AUDIT OF SHAREHOLDERS’ EQUITY

PRACTICE PROBLEMS I

CASE 1. During the current year, an entity issued 10,000 ordinary shares with P100 par value and 20,000
convertible preferences shares with P200 par value for 8,000,000. On the date of issuance, the ordinary
share is selling at P360 and the preferences share is selling at P270. The entity also issued 6% bonds with
a maturity value of P6,000,000, together with 20,000 ordinary shares with P100 par value for a combined
cash amount of 11,000,000. The market value of the ordinary share cannot be determined. If the bonds
were issued separately, the bond would have sold for 5,000,000 on an 8% yield to maturity basis.

1. What amount should be reported as share premium from preferences share?

a. 4,000,000 c. 800,000
b. 6,000,000 d. 0

2. What amount should be reported as share premium from ordinary shares?

a. 4,000,000 c. 2,200,000
b. 6,600,000 d. 6,200,000

CASE 2. An entity reported the following equity at the beginning of the current year:

Share capital, 10 par 5,000,000

Share premium 2,000,000
Retained earnings 1,500,000

During the current year, the entity had the following share transactions:

 Acquired 20,000 treasury shares for P1,000,000

 Sold 15,000 treasury share at P 60per share.
 Sold the remaining treasury share at P45 per share.

What mount should be reported as a share premium at year-end?

a. 2,125,000 c. 2,000,000
b. 2,150,000 d. 1,975,000

CASE 3. An entity had issued 100,000 ordinary shares. Of these 5,000 shares were held as treasury on at
the beginning of current year. During the current year, transaction involving ordinary shares were as
follow:
 May 1 1,000 shares of treasury were sold
Aug 1 10,000 previously unissued shares were sold
Nov 1 A -2-for-1 share split took effect.

1. At year end, how many ordinary shares were issued?

a. 220,000 c. 222,000
b. 218,000 d. 210,000

2. At year end, how many shares are outstanding?

a. 212,000 c. 214,000
b. 216,000 d. 218,000

CASE 4. At year end, an entity canceled 5,000 shares of 50 par value held in treasury at an average cost
of P120 per share. Before recording the cancelation of the treasury shares, the entity had the following
shareholders’ equity:

Share capital, 50,000 shares originally issued at P75 2,500,000

Share premium 1,250,000
Retained earnings 1,000,000
Treasury shares, at cost 600,000

What amount should be reported as share capital outstanding at year-end?

a. 2,500,000 c. 2,250,000
b. 1,900,000 d. 2,125,000

CASE 5. An entity was organized on January 1, 2017. On that date, the entity issued 200,000 shares
with 10 par value at 15 per share. During the period January 1, 2017 through December 31, 2018, the
entity reported net income of 2,000,000 and paid cash dividends of 500,000. On January 5, 2018, the
entity purchased 10,000 shares at P20 per share to be held as treasury. On December 31, 2018, 5,000
treasury shares were sold at P30 per share and the remaining treasury shares were retired, what is the total
shareholders’ equity on December 31, 2018?

a. 4,450,000 c. 4,400,000
b. 4,350,000 d. 4,950,000

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 AUDIT OF SHAREHOLDERS’ EQUITY
PRACTICE PROBLEMS II

PROBLEM NO. 1.

An entity was organized at the beginning of current year with 100,000 authorized shares of P 100 par
value. During the current year, the following transaction occurred:

January1 sold 30,000 shares at P 150 per share

February 1 Issued 2,000 shares for legal services with a fair value of 250,000. The shares
on this date are not quoted at P140 per share.
March 1 Purchased 5,000 treasury shares at cost of P120 per share.
October 31 Issued 5,000,000 convertible bonds at 120. The bonds are quoted at 98 without
the conversation feature.
November 15 Declared a 2-for-1 share split when the market value of the share was P160.
December 15 Sold 10,000 share at P75 per share.
December 31 The net income for the year was P 2,000,000.

1. What amount should be reported as share capital at year-end?

a. 3,000,000 c. 3,700,000
b. 3,200,000 d. 4,800,000

2. What amount should be recognized as share premium at year-end?

a. 1,800,000 c. 2,930,000
b. 2,900,000 d. 2,650,000

3. What is the total shareholders’ equity at year-end?

a. 8,000,000 c. 6,000,000
b. 6,900,000 d. 8,030,000

4. How many shares are outstanding at year-end?

 a. 64,000 c. 74,000
b. 54,000 d. 47,000

PROBLEM NO. 2

At December 31, 2016, ROBUSTA, INC. had 1,800,000 authorized shares of P10 par value ordinary
shares, of which 600,000 shares were issued and outstanding.
The shareholders’ equity account at December 31, 2016, had the following balances.

Ordinary shares ……………………………………………… P 6,000,000

Share premium……………………………………………….. 2,250,000
Retained earnings……………………………………………… 1,941,000
Transaction during 2017 and other information relating to the shareholders’ equity accounts were as
follow:
1. On January 7, 2017, ROBUSTA issued at P 54 per share, 30,000 shares of P 50 par value, 9%
cumulative convertible preferences shares. Each share of preferences is convertible, at the option
of the holder, into two ordinary shares. ROBUSTA had P 180,000 authorized preferences share.
2. On February 2, 2017, ROBUSTA reacquired of 6,000 of its ordinary shares for P16 per share
ROBUSTA uses the cost method to account for treasury shares.
3. On April 29, 2017, ROBUSTA sold 150,000 shares (previously unissued) of P10 par value
ordinary shares at P17 per share.
4. On June 17, 2017, ROBUSTA declared a cash dividend of P1 per ordinary share, payable on July
14, 2017, to shareholders’ of record on July 1, 2017.
5. On November 12, 2017, ROBUSTA sold 3,000 treasury shares for P 21 per share.
6. On December 15, 2017 ROBUSTA declared the yearly cash dividend of preferences shares,
payable on January 14, 2018, to share holders of record on December 31, 2017.
7. On January 22, 2018, before the book were close for 2017, ROBUSTA became aware that the
ending inventories at December 31, 2016. Were understated by P 63,000. The appropriate
correcting entry was recorded the same day.
8. After correcting the beginning inventory, net income for 2017 was P1,350,000

Ignore income tax implications.

QUESTIONS:

1. The retained earnings , as restated as of January 1, 2017, is

a. 1,941,000 c. 2,031,000
b. 2,0004,000 d. 2,034,000

2. The retained earning balance as of December 31, 2017, is

a. 1,875,000 c. 2,475,000
b. 2,460,000 d. 2,556,000
3. The share premium from preferences share as of December 31,2017, is

a. 30,000 c. 105,000
b. 90,000 d. 120,000

4. The share premium from ordinary shares as of December 31, 2017, is

a. 3,000,000 c. 3,315,000
b. 3,300,000 d. 3,450,000

5. Total shareholders’ equity as of December 31, 2017, is

a. 14,835,000 c. 14,862,000
b. 14,851,000 d. 14,910,000

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