The Review School of Accountancy ®Tel. No. 735-9807 & 734-3989 AUDITING PROBLEMS IRENEO/ESPENILLA/JAMES (QUIZZER? - SHE PROBLEM 1: A partial list of the accounts and ending account balances takén from the post- Closing trial balance of ALPHA CORPORATION on December 31, 2014 is shown as follows: Account ‘Amount. Accumulated profits - unappropriated 410,000 Bonds payable 220,000 Ordinary shares subscribed ‘ 50,000 Long term investments in equity securities 210,000 Additional paid-in capital on ordinary shares 460,000 Premium on bonds payable 30,000 Authorized ordinary shares at P10 par value 900,000 Preference shares subscribed 45,000 Additional paid-in capital on preference shares 112,000 ‘Authorized preference shares at P50 par value 400,000 Gain on sale of treasury shares 4,000 Unrealized increase in value of securities available for sale 3,000 Ordinary share warrants outstanding 20,000 Unissued ordinary shares 500,000 Unissued preference shares 100,000 Cash dividends payable ~ preference 50,000 Donated capital 25,000 Reserve for bond sinking fund 220,000 Reserve for depreciation 150,000 Revaluation increment in properties 100,000 Subscription receivable ~ preference (Jong term) 15,000 Subscription receivable ~ common (long term) 20,000 REQUIRED Compute the following: A B O° > 1. Ordinary shares issued 950,000 900,000 450,000 400,000 2. Preference shares issued 445,000 400,000 345,000, 300/000 3. Additional paid-in capital 592,000 596,000 621,000 651,000 3. Total contributed capital 1,332,000 1,352,000 1,377,000 1,381,000 5. Total legal capital 1,395,000 1,300,000 795,000 700,000 6. Total stockholders’ equity 2,744,000 2,244,000 2,114,000 2,144,000 PROBLEM 2: The stockholders’ equity of the WPC as of December 31, 2013 was as follows ‘Common stock, P10 par, authorized 300,000 shares; 250,000 shares issued and outstanding 2,500,000 Paid-in capital in excess of par 3,750,000 Retained earnings 1,800,000 On June 1, 2014, WPC reacquired 40,000 shares of its common stock at P40 per share. The following transactions occurred in 2014 with regard these shares: uly 4, Sold 15,000 treasury shares at P45. duly 15, 2 for 4 Share split Aug. 15, Sold 34,000 treasury shares at P15. Sept. 1, Retired 2,000 shares. Based on the information provided, determine the correct balances of the following: A 8 c D 7, Treasury stock 310,000 280,000 130,000 _ 205,000 8. Common stock 2,490,000 2,500,000 2,460,000 2,210,000 9. Paid-in capital in excess of par 3,750,00 3,720,000 3,735,000 3,810,000 10. Paid-in capital from treasury stock 150,000 ' 60,000" 75,000 0 11. Retained earnings 1,690,000 1,810,000 1,825,000 1,905,000 PROBLEM 3:in the course of your first time audit of MISAMIS INC.’s stockholder’s equity accotints for the audit year 2014, the following schedule of the company's stockholder’s equity accounts as of December 31, 2013 were presented by the client ‘Ordinary share capital, P100 par; 200,000 shares authorized, $0,000 shares issued and outstanding; options to purchase 10,000 shares at P100 per share are held by employees, no value having been assigned to these options. 5,000,000 Mei ch 0 es ME CS REY Tackce ee ere ee Te ReSA: The Review School of Accountancy Page 2 of 14 Share premium from ordinary shares 3,000,000 Accumulated profits 3,000,000 Further investigation and inquiry revealed the following information: a. The options referred to above were granted to each of its 100 employees on January 1, 2012 which shall vest three years thereafter provided employees remain in the company’s nploy and provided further that sales increase at least by an average of 5% per year. If the sales increase by an average of at least 5% per year, each year, employees shall Feceive 100 share options. If the sales increase by an average of at least 10% per year, each employee shall receive 200 share options. If the sales increase by an average of at least 15% per year, each employee shall receive 300 options. The fair value of each share option on the grant date was P30 per share. No employee left the company during the said vesting period. Records show that average sales increase aver the inclusive vesting period are: 2012, 8%; 2013, 10%, and,2014, 13%, b. On Nay 1, 2034, the company issued bonds of P5,000,000 at 120 giving each P1,000 bond @ warrant enabling the holder to purchase 4 shares at P120 per share for a one year period. Shares were selling for P140 at this time. The market value of bond ex-warrant is 105. Qh June 1, 2014, half of the warrants issued with bonds were exercised. G. On,August 1, the company issued rights to shareholders, permitting holders to acquire for a 60-day period, 1 share at P130 with every 5 rights submitted. Shares were selling for P150 at this time. All but 5,000 of these rights were exercised and additiohal shares were issued. @, The company declared a P5 per stare cash dividends on December 15, 2014 payable to stockholders as of December 31, 2014 on January 31, 2015. f, Net income before any adjustm nts amounted to PZ,500,000 in 2014. Required! 12. What is the retroactive adjustment to the beginning accun the options granted in 2012? ulated profits account related to ‘2. P600,000 . P200,00¢ b. P400,000 d, No adjustment necessary 13, What is the correct credit to the share premium account as a result of the exercise of rights referred to in item d? ‘a. 250,000 285,000 b. 270,000 é. 330,000 14, What is the total Additional Paid in Capital to be presented in the stockholders’ equity portion of the balance sheet as of December 31, 20147 ‘a. 3,130,000 2,530,000 b. 3,505,000 2,155,900 15. What is the correct Accumulated Profits as of December 31, 20147 a. 5,145,000 4,745,000 b. 4,900,000 d. 4,545,000 PROBEM 4; Effective April 23, 2014, the shareholders of Cold Corporation approved @ 2 for 1 stock split of Cold ordinary share and an increase in authorized ordinary share from 100,000 shares (par value P80 per share) to 200,000 shares (par value P40 per share). Cold’s Shareholders’ Equity accounts immediately before issuance of the stock split shares were as follows: Ordinary share (par value P80, 100,000 stares authorized, 50,000 shares outstanding) 4,000,000 Share premium (PL2 per share on the issuance) 600,000 Accumulated profits and losses 5,400,000 The stock split shares were issued on June 20, 2014, 16. In Cold's June 30, 2014 statement of shareholders’ equity, balance af Ordinary share, Share premium and Accumulated profits and Losses are Ordinary share Share premium Accumulated profits 8,000,000 0 2,000,000 8,000,000 600,000 1,400,000 4,000,000 600,000 5,400,009 4,000,000 4,600,000 1,400,000 STOCKHOLDERS’ EQUITY. ReSA: The Review School of Accountancy Page 3 of 14 PROBLEM 5:0n December 31, 2013, Santiago Inc.'s ordinary shares were selling for P95 per share. On this date, the company creates a compensatory share option pian for its 70 employees. The plan document states that each employee may purchase 500 shares of its P20 par ordinary shares for P3S per share after one year if revenues reach PLSM, after 2 years if revenues reach P18M, or after three years if revenues reach P20M. On this date, based on a reliable option pricing model, Santiago Inc. estimates that each option which can be exercised up to 2018 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: Year ‘Actual Remaining Expected Revenues employees additional Earned at year end employee resignation 2014 PIa.sM 68. 8 2015 175M 65 5 2 20.5M 63 - Forty-five employees exercised their vested options on June 15, 2017 while three employees resigned on the same year without exercising their options, thus were forfeited. Required: 17. What is the compensation expense related to the share option plan to be recognized in the 2014 financial statements? ‘a. 315,000 ©. 207,000 b. 270,000 d, 90,000 18, What is the compensation expense related to the share option plan to be recognized in the 2015 financial statements? ‘a. 315,000 ¢. 207,000 b. 270,000 d. 90,000 19. What is the balance of the additional paid-in-capital account related to the share options as of December 31, 20167 ‘a. 207,000 ¢. 567,000 b. 540,000 d. 630,000 20, What is the balance of the ordinary share options outstanding account as of December 31, 2017. a. 135,000 ¢. 270,000 b. 162,000 d. 405,000 21, What is the resulting Share premium from the issuance of shares from the exercise of the . ‘employee options, . ‘a. 405,000 c. 742,500 b. 432,000 * d. 87,500 PROBLEM 6: On January, 2014, Pandora Corp. granted to 600 employees, 100 share options each exercisable after 3 years, subject to the employees staying with the company until the end of 2016. Options can be exercised if share price increases from P40 at the beginning of 2014 to ‘above P60 at the end 2016. The share options can be exercised at any time during the next five years, that js by the end of 2021. The company estimates the fair value of the share options on the grant date at PS per option. This estimate takes into account the possibility that the share price will exceed P6O per share at the end of 2016, thus options are exercisable and the possibility that the share price will not exceed P60 at the end of 2016, thus the share options will be forfeited. ‘The following information are deemed relevant: Fair value Fair ‘Actual. number of Estimated number of of Shares value of employees actually additional employees Options leaving the company _expected to leave the during the year company by the end of 2016 Dec. 31. 2014 pas 4. 5 45 Dec. 31, 2015 44, 3 20 35 Dec. 31, 2016 56 0 30 z AUDITING PROBLEMS - STOCKHOLDERS’ EQUITY APQ 2ReSA: The Review School of Accountancy PROBLEM 7:00 PROBLEM 8: I) AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITY Page 4 of 14 4. none employees in 6, provided that the the volume of sales increases by at r 5% to 10% pe ase by 11% to 15%, fair value of P40 per oduct will increase by an , n weighted probability that ates that a APQ2 ‘“ OOReSA; The Review School of Accountancy Page 5 of 14 Year Sales Level Share Price at End of Year 2012 P350 million P74 2013 410 million 85 2014 760 million 95 31. What Is the compensation expense to be recognized in 2013? a. 80,000 b. 270,000 ¢. 525,000 4. 550,000 32, The entry to record the payment to employees in 2015 assuming all of the rights are exercised? ‘a. 80,000 b. 525,000 . $50,000 4. 900,000 33. Assuming the SARs are not yet exercised ag at December 31, 2015 and that the fair value of the stock appreciation rights is at P1,000,000, what is the liability for the SAR to be recognized as of December 31, 2015? a. 500,000 b. 525,000 . 900,000 d. 1,000,000 PROBLEM 9:0n December 31, 2013, Kalinga Co. issued share appreciation rights to 20 of its employees. The rights will vest at the end of 3 years provided the employees remain with the company and provided further that the average revenue growth over the same period is at 10%, The following are the approved terms of the said rights: + Ifthe average revenue is 10 to 15%, each employee will receive 10,000 share appreciation rights. + Ifthe average revenue is 16 to 20%, each employee will receive 20,000 appreciation rights. + Ifthe average growth more than 20%, each employee will receive 30,000 rights. On the grant date, each share appreciation right is determined to have a fair value of P6, Kalinga expects an average growth rate of 12.5 percent during the 3 year vesting period and that 4 employees will ultimately resign before the vesting period ends. The following information are available from the company’s records: Fal Actual revenue Estimated Value of the growth rate forthe resignations —_ share Year year appreciation rights, 2014 10% 4 6.00 2015 15% 4 6.75 2016 25% s* 7.00 ractual Requirements: 34, How much is the compensation expense in relation to the share appreciation rights to be recognized in 2014? ‘@. 320,000 . 720,000 b. 660,000 d. 960,000 35, How much is the compensation expense in relation to the share appreciation rights to be recognized in 2015? a. 1,080,000 . 720,000 b. 960,000 d, 4000,000 36. How much is the compensation expense in relation to the share appreciation rights to be recognized in 2016? @. 2,100,000 ©. 1,710,000 b. 1,820,000 d. 1,380,000 37. What is the liability for the share appréciation rights to be recognized as of December 31, 20167 a. 1,440,000 ¢. 2,160,000 b. 2,100,000 d, 3,150,000 PROBLEM 10:0n December 1, PQR Company declares a property dividend of one share of SMC ordinary share for every 5 shares of PQR distributable on January 31 the following year, SMC ordinary shares have a carrying amount of P5S per share, equal to the original cost. The total outstanding PQR shares is 10,000. SMC shares were held as trading securities. AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITY APQ2 “ee ReSA: The Review School of Accountancy Page 6 of 14 : upon the aistribut Y a credit to gain 1 PROBLEM 1 4 as ovmer-occupie 0 year + ikholders on January 31 ne proper tained PROBLEM 12. ; its P10 par ord PROBLEM 33: John ¢ AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITY APQ2ReSA: The Review School of Accountancy Page 7 of 14 PROBLEM 14: Orange Company has a retained earnings balance of P400,000 a the end of 2015. During 2014, it had issued P100,000 of 5-year, 12%, long-term bonds. The bond provisions require that each year over the 5-year period an additional P20,000 of retained earnings be unavailable for dividends, This restriction is in addition to any other retained earnings restriction that the company might make. During 2015, the company also decided to “self-insure” against fire losses because of its previous safety record, and to avoid high insurance premiums: The board of directors decided to restrict retained earnings at end of each year in an amount equal to 8,000 annual premium that would have béen paid. 49. How much is the total appropriated retained earnings as of December 31, 2015? ‘a, 108,000 b. 48,000 .' 28,000 d. 20,000 PROBLEM 15:You were assigned to audit the Sans Corp's Stockholders’ Equity accounts and the related capital transactions for its first year of operation ended December 31, 2014. 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. dun. 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 Sept.2 Cash 40,000 Ordinary shares 40,000 To record the reissuance 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"P15) Audit notes: ‘a. The company was authorized to issue 100,000 shares of ordinary at P10 par value. 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. The company declared a 4 for 1 share split up on August 31. , The share appreciation rights were granted to 10 of its key employees provided that the employee stays with the company for 5 years from date of grant and provided further that average revenue growth rate over the five-year period is at 10%, each employee will receive 3,000 SAR each; if the average revenue growth rate is 20%, 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. @. On December 30, the Board of Directors approved a Pi per share cash dividends to stockholders of record as of December 20 payable on January 30 of the subsequent year. JOBLEMS ~ STOCKHOLDERS’ EQUITYSE Se Pa es een ey © Be eee ave 54 ReSA: The Review School of Accountancy Page 8 of 14 {After all the necessary adjusting entries, you ascertained that the correct net income for the year is at 1,500,000 Required: 50, What Is the balance of the Ordinary share account as of December 31, 20147 ‘a. 557,800 700,000 b. 620,000 d. 1,090,000 51. What is the correct balance of the Stock Appreciation Rights Payable as of December 31, 20147 ‘90,000 ¢ ,900 b. 105,000 d. 420,000 52. How much is the tash dividends payable as of December 31, 2014? a. 238,000 c 270,000 b. 248,000 4. 280,000 3, What is the total Additional Paid in Capital halance as of December 31, 2014? a. 1,300,000 1,520,000 b, 1,497,500 d. 1,790,000 What is the Accumulated profits, unappropriated balance as of December 31, 2014? @- 1,500,000 1,145,000 b. 1,477,500 d. 1,207,500 What is the total Stockholders’ equity to be reported in the 2014 statement of financialposition? a. 3,285,000 b. 3,635,000 3,427,500 3,365,000 following information has in taken from the Accumulated profits ledger accounts oF GBC Inc. a. Total net income since incorporation 3,200,000 . Total cash dividends paid 150,000 © Carrying value of the company’s equipment declared a property divided 600,000 d. Proceeds from sale of donated st 150,500 e. Total value of stock dividends 250,000, f. Gain on'treasury share transaction 375,000 g. Unamortized premium on bonds payable 413,200 h. Appropriated for plant expansion, . 700,000 i. Loss on treasury share reissue 515,000, j. Share premium in excess of par from issued shares 215,000 k. Share issuance expense 45,000 |. Appropriated for remaining treasury shares at cost P50/share 1,000,000 Additional notes: © The equipment deciared as dividends had a recoverable value of P450,000 as of the date of declaration . = The stock dividends distributed was based on a 10% share dividend declared on 100,000, P25 par value shares issued shares. The market value of shares on the date of declaration was at P42 per share. + The only transactions affecting the treasury shares were those described in item f and item i 56. How much should be the correct debit to retained earnings for the property dividends? a. 600,000 $50,000 500,000 d. 450,000 57. How much should be the correct debit to retained earnings for the share dividends? a. 420,000 , 336,000 ¢, 250,000 4. 200,000 58. How much Is the correct balance of the Accuriulated retained earnings unappropriated account? a. 190,000 b, 274,000 ©, 330,000 4. 424,000 59, What is the balance of the share premium from treasury stock transactions? a. 0 b. 140,000 ¢. 375,000 d. 515,000 60. The net necessary net adjustment involves an adjustment to additional paid in capital in-the amount of a. 320,500 b. 365,500 ¢. 460,500 . 456,500 . AUDITING PROBLEMS - STOCKHOLDERS’ EQUITY APQ2 (ReSA: The Review School of Accountancy Page 9 of 14 PROBLEM 17:The Accumulated profit account of Paranaque Company follows: Date Item Dr. Cr, (07-01-13 Balance P 48,500 03-31-13 Dividends paid P 20,000 12-31-13 Net income for the year 32,400 04-01-14 Premium on capital share 15,000 06-30-14 Gain on sale of treasury share . 40,000 09-30-14 Dividends declared 30,000 12-31-14 Net Income for the year 45,100 Appraisal increase of land 30,000 Balance 131,000 P1gi,000 " P18.,000 61, What is the adjusted accumulated profits? a. 76,000 b. 86,000 . 90,000 d. 131,000 PROBLEM 18:. During your audit of Romar Corporation for the year 2014, its initial year of ‘operations, you find the following entries in its " shareholders’ equity” account: Date Particulars Orr. Jan. 1 Issuance of 15,000 ordinary shares of 10 par, authorized 50,000 shares in ‘exchange for real estate property with a market value of 200,000 150,000 Jan. 15 Sale of 20,000 ordinary shares at P12 per share 240,000 Mar. 1 Purchase of 2,000 Romar Corporation's shares at P15 per share 30,000 May 15 Loss on sale of motor equipment 10,000 une 10. Proceeds from sale of 1,000 treasury shares 17,000 Dec. 31 Declared cash dividends payable quarterly beginning Apr. 1, 2015 20,000 Dec, 31 Net profit for the year 79,000 The Stockholders’ equity portion of the balance sheet of the company should show the following adjusted balances: A B c > 62. Ordinary shares 320,000 350,000 480,000 500,000 63. Additonal paid-in capital 42,000 92,000 90,000 40,000 64. Net profit for the year 49,000 69,000 79,000 89,000 65, Retained earnings 29,000 49,000 69,000 79,000 66. Total stockholders’ equity 446,000 476,000 491,000 526,000 67. Book value per share 14.48 14.00 13.12 12.82 PROBLEM 19: Wood, Inc. is a public enterprise whose shares are traded in the over-the-counter market. At December 31, 2014, Wood had 6,000,000 authorized shares of P10 par value ordinary shares, of which 2,000,000 shares were issued and outstanding. The shareholders’ equity accounts at December 31, 20013, had the following balances: Ordinary shares 20,000,000 Additional paid-in capital 7,500,000 ‘Accurulated profit 6,500,000 Transactions during 2014 and other information relating to the shareholders’ equity accounts were as follows: * On January 5, 2014, Wood issued at P54 per share, 100,000 shares of PSO par value, 9% cumulative convertible preference shares. Each share of preference share is convertible, at the option of the holder, into two shares of ordinary shares. Wood had 600,000 authorized shares of preference shares. The preference share has a liquidation value equal to its par value. * On February 1, 2014, Wood reacquired 20,000 shares of its ordinary shares for P16 per share. AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITY APQ 2 eea ket Sa WA ReSA: The Review School of Accountancy Page 10 of 14 + On Apri 30, inal 1014, Wood sold 500,000 shares (previously unissued) of P10. par vale shares to the public at P17 per share. + On June 18, 2014, Wood declared a cash dividend of P1 per share of ordinary share, payable on July 12, 2014, to shareholders of record on July 1, 2014. + On November 10, 2014, Wood sold 10,000 shares of treasury shares for P21 per share. + On December 14, 2014, Wood declared the yearly ‘cash dividend on preference share, payable on January 14, 2015, to shareholders of record on December 31, 2014 + On Jenuary 20, 2015, before the books were clesed for 2014, Wood became aware that the ending inventories at December 31, 2013 were understated by P300,000 (after tax effect ‘6h 2013 net income was P180,000). The appropriated correction entry was recorded the same day. +. After correcting the beginning inver ry, net income for 2014 was P4,500,000. From the information provided above, de stockholders’ equity accounts mine the adjusted. balance of the following A 8 c D 68. Accumulated profits beginning {as restated) 6,620,000 6,800,000 . 6,580,000 6,680,000 69, Accumulated profits ending, Unappropriated 8,100,000 8,250,000 8,090,000 7,990,000 70. Total contributed capital 41,450,000 41,610,000 41,400,000 41,000,000 71, Treasury stocks 320,000 160,000 210,000. 110,000 72. Total stackhiolders’ equity 49,700,000 49,650,000 49,540,000 49,380,000, PROBLEM 20: On January 1, 2014 the Shareholders’ equity. section of Iriga Electronics Company's balance sheet revealed the following information PS, Convertible preference shares (P40 par value; 50,000 shares authorized, 20,000 shares issued and outstanding 800,000, Ordinary shares (P5. stated value; 200,000 shares authoriz 120,000 shares issued and outstanding) 600,000 Share premium ~ Preference shares 500,000 Share premium ~ Ordinary shares 1,500,000 Retained earnings 4,500,000 Total shareholders’ equity 8,900,000 In addition, the following information is known 1. Cash dividends are declared for preference and ordinary shares on October 31 and April 30 of each year, Semiannual cash dividends for ordinary shares are PO.5O. 2. Net income for 2014 was P660,000, and for 2015, P890,000. 3, On Februaty 2; 2014, 15,000 ordinary shares were acquired by the company for P33 per share (assume the cost method) 4, On September 30, 2014, 5,000 preference shares were converted to ordinary shares. ‘One preference snare is Convertible into one ordinary share. At the time of conversion, the ordinary shares had a market value of P42 per share. 5, On December 21, 2014, the company placed a share subscription for 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 4, 2015. i 6. On February 1, 2015, 8,500 ordinary shares were issued upon collection in full of the Subscription receivable from the 8,500 shares. Because of default by the subscriber, 1,500 shares were not issued. The subscription contract requires the forfeiture of all cash advances. 4] 7. On Apiil 16, 2015, 10,000 shares held in the treasury were reissued at P50 per share. 8, On May 46, 2015, a special dividend of preference shares was distributed to ordinary shareholders. One hundred ordinary shares entitled a shareholder to one preference share, The market price of preference shares was P40 per share at the time. Determine the adjusted balances of the following. AUDITING PROBLEMS - STOCKHOLDERS’ EQUITY ~ APQ2 °y ReSA: The Review School of Accountancy Page 11 of 14 73. How much is the corresponding credit to share premium account from the conversion of the preferred stocks? ‘a. 200,000 b. 25,000 ©. 175,000 4. 300,000 74. The entry to record on the default on subscription receivables on February 1, 2015 involves a. Credit to Share premium at P29,700 . Credit to Share premium at P49,500 . Credit to Retained earnings at P29,700 —d. Credit to Retained earnings at P49,500 75. How much is the resulting debit to retained earnings as a result of the declaration of the special dividends on May 16, 2015? a. 51,400 b. 128,500 ©. 49,400 4.0 76. How much should be presented in the 2015 balance sheet as treasury shares? a. 495,000 b. 330,000 ‘c. 165,000 4.0 77. How much is the total cash dividends paid in 20147 a. 201,713 b. 298,500 . 282,500 d. 284,925 78. How much is the total cash dividends paid in 2015? a. 201,713 b. 298,500 . 282,500 4, 284,925 PROBLEM 24:The BatangasCorp. has requested you to audit its financial statements for the year 2014, During your audit, Batangas Corp. presented to you its balance sheet as of December 31, 2013 which had the following shareholders’ equity section 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 900,000 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 2012) 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 _P3,000,000 Audit notes: a. 4,500 treasury shares were sold for P18 per share on August 30, 2014. Batangas Corp. credited the proceeds to the Preference share account. The treasury shares as of December 31, 2013 were acquired in one purchase in 2013, b. The preference shares carries an annual dividend of P1 per share. The dividend is cumulative. As of Oecember 31, 2013, unpaid cumulative dividends amounted to PS per share. The entire accurnulation was liquidated in June 2014, by issuing to the preference shareholders 81,000 ordinary shares. c. Accash dividend of P1 per share was declared on December 1, 2034 to preference shareholders of record December 15, 2014. The dividends are payable on January 15, 2015. 4. At December 31, 2014, the Allowance for Doubtful Accounts Receivable and Reserve for Depreciation had balances of P37,500 and P1,575,000, respectively. fe, On March 1, 2014, the Reserve for fire insurance was increased by P90,000; Accumulated profits was debited f. On December 31, 2014, the Reserve for fire insurance was decreased by P45,000 which represents the carrying value of a machine destroyed by fire on that date. Fire cleanup costs of P9,000 daes not appear in the records. 9g. The December 31, 2013 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. 0. h. Unadjusted net income for the year ended December 31, 2014 was P1,946,250 per company's books. AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITYeee ee ee et ot eM SF et ReSA: The Review School of Accountancy Page 12 of 14 Based on the information above, answer the following: 79. What is the adjusted net income for the year ended December 31, 20147 a. 1,946,250 b. 1,373,250 ¢. 1,937,250 4. 1,892,250 180. What isthe correct Additional paid in capital as of December 31, 20147 a. 1,296,000 . 1,215,000 € 1,206,000" d, 621,000 81, What Is the correct Appropriated accumulated profits as of December 31, 2014? a. 454,500 b, 387,000 ©. 342,000 a. 0 82. What isthe corcect Unappropriated accumblated profits as of December 31, 2014? a. 4,016,250 . 3,939,750 ¢. 3,935,250 d. 3,867,750 83. What isthe total Shareholders’ equity as of December 31, 2014? 2. 5,550,750 b. 8,718,750 €.9,474,750 d. 9,479,250 PROBLEM 22:In your audit of $PURS.INC, for the calendar year ended December 31, 2014,-you discovered the following charges fo the company’s Retained ings accoynt: Balance, January 1 7,800,000 Inrealized holding loss on financial assets held as available far sale (400,000) inventory fire loss (150,000) © impairment loss on Property Plant and Equipment (750,000), 15% Stock dividends declared (100,000 shares outstanding at P100 par) (1,500,000) 7 Loss on sale of equipment (200,000) =~ Correction of a prior period error (1,500,000) Loss on retirement of qrdinary-shares as treasury (1,050,000), Gain on sale of oxdin 6 as excess over par 1,000,000 Gain on premature retirement of bonds 300,000 ~ Unrealized holding gain on financial asset held at fair value through profitvloss 800,000 Proceeds frém sale of donated shares 890,000 = Net income for the year 9,000,000 Reserve for plant expansion is (3,000,000) Audit Notes The 15% stockholders as of December 1, 2014 distributable on Jan . were selling at PLLD on November 1, P10S on December 2015. stock dividends were declared on November 1, 2014 distributable to uaty 15, 2015. Spur’s stocks and P42 on December 31, b. The company’s Share premium from: treasury stock transaction-account amounted to . 850,000 a a ¢. The company’s management decided to change its inventory costing method from the weighted average to the FIFO approach during the current year. The inventory balances under the two methods are as follows: AVERAGE FIFO Beginning 2,500,000 2,600,000, Ending 1,900,000 2,200,000 The company, however, is yet to effect the said change in its current financial statements. Using the information above, answer the following 84, What is the net adjustment to the retained earnings account for the declaration of the stock dividends? 2. no adjustment <. 100,000 b. $0,000 150,000 85. What is the corract.net income for the year 2014? '. 9,000,000. <) 9,200,000 b. 9,100,000 4. 9,300,000 86. Whats the restated beginning retained earnings in 2014? C3) ene ann 6,200,000 6,300,000 4. 6,100,000 87. What is the correct retained earnings at the end of 20147 10,650,000 €. 10,800,000 10,750,000 4. 11,200,000 AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITYi ReSA: The Review School of Accountancy Page 13 of 14 '88, Based on the information above, what is the net adjustment to Adcltional-pald-in capital? 2.” 1,900,000 creat @ 1,100,000 creat b. 850,000 debit @. 950,000 credit PROBLEM 23: You have been asked to audit the financial statements of HEAT INC. as of and for the period ended December 31, 2014. During the course of your audit, you were asked to Prepare 8 comparative data from the company’s inception to the present. You ascertained the following information: ‘+ Heat Inc.'s charter became effective on January 2010, when 40,000 shares of P10 ordinary shares and 20,000 of 14% cumulative, nonparticipating, preference shares were issued. The ordinary shares were sold at P12 per share, and the preference shares were sold at its par value of PLOO per share, ‘+ Heat was unable to pay preference dividends at the end of its first year. The preference shareholders agreed to accept 2 shares of common shares for every 50 shares of preference shares owned in lieu of the preference dividends due in the first operating year. The said ordinary shares were issued on January 2, 2011 when the fair market value of the ordinary shares was at P30. + Heat acquired all the outstanding stock of Raptors Corporation on May 1, 2012 in . ‘exchange for 20,000 Heat ordinary shares. + Heat effected a stock split on its ordinary shares 3 for 2 on January 1, 2013 and 2 for 1 on January 1, 2014 ‘+ Heat offered to convert 20% of preference shares to common shares on the basis of 2 shares of common for every share of preference. The offer was accepted and the conversion was made on July 1, 2014 ‘+ No cash dividends were declared on ordinary shares until December 31, 2012. Cash dividends per share of ordinary were declared and paid as follows. December 31, 2012 P3.20 June 30, 2013 + 1,50 December 31, 2013 2.50 June 30, 2014 1.25 December 31, 2014 1.00 Based on the information above and as a result of your audit, answer the following: 189, The number of ordinary and preference shares outstanding at the end of 2014, respectively? . 2. 190,400 and 16,000 . 186,400 and 15,680 b. 99,200 and 20,000 4. 186,400, and 16,000 90. Balances of the Ordinary and Preference Share accounts at the end of 2011, respectively? ‘a. 00,000 and 2,000,000 ‘¢, 500,000 and 2,000,000 b. 408,000 and 2,000,000 4. 404,000 and 1,960,000 91. The amount of cash dividends declared and paid to ordinary shares in 20137 a. 364,800 c. 319,200 b. 167,200 d. 243,200 92. The amount of cash dividends declared and paid to ordinary shares in 20147 ‘a. 428,400 ¢. 306,400 b. 434,400 4. 418,400 section as of December 31, 2013: | YG PROBLEM 23: Nevada has the following selected accounts in its shareholders’ equity Preference shares, P100 par, 10 percent cumulative, 100,000 shares issued and outstanding 10,000,000 Ordinary shares, P20 par, 1,000,000 shares authorized, 700,000 shares issued and outstanding, 14,000,000 Share premium 8,000,000 Accumulated profits 30,000,000 There are no-diuidends in arrears on the preference shares. During 2014, the following transactions occurred 2. The board of directors declared a ca id totaling to 22,900,000 to be paid to preference and ordinary shareholders. ‘Later, a share dividend of 100,000 ordinary @ AUDITING PROBLEMS ~ STOCKHOLDERS’ EQUITY APQ 2ReSA: The Review School of Accountancy Page 14 of 14 shares were declared on ordinary shares. The market value of ordinary shares is P68.per share on the date the share dividends were declared b, Sometime after the above dividends were declared and settled, the board of directors declared as proparty-dividends one shares of its investment in Bingo Corp. stocks being held by the company as trading securities for every two ordinary share outstanding. Bingo Corp. stocks were originally purchased by the company at P12 per share and have a carrying value based on their fair value as per the last remeasurement (balance sheet) date, at 20 per share. Bingo Corp. shares were selling at P24 when the property dividends were declared and were selling at 825 when the property dividends were settied. The company had a total of 500,09) shares of Bingo Corp. shares. At the end.of 2014, the board declares a four-for-one share-split. With the split, the number of ordinary shares authorized to be issued increased to 4,000,000. At the date of the share split, the market value of ordinary share is P75 per share. 4, Net earnings during 2014 total P6,000,000. Required: 93. 95 96. 4 balance of the campany’s Accumulated.profitaccount at the end of What Is the adjus year? a. P26,400,000 c. P18,400,000 b, P21,600,000. “416,400,000, What is the balance of the ordinary shares accaynit as of December 31, 2014? a, P14,000,000. ¢, P18,000,000, 6.) 16,000,000 d, P20,800,000. What is the alance of the share premium-accaynt as of December 31,2014? 2. P8,000,00 ‘¢P12,800, 000. b. 10,800,000. ad P14,800,000. What is the adjusted balance of the company’s Shareholders’ equity account at the end of the year? a, P54,400,000, 57,200,000. (oyP55,200,001 J. P60,490,000. !IRENEO/ESPENTLLA/JAMES SOLUTIONS 10 QUIZZER 2 - SHE ‘Authorized ordinary shares at P10 par value 900,000 Unissued ordinary shafes (500,000) Ordinary shares issued 'P400,000 1. Ans. d. ‘Authorized preference shares at P50 par value 400,000 Unissued preference shares 5 y Preference shares issued [Additional paid-in capital on ordinary shares. ‘Additional paid-in capital on preference shares ‘Additional paid in capital on sale of treasury shares Ordinary share warrants outstanding Donated capital 2. Ans. d. 3. Ans. c. Ordinary shares issued Preference shares issued Ordinary shares subscribed, net of subs. receivable, 20,000 Preference shares subscribed, net of subs. receivable, 15,000 ‘otal Additional Paid-in Capital ‘Total Contributed Capital «Ordinary shares issued Preference shares issued Ordinary shares subscribed Preference shares subscribed z ‘Total Legal Capital (Agg. par value of issued end subs.) ‘Total Contributed Capital Unrealized/Unearned Capital Unrealized increase in value of securities available for sale Revaluation increment in properties ‘Accumulated profs ‘Accumulated profits - unappropriated Reserve for bond sinking fund ‘Tati Stockholder’s equity 4. ans. d. 5. Ans. ¢. 6. Ans. c. Journal Entries: Sune 1 Treasury stock (40,000*40) 1,600,000, ‘Cash 1,600,000 July. Cash 675,000 “Treasury stock (15,000*40) 600,000 Paid-in capital from treasury stock 75,000, ulyiS: 250,000 shares (P10 par) issued to 500,000 (PS par) 35,000 shares (PaO coat) TS to 80,000 (P20 cost) ‘Aug. 30 Cash 510,000 Paid in capital from treasury stock 75,000 {etained earnings 95,900 Treasury stock (34,000*20) {680,000 Sept. 1 Common stock (2,000*5) 10,000 Paid-in capital in excess of par {3,750,000/500,000)*2,000 15,000 Retained warnings 415,000 “Treasury stock (2,000°20) 40,000 Treasury Commonstock Paid-incap.- Pald-incap.— ‘Retained ‘stocks oS" ouessofpar treasury stock eemings Unad}. Bal. 2,500,000 3,750,000 1,800,000 June 1 1,600,000 Duly 1 (600,000), 75,000 ‘aug. 30 (680,000), (75,000) (95,000) Sept. 1 40,000) 10,000} _(15,000) 15,000) Adj. Bal. —“2a0,000 2,490,000 3,735,000 ‘03,890,000 7b 8.3, 10. d- a1. ‘Se. PROBLEM 3;_MISAMIS INC. Number of options estimated to vest (200*100) 20,000 * Multiply by Market value of Options Total Options Outstanding Multiply by (2012 & 2033)QUIZZER 2 ~ SHE- SOLUTIONS (BATCH 31) IRENEO/ESPENILLA/JAMES Total Accum. Comp. Exp. as of 12.31.2013 (499000) 12. ons. b. Proceeds frovs exercise of rights (60,000 - 5,000)/5 130 430,000 Par value of Ordinary shares issued (21,000°100) 1/300,000 Share premium (530,000) 12. ans. a. ‘Share premium from ordinary shares 1,000,000 ‘Shrae premium from exerese of warrants 575,000 Store premium from exercise of rights ___340{000_ 1,905,000 Ordinary share options outstanding (20,000*30) ‘600,000 Ordinary share warrants outstanding (750,000"50%) 375,000 Total APIC (P37880,000] 14. ans. Accurnulaied profts, begining * 3,000,000 Retroactive eujustmant to retained earnings (number 12) (800,000), ‘Appropriation for dwigends (71,000 " 5) (355,000) Net income, 2014 (2,500,000 ~ 260,000) 2,300,000 15. Ans.d. PROBLEM 4: COLDCORP. . 16. Ans. c. ‘Share splits are accounted for using 3 memorandum entry only since aggregate par value of ordinary shares remains ‘he same before and after the splits effected. ‘Splt-up results to Increase number of shares issued with 2 corresponding decrease in the par va'ye of share:. Reverse spit or spit-down on the other hand results to decrease Jn number of sheres Issued with a corresponding increase in the par value of shares PROBLEM 5: SANTIAGO INC. The share options are under a variable option clan with a ion-market based condition, thus: 2014; VP 1 year achieved If 2014 Rev>=15M; Actual 2014 Rev, P14.5M ~ not achieved. \VP 2 years achievable if 2015 Rev>m18M; Estimated 2014 Rev, (P14.5M*125%) = 18.125M ~ achievable. umber of eptons (68-8500 30,000 fairvalue of optons.on grant date St Extimted value of services over 2 years PSa0,000 Divide by: Vesting pod 2 years Salar'es expense, 2014 (-P379,000] 17. ans. 2015: VP 2 years achieved if 2015 Rev>=18M; Actual 20:5 Rev, P17.5M ~ not achieved. \P 3 years achievable if 2016 Rev>=20M; Estimated 2016 Rev, (P17.5M*125%) 1.875M ~ achievable. Number of options: (65:5)*500 30,000 Fair value of options on grant date ates Estimated value of services over 3 years 540,900 Multiply by: 2/3 ester gs ‘Accumulated salaries expense as of 2015 380,000 Less: Prior years’ salaries expense __270,000) Salaries expense, 2015 790,000] 18. Ans. 2016; VP 2 years achieved if 2016 Rev>=20M; Actual 2916 Rev, P20.5M ~achieved, Final number of options: 63*500 31,500 Fair value of options on grant date ee at value of services over 3 years 587,000 19, Ans. ¢ Multiply by: 3/3. 33 ‘accumulated salaries expense as of 2016 7000 Less: Prior years’ salaries expense _(260,000) Salaries expense, 2016 207,000 Final number of options: 63*500 31,500 ‘Options exercised in 2017: 45*500 (22,500) Options forfeited in 2017 3*500 (41500) Remaining options as of 12/31/17 7,500 Multiply by fair value on grant date 718 Carrying value of options outstanding 12/31/37 [Pi35,000]] 20. ans. A. Entry upon exercise of 45%500 = 22,500 options: Cash (22,500"P35) 787,500 Ordinary share options outstanding : (22,500"18) 405,000 ‘Ordinary shares (22,500*P20) Share premium (21. Ans. C) PROBLEM 6: PANDORA CORP, The share options are under a variable option plan with a market based condition, thus the achievabilty of the condition is nat a matter to consider in determining annuai salaries expense: 2014: ‘Number of options: (600-5-45)*100 Fair value of options on grant date os Estimated. value of services over 3 years Divide by: Vesting period __3 years Salaries expense, 2014 791,667 ] 22. ans. 6. 2015: Number of options: (600-5-20-35)*100 54,000 Fair value of options on grant date ™QUIZZER 2 - SHE- SOLUTIONS (BATCH 3%) i IRENEO/ESPENILLA/JAMES Estimated value of services over 3 years 7270, 000" Mutiply by: 2/3 2/3 ‘Accumulated salaries expense as of 2015 P160,000" 25. Ans. A. Less: Prior years’ salaries expense ____ (91,867) Salaries expense, 2015 (Pe 353 23, ane Final number of options: (600-5-20-30)*100 Fair-value of options on grant date Final value of services over 3 years Multiply by: 3/3 ‘Accumulated salaries expense as of 2016 Less: Prior years’ salaries expense Salaries expense, 2016 PROBLEM 7: JUBEE CORP. ‘The share options are under a variable option plan vith 2 non-market based condition, thus: 2014; Condition achievable if Sales Vol. Inc.>=5%; Estimated Sales Vol. Inc. 12% - achievable. ‘Number of options: (100*80%)*200 36,000 Fair value of oftions on grant date apg) Estimated value of services over 3 years 40,000 Divide by: Vesting period 2 years Salaries expense, 2014 "P212,233 | 26. Ans. B. 2015: Condition actievable if Sales Vol. Inc. >=%; fstimated Sales Vol. Inc. (12+20+20)/3=17.3% ~ achievable Number of options: (200*85%)*300 25,500 Fair value of options on grant date _ "ao Estimated value of services over 3 years 1/026,000 Multiply by: 2/3 2/3 ‘Accumulated salaries expense as of 2015 550,000 Less: Prior years’ salaries expense (213,333) Salaries expense, 2015 ‘Pas6,667 ] 27. Ans. C ‘2016: Condition achieved iff Sales Vol. Inc.>=5%; Estimated Sales Vol. inc. (12+20+16)/3=16% ~ achived. Final number of options: (100-14)*300 25,300 Faie value of options on grant date P40 Final value of services over 3 years 87,032,000 Multiply by: 3/3 3/3_ ‘Accumulated salaries expense as of 2016 —Pi,032,000 Less: Prior years’ salaries expense ___ (680,500) Salaries expense, 2016 1,857,600 Ordinary share options outstanding (5,480"40) 619,200 ‘Ordinary shares (15,480%P100) ‘Share premium 29. Ans. A. ex -40% of the options (25,800"40% Ordinary share optiens outstanding (20,320°40) ‘Share premium ~ Expired options PROBLEM 8: MYX CO. Number of shares based on sales (410M) 15,000 Multiply by: Increase in share price (85 ~ 50) 35 Total appreciation 525,000 Multiply by: Number of years to date over the total vesting period 23 ‘Cumulative compensation expense as of 2013 350,000 Less: Compensation expense recognized in the prior year (2014) _(80,000) 2013 Compensation expense 270,000 21. Ans. b Number of shares based on sales (760M) 20,000 Multiply by: Increase in share price (95 ~ 50) 45,000 Total appreciation 900,000 ‘Multiply by: Number of years to date over the total vesting period _ 3/3 Cumulative compensation expense as of 2014 ‘900,000 32.Ans. d 33. Ans. d. SARS are continuously revalued at each balance sheet date unti! the lab. is settled. ‘PROBLEM 9:_ KALINGA CO. ‘The share appreciation rights are-under a variable plan with @ non-market based condition, thus: 20141 Condition is achievable I Ave Rev Growth >=10%; Estimated Ave Rev Growth, 12.5% - achiovable, Estimated number of SAR: (20-4)*10,C00 166,000 Estimated FHV of SAR at year-end Ps. Estimated value of services over 3 years 960,000 Divide by: Vesting period ___ 3 years. Salaries expense, 2014 —¥320,000]] 34. ans. A. ‘2015: Condition is achievable if Ave Rev Growt!: >=10%; Estimated Ave Rev Growth, 12.5% - achievable Estimated number of SAR: (20-4)*10,000 160,000 Estimated FMV of SAR at year-end ___P6.75 ‘ Estimated value of services over 3 years 1,680,000 Muluiply by: 2/3 23 aSHE- SOLUTIONS (BATCH 32) IRENEO/ESPENILLA/JAMES Accumulated sularies expense as of 7015, 720/000 Less: Prior years’ salaries expense 320,000) Salaries expense, 2015 (£00,000) 35. ans. 0. 2016. Condition is achieved if Ave Kev Growth >=20%: Actual Ave Rev Growth (10+15+25)/3=16.7% ~ achieved. Final number of SAR 15*20,000 Fair value of options on grant date Est. value of services over 3 years Multiply by: 3/3 Accumulated salaries expense as of 2016 Less: Pror years’ salaries expense Salaries expense, 2016 (720,000) _ : (380,000. 36. Ans. D. PROBLEM 10: POR Company TFRIC 17 on “Tystributions of Non-cash Assets to Owners”, effective 1 July 2009 states the following guidelines in accounting for property dividends: + A divisend payable should be recognized only v/hen the dividend is appropriately authorized and is no longer ‘at the discretion of the entity + Anentity should measure the dividend payable at Fair value of the assets to be distributed. + fan entity should recognize the difference between the dividend paid and the carrying amount of the assets distributed in the proft or loss, Entries: Dec. 1 Retained earnings (2,000*60) 120,000 Ans. C. Propeity Div Payable 120,000 Dec. 31 Retained earaings (2,000°3) 6,000 Property Div Payable 6,000 : At FMV = 126,000 39. Ans. B. ‘Trading Securities (P8*2,000) 16,000 < Unrealized Holding Gain 16,000 Jan. 31 Retained Earnings (2,000°2) 4,000 Property Div Payable 4,000 Property Div Payable (2,000*65) 130,000 Trading Secunties (2,000*63) 126,990 Gain 4,000 40. Ans. 8. Oct, 31 Retained Earnings 900,000 41. Ans. C. Property Div. Payable 900,000 Non-currrent Asset Held for Disposal 720,090" ‘Accumulated deareciation-Bldg, 20,900 Building ‘800,000 “after 1 year of depreciation from 10/31/13 ¢> 10/31/14 over 10 years. Dec 31 Property Div. Payable « 200,000 Retained Earnings 200,000 At fair market value = P700,000 42. Ans. A. 43. Ans. A. *n0 remeasurment gain or loss in the prof't or loss from the property dividends payable. Any oss recognized at year end was due f0 the remeasuremont of the noncurrent asset held for discosal. loss 20,090 Noncurrent Asset Held for Disposal 20,000 Jan 31 Retained Earnings 100,000 Property Div. Payable 100,000 Property Div. Payable 800,000 Non-current Asset Held for Disposal 700,000 Gain : 100,060 44. Ans. B. PROBLEM 12MAY CO. Retained earnings 250,000 ‘Approp. for small stock div. ( P15*3,000) (45,000) Balance after div declaration £305,000 45. Ans. a, Retained earnings ‘Approp. for large stock div. ( P10"4,000) Balance after div declaration 350,000 310,000 46. Ans. a. PROBLEM 13.20HN . COMPANY 47. Ans. a. °10,000,000*10% = P1,000,090 ans. A. “Script divitends are recorded by debiting Retained Earnings at the face valve of the financial lability recognized. Any interest that i¢ may incur during its term shall be recognized in the profit and losses. 48, Ans. d.: P1,000,000"12%*6/12 (Jan. 1, 2015 to July 1, 2015 = 6 months in 2015) PROBLEM 14: Orange Company 49, Ans. b. ‘Appropriation for bond redemption (2014) 20,000 ‘Appropriation for bond redemption (2015) 20,000 40f8‘Appropriation for self-insurance ‘Appropaation for plant expansion ‘Total appropriations PROBLEM 15: SANS CORP, CORRECTENTRIES: =. Land (1.86*30%) Building (1.84*70%) ‘Orainary Share= ‘Share premium ‘Subsription receivable Ordinary shares subscribed Share premium —« QUIZZER 2 - SHE- SOLUTIONS (BATCH 31) IRENEO/ESPENTLLA/JAMES _ 8,000 30,000 78,000 Ans. A. 540,000 4,260,000 500,000 4,300,000 420,000 200,000 . 220,000 Treasury shares (5,000 sh) 125,000 ‘Cash cash ‘Subscription receivable Ordinary share subscribed Ordinary shares (MEMO: SPLIT: 62,000 shares into 248,000 shares; P10 par value to P2.50 par 125,000 252,000 252,000 120,000 420,000 {8,000 shares subs into 32,000 shares subs; P21 subs price to P5.25 subs price 5,000 TS nto 20,000 7S; P25 cost per unit to P6.25 cost per unit cash Treasury shares (10,000*6.25) Compensation expense ‘SAR Payablo (74,000*P15)/Syears © RE Cash Dividends Payable Shares Outstanding Shares Subscribed Total ‘Mutiply by cash div rate Total Cash dividends Income Summary RE was wae 6 - 715 - 4 120,000 9/2 32/30 - 32/31- ‘Appropriation for TS ‘Adj. Balances 56. ans. d. ‘Shares issued Less: treasury (1,000,000/50) ‘Outstanding shares Multiply by. Dividends distributable, small Multiply by fair value 40,000 RE 22,500 62,500 84,000 84,000 5.6. 270,000 52.6. 41,500,000 Share TOTAL os-Subs Premium aS 1,300,000 220,000 200,000 inne (425,000) (22,500) _62,5c0 (270,000) 1,500,000 ane '45,000 (62,500) 3,365,000 54.€. 55.0. 100,000 + (20,000 80,000 '57. Appropriation for share dividends (b) ‘Total nat income since incornoretion Total cash dividends paid : Impairment on property declared as dividend (600,000 ~ 450,000) ‘Appropriation for property dividend at impairec value 3,200,000 (150,600) '000) . Correct valuation of share dividends (17), (336,000) hh. Appropriated for plant expansion (700,000) 0 Loss on treasury share reissue, net of gain from TST (375,000-~ 515,000) (140,000) ._Appropriated for remaining treasury shares at cost PS0/share (4,000,000) ‘58. Correct Unappropriated Accumulated Profits balance (b) 274,000 59. Ans. a. Proceeds from sale of donated stocks 150/500 ‘Share premium from share dividends (336,000 - 200,900) ‘136,000 f. Gain or- treasury share transaction 375,000GS | eS quizzer2 SOLUTIONS (BATCH 32) IRENEO/ESPENILLA/JAMES \. Loss on treasury share reissue (debited tof) (275,000) J. Share premium in excess of par from issued chares 215,000 Xe Share issuance expense (45,000) | 60. API (4) 456,500, PROBLEM 17:PARANAQUE COMPANY | Date em Be Cr | 07-01-13 Balance P 48,500 93-31-13 Dividends paid P 20,000 12-31-13 Net Income for the year 32,400 09-30-14 Dividends deciared 36,000 12-31-14 Net income for the year sie ata ioo ‘CORRECT BALANCE 76.000 61. a ADJUSTING JOURNAL ENTRIES: - land 50,000 Loss 10,000 SHE 150,000 ‘SHE 30,000 ‘Ordinary Shores 150,000 Aric OS 50,000 SHE 17,000 ; Treasury Stocks 15,000 she 240,000 APIC = TS 2,000 Ordinary Shares 200,000 * #0IC - OS 40,000 Retained Earnings 20,000 SHE 20,000 Treasury Stocks 30;000 SHE 30,009 she 79,000 Retained earnings 79,000 62. Ans. 63.Ans.b. G4.Ans.b. S.ans.b. 66. Ans. b, 67. Ans. b a6 Cash (10,000°50) 500,000 Treasury shares (10,000"33) 330,000 Share premium = 1ST 170,000 4/30 Rewained earnings 139,250 Dividends payable/Cash 139,250 PS: 15,0005 = 75,000 95: 128,500.50 =64,250 sy6 Retained earnings 51,400 75.Ans.A Stock dv. pay./Preference shores 51,400 128,500shares/:00 = #,285preference 109/31 Retained earnings 145,675 Dividends payable/Cash 145,675 PS: 16,2855 = 81,425 08: 128,500.50 64,250 12/3 “income summary 90,000 Retaied earnings 290,000 76. Ans. C. ‘Reacquisttion on 2/2014 (15,000*33) Reissuance on 4/16/2015 (10,000"33) Salance of Treasury shares 12/31/15 77. Ans. C. Cash dividends 4/30/14 Cash dividends 10/31/14 Total cash dividends in 2014 and 2015 78. Ans 0. Cash dividends 4/30/15 139,250 Cash dividends 10/31/15 145,675. Total cash dividends in 2014 and 2015 (a8aio25)] 6of8QUIZZER 2 ~ SHE- SOLUTIONS (BATCH 28) PROBLEM 21; BATANGASCORP. IRENEO/ESPENILLA/JAMES Pret, Ont, snares APIC RE:approp. RE-unapp, Unadjusted bal 900,000 2,700,000 450,000 «297,000 3,373,000 ‘App for treasury, beg 135,000 (135,000) 2: Reissuance of TS 13,500 (67,500) 67,500 . Stock dividend 324,000 61,000 (408,000) Cash dividend (85,300) €. Additional reserve for fire. 90,000 (90.000) ARO aCEUM profs: Donated capital 675,000 (675,000) Gains from treas. trans. 76,500 : (76.500) Net income, adjusted e be is a 4,892,250 ADJUSTED NETINCOME [900,000 | 3,024,000] 1,296,000] 454,500 | 3,887,751 80. a. Bi. a. 82. d. 79. Ans.D. Unadjsuted net income 2,946,250 Impairment loss due t0 fire Unrecorded clean-up cost Adjusted Net Income Preference shares Ordinary shares Share premium Accumulated profits, ‘appropriated ‘Accumulated profits, tunappropriated ‘Total stockholders’ eauity ess: Treasury shares Total stockholders’ equity PROBLEM 22: SPURS The stock dividends is a small stock diukdeads.(15%, thus should be valued at faicmacket value on the 0 date. Thus: Per audit: (15%"100,000°P110) 3,659,000 Per books (2,500,000) ‘Audit adjustement: OR to RE [__F59,000 2OL4.NETING. 2014 RE, BES Unadjusted balances 9,000,000- 7,800,000 Inventory loss (150,000) Impairment loss (750,009) Loss on sale of equipment (200,000) Correction ofa prior period error ~ unaccrued advertising costs (2,500,000) Gain on eevty retirement of bonds payable 300,000 Unrealized holding gain on Trading Secunies ‘800,000 «. change in inventory costing, beginning + (100,090) 100,006 change in inventory costing, ending __" 300,000 ADJUSTED BALANCES [9,200,000 | 6,400,000 } +85. 6. 3 ; 2014, RE END Retained earnings, beginning (adjusted from #52) 6,400,000 15% Stock dividends (100,000"15%"110) (4,650,000) oss on retirement of treasury stock (1,050,000-250,000) (200,000), ‘Appropriations for plant expansion (3,000,000) : Net income for the period (from #61) RETAINED EARNINGS, ENDING (ADJUSTED) ‘Share premium from 35% Stock dividends declaration 150,000, Gain on sale of ordinary shares as excess over par 1,000,000 Proceeds from sale of donated stocks + "800,000 Loss on retirement of ordinary shares as treasury 850,000) Net adjustment to various APIC accounts [4,100,000] as. c. PROBLEM 23; HEAT INC. Date Particulars Ordinary Preference January, 2010 Initial share issue 40,000 Dec 31, 2010 BALANCE 40,000 January 2011 Ordinary to preference sharehoiders in lieu of cash dividends Bi ae * Dec 31, 2011 BALANCE “40,800 20,900 May 1, 2012 Issue of share to Raptors 20,000 Dec. 31, 2012 BALANCE 60,800 20,000 Jan, 1, 2013 3 for 2 share split (60,800) 60,800/2 *3 91,200 _ Dec 31, 2013 BALANCE 91,200 Jan 1, 2014 2 for 3 share split (91,200) 91,200°2 182,400QUIZZER 2 ~ SHE- SOLUTIONS (BATCH 31) IRENEO/ESPENILLA/JAMES July t Conversion of PS to 05 (20,000"20%)*2 8,000 __(4,000) Dec. 31,2014 BALANCE 16,000 Ordinary, 12/31/2011 (40,800"10) 409,000 Preference 12/31/2011 (20,000*100) 2,000,0C090.ans. B Cash dividends, 2013 June 30, 2013 (91,2091.50) _P136,800 December 31, 2015 (91,202.50) 228,000 » Total 361.8002. ans A. Cash dividends, 2014 June 30, 2014 (182,400*1.25) __P228,000 December 31, 2014(190,400*:.00)_ 190,400 Total s16,40092. PROBLEM 24: NEVADA SQUARE Retained earnings, Jan. 1, 2014 30,000,090" ‘Cash dividends (2,800,000) Stock dividends (100,000*P68) (a) (6,800,000) Property dividends (800,090/2)*P25 (b) (30,000,000) Net income fer the year’ 6,000,000 Retained earnings, Dec. 31,2014 [16,400,000 } (2) The stock dividends is small dividends: (100,000/700,000 = 14%), thus valued at fair market value. (&) The property dividends’ valuation (debit t0 RE) shall be final at the setslement date. 93. ANS. D. 94, ANS. 8. ‘Ordinary shares, January 1, 2014 14,020,000 Stock diviaands issuance (100,000"20) 2,000,000 Ordinary shares, December 31, 2014 [ 46,000,000 “Share spilt is 3ccounted through memo eiitry only, aggregate par value remains the 95. ANS. C. ‘Share premium, January 2, 2014 8,000,000 Share premivm from sharevdividends (6,860,000 ~ 2,000,000) 4,800,000 ‘Share Premium, December 31, 2014 ['P12,800,000 | 96. ANS. B. Preference shares 10,000,000 Ordicary shares (item 70) 16,009,000 ‘Share premium (item 72) 12,800,000 Retained earnings (ita 69) 18,400,000. Retained earnings, Dec. 31,2014 [1 5,209,000 |