AUDITING PROBLEMS (SHE-2)

PROBLEM NO. 2 - SILVER CORPORATION

The SILVER CORPORATION was formed and registered on July 1, 2017. Your audit showed that it was
authorized to issue 900,000 shares of P10 par value ordinary shares and 300,000 shares of 8 percent P25
par value, cumulative and nonparticipating preference shares. SILVER CORP has a July 1- June 30 fiscal
year.

The following data and information relate to the shareholders’ equity accounts of SILVER
CORP:

ORDINARY SHARES:
Prior to the 2019-2020 fiscal year, SILVER has 330,000 ordinary shares issued as follows:

1. 255,000 shares were issued for cash at P31 per share.

2. On July 25, 2017 , 15,000 shares were exchanged for a commercial land which cost the seller
P220,000 sometime in 2011 and had an estimated market value of P660,000 on July 25, 2017.
3. 60,000 shares were issued on March 1, 2016 for P42 per share.

During the 2019-2020 fiscal year the following transactions regarding ordinary shares took place:

Nov. 30, 2019 - - - SILVER CORP. purchased 6,000 of its own shares on the open market at P39 per share

Dec. 15, 2019 ----- SILVER declared a 5% stock dividend for shareholders of record on January 15, 2020
to be issued on January 31, 2020. SILVER was having a liquidity problem and could not afford a cash
dividend at that time. SILVER ‘s ordinary shares were selling at P52 per share on Dec. 15, 2019.

June 20, 2020- - - - -SILVER sold 1,500 of its own ordinary shares that it had purchased on Nov. 30, 2019
for P63,000.

PREFERENCE SHARE:
SILVER issued 120,000 preference shares at P44 per share on July 1, 2018.

CASH DIVIDENDS:
SILVER followed a schedule of declaring cash dividends in December and June, with payment being
made to shareholders of record in the following month. The cash dividends which have been declared
since inception of the company through June 30, 2020, are shown as follows

Declaration Date Share Capital – Ordinary Share Capital - Preference

Dec. 15, 2018 P0.30 per share P1.00 per share
June 15, 2019 P0.30 per share P1.00 per share
Dec. 15, 2019 None P1.O0 per share

 No cash dividends were declared during June 2020 due to the company’s liquidity problems.
RETAINED EARNINGS
As of June 30, 2019, SILVER CORP.’s retained earnings account had a balance of P2,070,000. For the
fiscal year ending June 30, 2020 SILVER reported a net income of P120,000.

REQUIRED:

For the following accounts, compute the adjusted balances as of June 30, 2020.

1. Share Capital – Preference

2. Share Capital – Ordinary
3. Share Premium – Preference
4. Share Premium - Ordinary
5. Share Premium – Treasury
6. Retained Earnings (before appropriation for Treasury Stock
7. Treasury Shares
8. Total Shareholders’ Equity