UNIVERSITY OF NUEVA CACERES

COLLEGE OF BUSINESS AND ACCOUTANCY

Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

SHAREHOLDERS’ EQUITY

Problem 1
A partial list of the accounts and ending accounts balances taken from the post-closing trial balance of
Water Corporation on December 31, 2020 is shown below:

Accumulated Profits - Unappropriated P450,000

Bonds Payable 220,000
Ordinary Shares Subscribed 50,000
Long-term Investment in Shares 210,000
Share Premium on Ordinary Shares 460,000
Premium on Bonds Payable 30,000
Ordinary Shares 400,000
Preference Shares Subscribed 45,000
Share Premium on Preference Shares 112,000
Preference Shares 300,000
Share Premium from Treasury Stock Transactions 24,000
Additional Paid-in Capital - Bond Conversion Option 15,000
Accumulated Unrealized Holding Gain on Financial Asset at Fair Value through
Other Comprehensive Income/Loss 90,000
Accumulated Revaluation Surplus 120,000
Accumulated Re-measurement Loss on Accumulated benefit Obligation and
Plan Assets 35,000
Accumulated Foreign Exchange Transaction Gain 56,000
Accumulated Hedging Losses Through Other Comprehensive Income/Losses 22,000
Ordinary Shares Option Outstanding 15,000
Ordinary Shares Warrants Outstanding 5,000
Subscriptions Receivable from Ordinary Shares - current 10,000
Subscriptions Receivable from Preference Shares - non-current 5,000
Treasury Shares, 2,000 Ordinary Shares at cost 40,000
Accumulated Profits - Appropriated for Treasury Shares 40,000
Accumulated Profits - Appropriated for Plant Expansion 100,000

Further investigation revealed the following information:

a. Ordinary share ha P10 par value per share. 90,000 shares authorized, 40,000 shares are issued,
5,000 shares have been subscribed at price of P28 per share.
b. Preference share has no par value but with a stated value of P50 par value, 8,000 shares are
authorized, 6,000 shares are issued and outstanding, 900 shares have been subscribed at a price
of P70 per share. Each share is cumulative convertible into five ordinary shares, and pays a 7%
annual dividend. Dividends are not in arrears.

Required:
Determine the adjusted balances of the following as of December 31, 2020:
1. Total additional paid-in capital
2. Total contributed capital
3. Total shareholders’ equity
4. Assuming that the subscription receivable from ordinary and preference shares are non-current,
what is the total contributed capital and the total stockholders’ equity?
5. Total legal capital from ordinary shares
6. Total legal capital from preference shares
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

Problem 2
On December 31, 2020, Juice Inc.’ ordinary shares were selling for P55 per share. On this date, the
company creates a compensatory share option plan for its 70 employees. The plan document states that
each employees may purchase 500 shares of its P20 par ordinary shares for P35 per share after one year
if revenue reach P15M, after 2 years if revenues reach P18M, or after three years if revenues reach P20M.
On this date, based on reliable option pricing model, Juice Inc. estimates that each option which can be
exercised up to 2025 under the condition that the employee is still within the employ of the company, has
a fair value of P18.

The company has experience a stable 25% increase in revenues for the past 5 years and reasonably
expects the same trend for the upcoming years.

The following information are available from the company’s records:

Actual Revenues Remaining Employees Expected additional

Year Earned at year end employee resignation
2021 P14.5M 68 8
2022 17.5M 65 5
2023 20.5M 63 0

Forty –five employees exercised their vested options on June 15, 2024 while three employees resigned
on the same year without exercising their options, thus were forfeited.

Required:
Determine the following:
1. Compensation expense related to the share option plan to be recognized in the 2021 financial
statements
2. Compensation expense related to the share option plan to be recognized in the 2022 financial
statements
3. Balance of the additional paid-in capital account related to the share options as of December 31,
2022
4. Balance of the ordinary share option outstanding account as of December 31, 2024
5. Share premium from the issuance of shares from the exercise of employee options.

Problem 3
On December 1, Coke Company declares a property dividend of one share of SMC ordinary share for every
5 shares of Coke distributable on January 31 the following year. SMC ordinary shares have a carrying
amount of P55 per share, equal to the original cost. The total outstanding Coke shares is 10,000. SMC
shares were held as trading securities.

SMC shares were quoted at P60 per share on December 1, P63 per share on December 31 and P65 per
share on January 31.

Required:
1. Prepare the necessary entries.
2. Carrying amount of property dividends on December 31

Problem 4
On September 30, 2020 Royal Company issued 3,000 shares of its P10 par ordinary shares in connection
with a share dividend. No entry was made on the share dividends declaration date. The market value per
share immediately after the issuance was P15. Royal’s shareholders’ equity accounts immediately before
issuance of the share dividends were as follows:

Ordinary share, P10 par, 50,000 shares authorized; 25,000 issued 250,000
Paid in capital in excess of par 300,000
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

Retained earnings 350,000

Treasury shares, 5,000 shares at cost (40,000)

Required:
1. Retained earnings balance after the share dividend declaration
2. Assuming that instead of declaring and issuing 3,000 shares, the company declared and issued
4,000 shares as share dividend, what should be the Retained earnings balance immediately after
the share dividend declaration?

Problem 5
Sprite Company declares a 10% scrip dividends on July 1, 2020 payable a year after with 12% interest. The
total par value of the outstanding shares of Sprite is P10,000,000.

Required:
1. Total appropriation to the retained earnings as a result of the scrip dividends declaration
2. Interest expense from the scrip dividends should be recognized in 2021 profit or loss

Problem 6
You were assigned to audit the Mirinda Corp’s Stockholders’ Equity accounts and the related capital
transactions for its first year of operation ended December 31, 2020. In studying the transactions you
came across the following entries made by the client:

Date Particulars Debit Credit

Jan 15 Land 500,000
Ordinary shares 500,000
To record the issuance of 50,000 shares of ordinary in
exchange of a real property.

Mar 1 Subscription receivable 420,000

Ordinary shares 420,000
To record the subscription of 20,000 shares of ordinary at P21 per share
subscription price.

Jun 1 Ordinary shares 125,000

Cash 125,000
To record the acquisition of 5,000 shares of the company's
own ordinary shares.

Aug 15 Cash 252,000

Subscription receivable 252,000
To record the collection for the full payment of 60% of the
subscribed shares on March 1.

Sep 2 Cash 40,000

Ordinary shares 40,000
To record the issuance of half of the shares reacquired on
June 1.

Dec 29 Accumulated profits 750,000

Share premium 750,000
To record the grant of 10 employees 5,000 share
appreciation rights on the grant date computed as:
(10*5,000*15)

Audit notes:
a. The company was authorized to issue 100,000 shares of ordinary at P10 par value.
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

b. The real property received on January 15, were fairly valued at P1,800,000, 30% of which is
attributed to the land with the balance to the building which the company intends to use as a
factory site.
c. The company declared a 4 to 1 share split up on August 31.
d. The share appreciation rights were granted to 10 of its key employees provided that the employee
stays with the company for 5 years from the date of grant and provided further that the average
revenue growth rate over the five-year period is at 10%, each employee will receive 4,000 SAR
each; if the average revenue growth rate is 30%, each employee will receive 5,000 SAR each. By
the end of the year, it was ascertained by the management that three of the employees will leave
the company before the fifth year and projects that the average revenue growth rate shall be
around 25% over the five-year period. The prevailing fair value of the stock appreciation rights by
the end of the year was P15.
e. On December 30, The Board of Directors approved a P1 per share cash dividends to stockholders
of record as of December 20 payable on January 30 of the subsequent year.
f. After all the necessary adjusting entries, you ascertained that the correct net income for the year
is at P1,500,000.

Required:
1. Balance of the Ordinary Share account as of December 31, 2020
2. Correct balance of the Stock Appreciation Rights Payable as of December 31, 2020
3. Cash dividends payable as of December 31, 2020
4. Total Additional Paid in Capital balance as of December 31, 2020
5. Balance of Unappropriated Accumulated Profits as of December 31, 2020
6. Total Shareholders’ Equity in 2020

Problem 7
During your audit of Choco Corporation for the year 2020, its initial year of operations, you find the
following entries in its “shareholders’ equity” account:

Date Particulars Dr Cr
Jan 1 Issuance of 15,000 ordinary shares of P10 par, authorized 50,000
shares in exchange for real property with market value of
P200,000 P150,000
Jan 15 Sale of 20,000 ordinary shares at P12 per shares 240,000
Mar 1 Purchase of 2,000 Choco Corporation's shares at P15 per share P30,000
May 15 Loss on sale of motor equipment 10,000
Jun 10 Proceeds from sale of 1,000 treasury shares 17,000
Declared cash dividends payable quarterly beginning Apr 1,
Dec 31 2021. 20,000
Dec 31 Net profit for the year 79,000

Required:
Determine the adjusted balance of the following:
1. Ordinary shares
2. Additional paid-in capital
3. Net profit for the year
4. Retained earnings
5. Total stockholders’ equity
6. Book value per share

Problem 8
The Yakult Corp. has requested you to audit its financial statements for the year 2020. During your audit,
Yakult Corp. presented to you its balance sheet as of December 31, 2019 which had the following
shareholders’ equity section:
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

Preference shares, P10 par; 90,000 shares authorized and issued , of

which 9,000 are in the treasury costing P135,000 and shown as an
asset P900,000
Ordinary shares, P4 par value; 900,000 shares authorized, of which
675,000 shares are issued and outstanding 2,700,000
Share premium (P5 per share on preference shares issued in 2018) 450,000
Allowance for doubtful accounts receivable 18,000
Reserve for depreciation 1,260,000
Reserve for fire insurance 297,000
Accumulated profits 3,375,000
Total shareholders' equity P9,000,000

Audit notes:
a. 4,500 treasury shares were sold for P18 per share on August 30, 2020. Yakult Corp. credited the
proceeds to the Preference share account. The treasury shares as of December 31, 2019 were
acquired in one purchase in 2019.
b. The preference shares carries an annual dividend of P1 per share. The dividend is cumulative. As
of December 31, 2019, unpaid cumulative dividends amounted to P5 per share. The entire
accumulation was liquidated in June 14, by issuing to the preference shareholders 81,000 ordinary
shares.
c. A cash dividend of P1 per share was declared on December 1, 2020 to preference shareholders of
record December 15, 2020. The dividends are payable on January 15, 2021.
d. At December 31, 2020, the Allowance for Doubtful Accounts Receivable and Reserve for
Depreciation had balances of P37,000 and P1,575,000, respectively.
e. Om March 1, 2020, the Reserves for fire insurance was increased by P900,000; Accumulated
Profits was debited.
f. On December 31, 2020, the Reserves for fire insurance was decreased by P45,000 which
represents the carrying value of a machine destroyed by fire on that date. Fire clean-up costs of
P9,000 does not appear in the records.
g. The December 31, 2019 Accumulated profits consists of the following:
Donated land from a stockholder 675,000
Gains from treasury stock transactions 76,500
Earnings retained in the business 2,623,500
3,375,000

h. Unadjusted net income for the year ended December 31, 2020 was P1,946,250 per company’s
books.

Required:
Determine the adjusted balance at December 31, 2020 of the following:
1. Net profit for the year
2. Additional paid-in capital
3. Appropriated accumulated profits
4. Unappropriated accumulated profits
5. Total stockholders’ equity