium-Ordinary 60,000

b. Land (3,500 x 560) 1,960,000

d. Subscription receivable 450,000

3-3. (Blazing Red Corporation)

Issue of 30,000 ordinary shares P 350,000

3-4. (Millennium Company)

(2) Cash 60,000

(3) Cash 65,000

(4) Ordinary share 10,000

(b) Total shareholders’ equity, December 31, 2012 P2,200,000

3-5. (Consuelo Enterprises, Inc.)

(b) Preference share (4,000 x 20) 80,000

(c) Preference share (4,000 x 20) 80,000

Average preference share premium per share

3-6. (Concepcion Enterprises, Inc.)

(b) Preference share (3,000 x 20) 60,000

3-7. (Red Stone Company)

Share Dividends Distributable 100,000

(b) Retained Earnings (30,000 x 10) 300,000

Share Dividends Distributable 300,000

previously issued and outstanding.

3-8. (Dark Red Company)

(a) Preference share is non-cumulative and non-participating

2012 Preference Ordinary

2013 Preference Ordinary

(b) Preference share is cumulative and non-participating.

2012 Preference Ordinary

Dividend per share P10.50 P0.12

2013 Preference Ordinary

(c) Preference share is cumulative and fully participating

2011 Preference Ordinary

2012 Preference Ordinary

2013 Preference Ordinary

3-9. (Red Violet Company)

(a) Preference is participating up to 14%.

(b) Preference is participating up to 12%.

3-10. (Red Mama Company)

Share Dividends Distributable 500,000

Fractional Share Warrants Outstanding 100,000

3-11. (Red Ball Corporation)

Retained Earnings 150,000

Financial Assets at FV through Profit or Loss 20,000

Retained Earnings 20,000

February 28, 2014

Property Dividends Payable 200,000

3-12. (Red Chili Company)

10/1/13 Depreciation Expense 33,750

Retained Earnings 190,000

Assets Held for Distribution 180,000

12/31/13 Impairment Loss 20,000

Property Dividends Payable 30,000

1/31/14 Retained Earnings 15,000

Property Dividends Payable 175,000

3-13. (Red Ribbon Corporation)

(a) Total shareholders’ equity P17,146,000

3-14. (Red Heart Corporation)

09/30/12 Retained earnings (80,000 x 5% x 110) 440,000

11/10/12 Share dividends distributable 400,000

12/31/12 Income summary 1,175,000