CHAPTER 21 SHAREHOLDERS’ EQUITY Treasury shares, rights issue, share split TECHNICAL KNOWLEDGE To know the recognition and measurement of treasury shares. To understand the legal limitation in the acquisition of treasury shares. To identify the typical recapitalizations. To understand the recognition of rights issue. To measure the issuance of, preference shares with share warrants. 731ae ~~ — TREASURY SHARES sua shares that DAVE been entity's are an vod but not canceled. ‘issued and then reacquired but DO alify as treasury shares: shares! The acquisition ot treasury but an Three requisites to a¥ a. ‘WDhe shares must be the entity's Own ® "of shares of another entity is investment. r b.WThe shares must have been issued ne mu : requisite distinguishes treasury shares fr uniss' \ oshares.! Treasury shares can be legally reissued at a discount without any discount liability while unissued shares must be issued at least at par or stated value. In other respects, treasury shares and unissued shares are the same. Both are equity items rather than assets. c. The shares are Aeatquired bit not canceled. Legal limitation on treasury shares The Corporation Code provides that “no corporation shall redeem, repurchase, or reacquire its own shares, of whatever class, unless it has adequate amount of unrestricted retained earnings to support the cost of said shares.” Thus, the corporation ca acquire treasury shaLeslOnly to the extent of retained earnings balance. a y If the corporation were allowed to acquire treasury shares when it has no retained earnings bal. i deficit, it would be tantami setaptinnae ec ened ad Ls i t * . capit \-ceiiannti rs, which is a violation of the trust fund What is prohibited t i indirection, 0 be done directly cannot be done by Therefore, in order to “ iy preserve i i earnings must be aperoprigied a on cto ene retained treasury shares, and the same m: dividend until the treasury shares e extent of the cost of ‘ust not be declared a8The reason ig shares. * is used j in . the legai limitoneetting for treasury shares. on acquisition of treasury Treasury share, whether the sh; stated value. 8 shall 5 e rey ares ‘cord, are acquired led at cost, regardless of below or above the par or If the treasury shares equal to the cag) are ac quired i h payment. for cash, the cost is If treasury shares are acquired for noncash consideration PAS 32 does not provide explicit guidance. However, PAS 32, Paragraph 33, provides that no gain or loss shall be recognized on the purchase, sale, issue or cancelation of an entity's equity instrument. Accordingly, if the treasury shares are acquired for noncash consideration, the cost is usually measured by the carrying amount of the noncash asset surrendered. Illustration An entity acquired 2,000 shares with par of P100 at P150 per share. : 300,000 Treasury shares 300,000, Cash Th initi rded at cost of i are initially reco: e treasury shares acquisition. ; we be reissued or sold ‘shares may Subsequently, the 1 or below cost. at cost, more 733Reissuance at cost The treasury shares are share. A ean b een shares 000 * Reissuance at more than cost The treasury shares are subsequently reissued at P200 per share. The excess of the reissue price over the cost is treated as share premium. Cash Treasury shares Share premium — treasury shares As stated earlier, no gain or loss shall be recognized on the purchase, sale, issue or cancelation of an entity's equity instrument. Thus, gain from sale of treasury shares shall not be credited to income but recognized directly in equity as share premium. Reissuance at below cost subsequently reissued at P150 pe, 400,000 300,000 100,000 The treasury shares are subsequently reissued at P100 per share. The excess of the cost. over. the reissue price is charged to the following in the order of priority: a. Sharelpremiuim from treasury shares of the same class b.» Retained earnings If there are no Previous tr. i ‘ansactions j i shares, the journal entry is: nS involving treasury Cash Retained earnings 200,000 Treasury shares 100,000 734Another illustratio, n Ordinary share ae Cait: Share premium — At 10,099 Shares, Py Share premium ~ tress Ssuange ** P2100 par Retainedearnings “““'Y shares Treasury shares, 2,000 Shares at cost Subsequently, the tr os share. “asury shares are reissued at P100 per Cash (2,000 x 100) Share premium—Tg - 200,000 Retained earnings 20,000 Treasury shares 80,000 300,000 Observe th is ee not eke ae the share Premium from original issuance is Par value or stated value method The par value’or'stated value method is the other method of accounting for treasury shares. Itis algo know as retirement method) As the title suggests, the treasury shares account is debited at par value or stated value. aera aime sadraden of $160.00 he nce entry is: is Treasury shares, at par ssa. Share premium - treasury shares . a The cost method is the acceptable method in accounting Ss. . for treasury ae method is not discussed exhaustively. Thus, the par value tated The par ae “f the Fe canningsrmust > 2? treasury shares. 135Retirement of treasury shares ee Ii treasury shares are subsequently aoa lees capital account is debited at par value be oe the treasury shares account is credited a’ . i i in, meaning the par vahy, the retirement results in a 8017, g tl - value eee the cost of'treasury shares, such gain is credited tp share premium from treasury shares. i i ith.par of P100 For example, if 1,000 ordinary shares wil are held as peasy at a cost of P80,000, and subsequently retired, the journal entry is: . 100,000 Ordinary share capital’ Treasury shares 80,000 Share premium — treasury shares , 20,000 If the retirement results in a loss, meaning, the cost of the treasury shares exceeds the par value, such loss is debited to the following in-the order of priority: a. Share premium from briginal issuance b. Share premium from |treasury Shares’ c. ‘ Retained earnings Illustration Ordinary share capital, 50,000 shares, P100 par 5,000,000 Share premium - original issuance 500,000 Share premium — treasury shares 100,000 Reta:ned earnings 1,000,000 Treasury shares, 5,000 shares at cost "750,000 The subsequent retirement of the treasury shares is recorded as follows: Ordinary share capital (5,000 x 100 Share premium ~ issuance y aed Share premium — treasury shares 100,000 Retained earnings 100,000 Treasury shares, 2 750,000 Note that the share premium fr igi i mi ‘om original issuance 15 canceled on a prorata basisiin the abeenoa of specific amount identified with the treasury shares, 736Disclosure of t ea, Su; The disclosure , TY shar, nce latin - following: ig Teasury th a. The Batam ates shall include the Of share, ; b. ao areettiction on a holdin the trea, Til i : avail ili: shares, “1 of dividends bility PAS 32, Paragra . Fe 3, i its own equity instr provides that ifai i i deducted from equity ments, the treasury shaves aeauires Simply stated, the © from total ShaFeholders a “hares Shallbe deed Under Application Guidance 36 of PAS 32, an entity's own equity instruments are not recognized as financial asset regardless of the reason for which th i fecoduitey e equity shares are Presentation of treasury shares Ordinary share capital, 50,000 shares, P100 par 5,000,000 Share premium 500,000 Retained earnings (of which P600,000 is appropriated for the cost of treasury shares) 2,000,000 Treasury shares, 5,000 shares at cost (600,000) Total shareholders’ equity D shares : spared ‘ received by the entity from Dowatedeshares refer to shares th h holders by way of donation. the shareho. tually treasury shares pad may are ac ice without any discount . ponaeed oar eaied at any price without any reto. labili . f and consequently, liability. re secured wition cor alaeea" equity a) Donated shares -” liabilities andrei shares is reduced. oe ee ny the number ofo f donated shares increases 0 ale 0 : eS 1m. : re premiw However, the sae apital of ha re assets and donate e or © 737rr ” Illustration ‘ i te of 10,00; hareholders donated to the entity an agerega ,000 bre ei shares of their shareholdings with par ee P100. The receipt of the donated shares by the entity is simply recordeq by means of a memorandum entry. “Received from shareholders as donation 10,000 ordinary shares with P100 par value.” The 10,000 donated shares are subsequently sold for P150 per share. Cash 1,500,000 Donated capital 1,500,000 If the donated shares are retired or canceled prior to reissuance, the journal entry is: Ordinary share capital (10,000x 100 par) 1,000,000 Donated capital 1,000,000 F| The donated capital is part of share premium. Vi { Treasury share subterfuge - Treasury share)sibtérfuge occurs when excessive shares are issued for a property with the understanding that the shareholders shall subsequently donate a portion of their shares. The donated shares may then be reissued at a discount without any liability on the part of the shareholder. In this case, the resale or reissue of the treasury donated | shares is not credited entirely to donated capital. The sale price shall be used in correcting the overvalued | asset and share capital. | For example, i entity pase 10,000 ordinary shares of P100 par value for land with a legally:determinedsfair value 800,000 only. meiete Land 1,000,000 Ordinary share capital 1,000,000 738 tgActually, the tp, se ‘ANsacti, share capita] cay ON creates 9 « A U @ “Wate! fina: 200,000 with cone the land is overvalued © ‘a saisat equity. ‘Ment verstatementiof shareholders If subsequently 3,000 shar by the shareholders and eae donate d to the corporation per share, the Journal entry shea gee are reissued at P90 Cash Land 270,000 Donated capital 200,000 he reissue of the donated treas: z , jury shares are not entirely credited to donated capital but a portion is used to correct the overvaluation of the land. tay abl”) Crh 9, seb Davo Donation of capital bake Contributions, including shares of an entity, received from shareholders shall be tecorded-at fairvalue with the credit going to donated capital. Entities sometimes receive from nonshareholders gifts or grants of funds or other assets that are restricted for Property and equipment additions. tal ; shall be recorded at /diMlV@lile when Received or r - g harehold, Such capital gifts or grant ponshare olders are generally subsidies and cret here such items are not subsidies, the aati cat shall be a liability account until the offsetting credi' i t. restrictions are me! a hen the restrictions are met, the capital gifts At that time whe income. to inco! or grants are trans! ferred 739aN Assessment may be levied on shareholders when shares tite originally issued at discount or when the Corporation is in dire need of financial assistance. Assessments on shareholders When shares are originally issued at a discount, the discouns is actually a receivable from the shareholder, For example, if there is a discount on share Capital of P100,000 and the same is charged to the shareholder by virtue of an assessment made by the board of directors, the Cash or share assessment receivable 100,000 Discount on share capital 100,000 When the corporation is in dire need of financial assistance, the shareholders can vote to assess themselves a certain amount per share owned, For example, if the Corporation has 100,000 shares issued and outstanding and the shareholders are assessed P50 per share, the journal entry is: Cash or share assessment receivable 5,000,000 Share premium — assessments 5,000,000 RECAPITALIZATION Recapitalizationtoceurs when théré isi) change in the capital structure of the entity. The old sharesvareveanceled and new shares are"issued. Typical recapitalizations Change from par to no-par Change from no-par to par Reduction of Par value Reduction of stated value Split up Split down mono gp 740T La eee Change from Par toy ‘O-par are Ordinary share cay; 8 in Share premium '*!P100 par, 59,999 Retained earnings 900 shares 5,000,000 500,000 unt Case 1 2,500,000 All the 50,000 shan es “ of 50,000 no-par shares wiry wed in for cancelation. Instead, with stated val i lue of i . by Ordinary share epi of P50 are issued. le Share premium 5,000,000 Ordinary share capi 500,000 ‘pital (50,000. Share i an 2000 60) 2,500,000 ‘ © Premium - recapitalization 3,000,000 Case 2 2e, ai All the 50,000 shares are called in for cancelation. Instead, 50,000 no-par shares with stated value of P150 per share are issued. od \ Ordinary share capital 5,000,000 b 7 Share premium 500,000 Retained earnings 2,000,000 Ordinary share capital (50,000 x 150) 7,500,000 ] 5 - tated value of the new share is more than | Note that if the se of the par valle share, the difference the original issue price 0 P ‘ ay : ings because in this case; there is is charged to retained Cee 1 capitalization of the retaine ” i ll be charged or hare capital shal ge Changes in the par value a . credited to share premun i th pesharercapital ex@edisharsipremam, the If increases in © ve retained earnings. excess is’ chi qAlaM Change from no par to par value share Ordinary share capital, no-par P100 stated value, 50,000 shares 5.000, Retained earnings 2.50090 Case 1 \ All the 50,000 shares are called in for cancelation, Insteg, a, 50,000 shares of P50 par value are issued. Ordinary share capital 5,000,000 Ordinary share capital (50,000 x 50) 2,500,000 Share premium — recapitalization 2,500,009 Case 2 All the 50,000 shares are called in for cancelation. Instead, 50,000 shares of P150 Par value’ are issued. ! Ordinary share capital 5,000,000 Retained earnings 2,500,000 Ordinary share capital (50,000 x 150) 7,500,000 Reduction of par value Ordinary share capital, 50,000 shares, P100 par 5,000,000 Share premium 500,000 Retained earnings 2,000,000 A recapitalization is effected whereby the par value of P100 -is reduced to P80 per share. Journal entry Ordinary share capital (50,000 x 20) 1,000,000 Share premium — recapitalization 1,000,000 742Fe St) Reduction of stated val value Ordinary share capj, Retained earrings! 50,000 shares, Prootatea ue 5,000,000 , value 5,000, A recapitalization ae F is e| P100 is reduced’ to Pay ed whereby the stated value of Ordinary share capi ital (50,0 Sh ‘ ,000 x 20) ‘are Premium —recapitali a 009.000 1,000,000 Share split Share split may be in the form of: a. ‘Split up or share’ spli i split proper” b. Split down or reverse share split 7 the \ Split up \ \ Splitewp is a transaction whereby the original shares arey called in for cancelation and replaced by a larger number accompanied by a reduction in the par value or stated value, This action is prompted mainly by a desire to increase the number of outstanding shares for the purpose of effecting a reduction in unit market price. : 10,000 shares issued and Jue. If the shares are split up ould be 50,000 shares with an entity has h P100 par va apitalization wi For example, g outstanding, witl 5 to 1, the new ¢ O-par value. Note that before and after the share split, the share capital ‘ote remains the same- - ; i not be! -operly. called a share a an ~ be! In order to be Prop nound of share ¢ capil ae in the number of shares and the par a change q There is only o palue. value or state 743Memorandum entry No formal entry is necessary to record share split. It is sufficient that a memorandum is ae for the number of new shares issued in exchange for the old shares plus ay indication of the new par value or stated value, as follows, “Issued 50,000 new shares with par value of P20, as q result of 5-for-1 split of 10,000 old shares with par value of P100.” Split down chave Vv Split down is the reverse of split up. It is a transaction whereby the original shares are canceled and rep! bya smaller number accompanied by ar increasein the or stated value.” 4 For example, an entity has 10,000 shares issued and outstanding, with P100 par value. If the shares are split down 5 to 1, the new capitalization would be 2,000 shares with P500 par value. The share capital is P1,000,000 before the split (10,000 x P100), and also P1,000,000 after the split (2,000 x P500). The number of shares has decreased to 2,000 (10,000/5) and the par value has increased to P500 (P100 x 5).| ee | RIGHTS ISSUE \ Rights issue is gr, them to acquire newt," °*isting shareholders to enable specified period, ‘ares at a specified price during @ e Philippi mi . The ‘pine term for rights issue is stock right.’ Share warrants re ands re: a . : evidencing ownershiy Sent the certificate or instrument ip over the rights issue. Whenever the s new shares are Fe eee of a corporation is increased and the existing share the new issue must. be offered first to shareholdings before subssriptigg enero Teo the A subscripti i general public. iptions are received from the This is the legal right of shareholders which is called the right of preemption. In the accounting parlance, this is called stock right or right issue. The share warrants evidencing the’rights issue state the -number of shares the holder may purchase as well as the exercise price. Normally, the exercise price is less than the current market value of such shares. Issuance of rights No entry is required when share warrants are issued to existing shareholders because these warrants are issued usually without consideration. make a memorandum entry to ee issued to shareholders and ights 1 ean be purchased through the The entity only need indicate the number © e the number of shares ¢ exercise of the rights. Expiration of rights ae ' dum entry ja required for the expiration of Only a memoran' rights. 745Exercise of rights randum is made for th, 0) eae claimable through the If the rights are exercist decrease in the number of shares exercise of the rights. : The sale of shares through the exercise of the rights is then recorded normally. . . ved, P1,000,000, is equal to the par 1, the journal entry 1s: 1,000,000 For example, if cash rece value of the share capital Cash Share capital 1,000,000 If cash received, P1,200,000, is more than the par value of P 1,000,000, the journal entry is: Cash 1,200,000 Share capital 1,000,000 Share premium 200,000 Preference share issued with share warrants When issuing different types of securities, such as bonds and preference share, warrants may be included in the issuance as a "sweetener" to make the securities more attractive to the prospective investors. When share warrants are issued together with preference share, there is actually a sale of two securities — the preference share and the share warrants. Thus, the consideration received shall be allocated between the preference share and the warrant: ; f s on tl heir market value. he basis of t] Illustration a entity issued 20,000 preference shares of P100 par value or P3,250,000 with 20,000 warrants to acquire 10,000, P50 par value ordinary shares at P60 per share. On the date of the issuance, the market values are: . Preference share ex-warrant Warrant 120 10 746Allocation of ii ‘ Ssue pp; Price M preference sh; eae Allocated Fe (20,000 x 19 Fraction issue price Warrants (20,000 x 10) ) 2,400,000 2428 8,000,000 — 200/000 2126 "250,000 2,600,000 pyaareres — The fractions multiplied by Pa2nrcveloped from the market value and 790,000 to arrive at the allocated price. Accordingly, the journ; ‘al entry to 7 preference shares and Warne rooord the issuance of the ae F —_ 3,250,000 reference share capital (20,000x 100) 2,000,000 Share premium ~ PS —— 1,000,000 Share warrants outstanding 250,000 The share warrants owlstandingtaéeotnt is reported as part of share premium. If subsequently, all 20,000 warrants are exercised requiring the issuance (of 10,000 dinary shares at-P60 per share, the journal entry is>~— 600,000 Cash (10,000 x 60) 4 250,000 Share warrants outstan ato 00x50) 500,000 Ordinary share capital C™ 350,000 Share premium nts are not exercised, the share arr 5 vedi: Tf for any reason | - umount is simply closed and credited warrants outstam to share premium. 747Query If in the given illustrat known market value of PL ; market value, how is the sale is simply to allocate to the security with The posal Seal ta mark ahs and the balance is allocated to the other security. . the preference share hag ion, only J the warrant has no known price of P3,250,000 allocated» Preference share (20,000 x 120) 7800000 Warrants (3,250,000 — 2,400,000) 850,000 3,250,000 ad Cash 3,250,000 Preference share capital 2,000,000 Share premium — PS 400,000 Share warrants outstanding 850,000 Another illustration Preference shares, 20,000, with par value of P100, are issued for P3,250,000, together with 20,000 warrants to acquire 20,000, P50 par value ordinary shares at P60 per share. The preference share ex-warrant and the warrant have no market value but the ordinary share has a market value of P100. In this case, the basis for allocation would be the market value of the ordinary share. Market value of ordinary share 100 Less: Option price or exercise price slg Intrinsic value of warrant Multiply by number of ordinary shares under the warrants _ 20,000 Total value of share warrants 800,000 Sale price 250,000 Less: Value of share warrants 500,000 Value assigned to preference share 2,450,000 Cash 3,250,0 Preference share capital ee 000,000 Share premium — PS "450,0 Share warrants outstanding 800,000 748QUESTIONS 1. Define treasury sh , re 2. What are the as treasury? es, Tequisites ; * iN order that shares can qualify 4. Explain the : e acquired fr: cash ttement of treasury shares when and noncash consideration, 5. What is the treatment of resale of treasury shares? 6. Explain the accounting procedure for the retirement of weseury shares when the retirement results in a gain or loss. 8ain or loss on the reissue or 7. Explain the financial statement Presentation of treasury shares. 8. Explain the accounting for donated shares. 9. What is the meaning of treasury share subterfuge? 10. Explain the accounting for donation of capital from , shareholders and nonshareholders. levied? ts on shareholders be 11. When may assessmen' 12. Explain recapitalization. : share split. 13, Explain share split and reverse sha » Explay warrants. 14. Explain rights issue and share . Expla for issuance of preference shares ting 15, Explain the accom with share Wa” 749PROBLEMS Problem 21-1 (ACP) ‘Aroma Company reported the following shareholders’ equity. i 100 par + 5,000, Ordinary share capital, 50,000 shares, P100p £60.00 Share premium 2,00 3 Retained earnings 0,000 Subsequently, the following transactions, among others occurred: a. Treasury shares of 5,000 were acquired at P160 per share. b. Assuming the treasury shares were reissued for P1,000,000. ; c. Assuming the treasury shares were reissued for P700,000. Required: 1. Prepare journal entries to record the transactions. 2. Prepare journal entry to record the retirement of the treasury shares, assuming the treasury shares are not reissued. The original issue price of treasury shares was P104 per share. . Problem 21-2 (ACP) At the beginning of current year, Alegro Company reported the following issues of share capital: 200,000 shares at P20 250,000 shares at P25 €.950,000 During the current year, the entity reacquired 50,000 shares at P20, and these were rei per share. reissued at year-end at P25 Required: Prepare journal entries to record t! : h , a assuming: e foregoing transaction: a. The share has a P15 par value, b. The share is no par with stated value of P20. 750Problem 21.3 aay Honda Com, ny year of Perationg” a Sold 30,000 p, b. Sold 100,009 orenrenee Shares, 12%, c. Purchased a, d Nary g - P100 par, at P14o d ret Ares of P59 a " . Purchaseg one 10, Par at P55, 15,000 9,4, 29000. Preference shares at P120. treasury. ordinary shares at P52 to ibys as Sold 10,000 treasury ordi Shareholder, do: inary shares at P6O. shares when share faite the entity 20,000 ordinary of these shares Wes sold for nee Price of P60. One haif g. Net Income for ¢} Year was P3,099 000. h. Appropriateq Tetaine ings equal t d earnings ini cost of treasury shares, 88 equal to the remaining Videg t a following data during the first rm oD Required 1. Prepare journal entries to record the transactions. 2. Present the shareholders’ equity. Problem 21-4 (IAA) ivi ted share capital P3,000,000, 20,000 ie Pe premium P200,000, and retained earnings P1,500,000. : Required: eee lowing cases: P journal entry for each of the fo 1a eiving repare . rec eed son is effected, each sharehorgen: for each a. Recapitalization ae with a stated valu 2 Snare ee h shareholder receiving 5 share owned. cted, eac aa owned. _. b. A share split is oie for each Spavpareholder receiving hares, par value effected, ea¢ each share owned. ee ization is 1 value for shareholder receiving a Pee new P100 Pe d, each each share owned. 1 share of new” for e P tion yr value aa recapitalizah P50 pal 4 new shares 7514 Problem 21-5 (IAA) . ital outstandi, Jasses of share capi! ndin paloma) ny a 0 pat value preference share and P59 consisting : par value ordinary share- The entity reported the following balances at the beginning of the curent year: ital — 5,000 shares 500,000 Preference share capital - 5, Ordinary share capital 50,000 shares 2, 5,00 Share premium -PS- 200060 Share premium — ordinary F sa Retained earnings ‘ ,000, The following data summarize the transactions for the current year: Shares Per share: 1. Issue of ordinary share capital 20,000 50 2. Purchase of treasury share — ordinary 5,000 60 3. Share split-ordinary 2 for 1 4, Reissue of treasury share 3,000 40 5. Shareholders donated 15,000 ordinary shares to the corporation. Subsequently, 10,000 donated shares were reissued at P40 per share. 6. Net income for the year was P500,000. 7. Appropriated retained earnings equal to the cost of treasury shares. 5 Required: a. Prepare journal entries'to record the transactions. b. Present the shareholders’ equity at year-end. 752Problem 21-6. (aay ¥ report, equity: ed the following shareholders’ Share capital, 50,000 sh, Share premium te, P100 par Ane Retained earnings 1,000,000 Total shareholders’ equity (__ 500,000) 5,500,000 The entity Wishes to canc: ici each of the followin’ joo debe and is considering a. Shareholders are to donate 10% 5 f thei te entity and these are formally vee eir shares to the red. b.. The par value of shares is to be reduced to P50. c. Two new no-par shares are tobe exchanged for each share outstanding and the legal capital for the entity is to be restated at P5,500,000. The stated value is P55. d.. Three new no-par shares with a stated value of P20 are to be exchanged for every share. Required: Prepare journal entry that would be required for each Possibility.Problem 21-7 (IAA) provi share! areholders, 1 right on each share, uire one ordinary share of P59 5 rights submitted. ded the following independent Marianne Company holders’ equity: transactions affecting 1. Issued 25,000 rights to sh permitting holders to acq' par value at P60 with every elling at P30 per share at this time, Shares ara s are exercised and 5,000 rights Subsequently, 20,000 right: expired. 2, Issued 20,000 preference shares of P100 par value for ; P2,500,000, with 20,000 warrants to acquire 10,000 ordinary shares, P50 par, at P60. On the date of the issuance, the warrants have a market value of P10, but the preference share has no known market value ex-warrant. Subsequently, 18,000 warrants were exercised and the remainder lapsed. 3. Issued 50,000 preference shares of P100. par value for P6,000,000 with 50,000 warrants to acquire 25,000 ordinary shares, P50 par, at P60 per share. On the date of issuance, the market values are: Preference share ex-warrant None Warrant None Ordinary share 80 Subsequently, all the warrants were exercised. Required: Prepare journal entrie s to ‘ transactions. record the independent 754|| ‘ Problem 21-8 ¢ AA) Glorious Compa: A s ny equity on January 1 otoerted the following shareholders’ Ordinary share capi 50,000 shares reaP 100 Share premium and Par; 200,01 juthorized, 000 shares ai 0 Retained earnings 5,000,000 1,000,000 On May 3 aon n May 31, 2020, Car 120, giving with ech Pia issued bonds of P5,000,000 at holder to purchase 3 sh, 1,000 bond a warrant enabling the period. ‘ares at P120 per share for a one year Shares were selling for P1 is ti 40 at tl of bond ex-warrant is 105, Ber By December 31, 2020, 10,000 shares had been issued in connection with warrants issued on the sale of bonds. Net income for 2020 was P2,000,000. On July 15, 2021, the entity issued rights to shareholders, 1 right on each share, permitting holders to acquire for a one-year period 1 share at P130 with every 5 rights submitted. Shares were selling for P150 at this time. All rights were exercised and the additional shares were issued on December 31, 2021. The remaining share warrants issued to the bondholders * expired. ‘ (0,000. Net income for 2021 was 3,00 Required: nsactions. 1 entries t° record the trai a. Prepare journa ; : ders’ b. Present #! tl equity on December 31, 2021. je sharebo 755ao ae Problem 21-9 (AICPA Adapted) nized on January 1, 2020. On ¢j dea ee ‘entity issued 200,000 P10 par value shares at Pi5 per share. 7 i iod January 1, 2020, through December 3 ; Donk ene period Jere net income of P750,000 and Paid cash dividends of P380,000. 5, 2021, the entity purchased 12,000 treasury srasetaty per share. On December 31, 2021, 8,000 treasury shares were sold at P8 per share and retired the remaining 4,000 shares. What is the shareholders’ equity on December 31, 20217 00), ) 3,290,000 aS \S 3'306'000 1S) be0, ©. 31338000 d. 3,370,000 Problem 21-10 (AICPA Adapted) Caper Company disclosed the following shareholders’ equity at the beginning of current year: Share capital, par valud P20 ) authorized 50,000 shares: issued and outstanding, 30,000 shares ‘a * 600,000 Share premium 30.0? / ¥50,000 Retained earnings \ 230,000 During the year, the folk to shareholders’ equity: 1,000 shares we: 900 shares we: 1,500 shares of. lowing transactions occurred relating Te reacquired at P28 per share. re reacquired at P30 per share. treasury were sold at P32 per share. The entity reported net income of P110,000 for the current year. * What amount should be reported as shareholders’ equity at year-end? Oo a 107,000 . va * 19 oDy 1,078,000 Im . Ne. 11083'000 1D, ow 973,000 756FRR oie 2 ee ee pt a | bl Problem 21-1) « At the beginnj Ng of approved a two. e A -for., cur and an increas¢ fe ae plit of the, year, Dorr Company | value shares to 299 g'0tized shareg fits share capital, 2 10 m 100,000 P20 par The shareholders: Par value shares, ; S equi . issuance of the Wity ac ; ; | Share split sharoe at immediately before Share capital, par va), Te as follows: | Share premium, p3,"° P20, 50,009 Riteinod cent vg Per share onisg este outstanding 1,000,000 What should be th, b: 1,350,000 retained earnings ante in the share premium and is effected? ‘nts immediately after the share split Adaptea) Share i premium Retained earnings a. 0 b. 150,000 Beueo a 150,000, 1,350,000 d 1,150,000 "350,000 Problem 21-12 (IAA) ‘ Precious Company was organized at the beginning of current year with an authorization of 1,200,000 ordinary shares with a par value of P6 per share. ; t During the current year, the entity had the following capital transactions: January 5 Issued 675,000 shares at P10 per share July 28 Purchased 90,000 treasury shares at P11 per December 31 ea the 90,000 shares held in treasury at P18 ember per share The entity used the cost mete reissuance of the treasury hare What is the total amount of § a 3,330,000 b. 2,070,000 ©. 2,700,000 . d. 0 d to record the purchase and premium at year-end? 157/ d. Problem 21-13 (AICPA Adapte' ) declared inni t year, Alto Company al At the beginning of owt, Shen the, market velus 7 share “A p00. Prior to the split, the en had 10,000 shares of Pi0 par value issued and outstanding. What is the par value of share after the share split? a. 10 b. 20 c. 50 a. 2 Problem 21-14 (AICPA Adapted) Beck Company issued 200,000 ordinary shares when it began operations in 2018 and issued an additional 100,000 ordinary shares in 2019. The entity also issued preference shares convertible to 100,000 ordinary shares. In 2020, the entity purchased 75,000 ordinary shares and held as treasury. ‘ On December 31, 2020, how many ordinary shares were outstanding? a. 400,000 b. 325,000 c. 800,000 d. 225,000 Problem 21-15 (AICPA Adapted) Sam Company was incor, : porated at the beginning of current year and provided the following information, i. Jan. 1 Number of shares authorized 000 Reb. 1 Number ofsharesiseued "Sod ly umber of shares reacquj. ; Dec. 1 Twoforoneshare split Putnet canceled 10,000 What is the year-end? "™ber of ordinary shares outstanding at 140,000 160,000 150,000 180,000 Be op 758Bee oo we Problem 21. At the beginning of issued shares ang o¢“ent yo 9 25,009 zeae NY Comipany had 125,000 During the curren, a8 treasury, t Year, 8 . > tr; “ é were as follows. aNsactiong involving share capital January 1 through oO care tob. distributed to foe 31 - 0 lan: fficers ag Part 9 : Dp a share compensation November 1~ 4 3 ¢ December 1 — The cat, share split took effect. to discourage an y, Y Purchased 5,000 of its own shares not retired. nfriendly takeover. These shares were ee treasury shares were How many shares were issued and outstanding at year-end? Issued Outstanding a. 375,000 334,000 b. 375,000 324,000 c. 334,000 334,000 d. 325,000 324,000 Problem 21-17 (AICPA Adapted) any issued 100,000 ordinary shares. Of these, ane were held as treasury at.the beginning of current year. ' During the year, the following transactions occurred: May 1 1,000 sharesof treasury meres Aug. 1 10,000 unissued shares ne Nov. 15 A 2'for 1 share sP! eee i hares were jssued and outstanding at ye ‘ow many shar ding Issued Outstan' 212,000 a 220,000 316,000 b. 220,000 214,000 © 222,000 218,000 a. 222,000 759- Adapted) -18 (AICPA Problem 21-1 Te tod 5,000 shares of Pig par Value Rona Company orig. During the ow eO, or’éh, © entity for P100 per 60 of the shares at Pp are ang acquired 2,00 d these 2,000 shares. i i le EY Ee retirement of the shares, what a ; Mou i he 2 Unt Incanto spectly to abaze premium and retain i earnings? . 20,000 and 280,000 b 100,000 and 180,000 ¢c. 180,000 and 100,000 d. 280,000 and 0 Problem 21-19 (AICPA Adapted) . “Berna Company reported the following equity accounts at the beginning of current year: Share capital, P20 par 8,000,000 Share premium 2,550,000 Retained earnings 1,275,000 All shares outstanding at the beginning of current year were issued for P26 a share. At year-end, the entity reacquired 20,000 shares at P24 a share and retired them. What is the balance of the share premium? a. 2,430,000 b. 2,470,000 c. 2,510,000 d. 2,590,000 Problem 21-20 (AICPA Adapted) ° Vicar Company was organized at the beginni t year with 100,000 authorized shares of Pi00 pas aie During the current year, the entity j PLd0 per shorn ean: t ity issued 75,000 shares at shares at P110 per chara, ene the Snuty Purchased 6,000 The i ae oad wale, method 1s used to record the purchase of What is th shares at vee of the share premium from teas a. 200,000 b. 150,000 ¢c. 50,000 da. 0 760eee 2 21 (ay Pack Company ¢ fost in treasury at ance Selea 5.0 Before recording os rage Sone of sree ont erg Pat Par value held entity had the fone’ Reelation of Share capital, shareholders eat shares, the 7 50, Share premium °,000 shares original Retained ear, Y issued at P75 2,500,000 Treasury Shares, at cost 1250,000 "600,000 What amount shoulg bi cancelation of freasixy sharorted for the following after 1. Share capital a. 2,250,000 b. 2,500,000 c. 1,900,000 d. 2,100,000 2. Share premium a. 1,250,000 b. 1,125,000 ec. 900,000 d. 800,000 3. Retained earnings a. 1,000,000 b. 1,200,000 c. 775,000 d. 650,000 761Problem 21-22 (IAA) Hanna Company reported the following shareholders' equity at the beginning of current year: Share capital, P10 par, outstanding 225,000 shares 2,260,009 Share premium +500,000 i 2,000,000. Retained earnings During the year, the entity had the following transactions, * Acquired 10,000 treasury shares for P500,000. * Sold 5,000 treasury shares at P60 per share. .* Sold 2,000 treasury shares at P45 per share. 1. What is the total amount of share premium at year-end? a. 1,500,000 b. 1,560,000 c. 1,540,000 d. 1,550,000 2. What is the share capital at year-end? 2,250,000 2,150,000 2,220,000 2,300,000 peop . What i i at is the total shareholders’ equity at year-end? 5,640,000 5,800,000 5,750,000 . 5,790,000 ae p 762problem 21 23 day) At the beginnin organized and aut par value. on teat it Yea ar, ue Tos eeee Company was 00 shares with P50 During the. cur, in transactions relatin, ing ie » the ant rh holden! aa the following Issued 10,000 Shar, Issued 20, "000 sha Tes at P79 0 per sh, Reported net j incon ares eae are, Paid cash divj, de. mae of Pog 1,000,000. Purchased 3 000 tr easuny shares at P100 per share. What amount year-end? should be Yeported as share capital at 1,500,000 3,300,000 1,200,000 1,800,000 Bop What amount should be reported as share premium at year-end? a. 800,000 b. 200,000 c. 600,000 d. 0 What is the total shareholders’ equity at year-end? 2,800,000 3,000,000 3,300,000 2,000,000 Bom p contribute’ capital a year-end? ibuted ital at What is the 2,300,000 1,500,000 2,000;000 1,200,000 Boop 763Problem 21-24 (AA) 7 . he following information from Levi Company provided Paemaciall position at year-end: 5 comparative statement 0! 2021 2020 7,500,000 ° 4,500,000 Share capital, P5 par go ee rece arabes - 19,500,000 15,500,000 , at cost, 600,000 in 2021 etn 40,000 n 2020 7,000,000 5,000,000 1. What is the number of outstanding shares on December 31, 2021? a. 1,500,000 b. 1,000,000 ec. 900,000 d. 600,000. .2. What is the number of outstanding shares on December 31, 2020? a. 900,000 b. 500,000 ce. 400,000 d. 700,000 3. How many shares were issued during 2021? a. 600,000 b. 300,000 c. 200,000 d. 500,000 4, Wh: i iti i Ww bat wae the average price of additional shares issued a. 25 b. 20 ec. 10 d. 5 764 ————a ~~ er problem 21-25 (IAA) juan Company was organized at the beginning of current yer with 100,000 authorized shares of P100 par value. uary 1 Sold 30,000 shares at P150 per share pace 1 Issued 2,000 shares for legal sorvices with a fair value Fel of P250,000. The shares on this date are quoted at P140 per share March 15 Purchased 5,000 treasury shares at a cost of P120 per share oeober $1 Issued P5,000,000 convertible bonds at 120. The bonds, are quoted at 98 without the conversion feature. Novetaber 5 Declared a 2-for-1 share split when the market value of the share was P160. December 15 Sold 20,000 shares at P75 per share. December 31 The net income for the year was P2,000,000. 1. What amount should be reported as share capital at year-end? a. 5,200,000 b. 3,600,000 ¢. 4,200,000 d. 5,300,000 . What amount should be recognized as share premium at year-end? a. 2,050,000 b. 8,150,000 © 3,130,000 d. 2,650,000 ' What is the total shareholders’ equity at year-end? ® 8,750,000 7,650,000 ® 9.350,000 4. 9,250,000 "How many shares are outstanding at year-end? - 79,000 a 74,000 * 84,000 765 th.Problem 21-26 Multiple ¢ L » a a hoice (Philippine Gaap, The cost of treasury shares scquired for noncasy consideration is usually measure y the noncash asset surrendereg cash asset surrendered ry shares shares a. Carrying amount of b. Fair value of the non c. Fair value of the treasu d. Book value of the treasury The total cost of treasury shares shall be reported ag Deduction from shareholders’ equity Financial asset . Deduction from retained earnings Deduction from share premium po rp If treasury shares are reissued for noncash consideration, the proceeds’ shall be measured by a. Fair value of the treasury shares b. Fair value of the noncash consideration received c. Carrying amount of the noncash consideration received d. Carrying amount of the treasury shares Which is not a method to account for treasury shares? Cost method Par value method Retained earnings method Constructive retirement method Pere . "Loss" from sale of treasury shares shall be charged to a Loss on sale of treasury shares’ . Retained darhings and then share premium from c. Share premium from retained earnings d. Share premium from retained earnings treasury shares and the? original issuance and the? 766P) Sh 1, a. b. c. da. x Be rp @ a. b. c. d. 6. Loss on retirement of treasury shares : is debited to ‘Retained earnings Share premium fro: x m treasu retained earnings "Y shares and then Share Premium from treasury shares, from original issuance and then reta: Share premium from original i; premium from treasury shares a: earnings share premium ‘ined earnings Ssuance, share ind then retained . Gain on retirement of treasury shares shall credited to Share premium Retained earnings Share capital Income . Shares issued would exceed shares outstanding as a result of Declaration of share split Declaration of share dividend. Purchase of treasury shares Payment in full of subscribed shares 9. When treasury shares are sold at a price above cost a b. c. da. A gain account is credited - A loss is reported A revenue account.is credited Contributed capital is increased 10. Which statement is incorrect in relation to treasury shares? a. b, a Treasury shares shall be recorded at cost srrepecate of whether acquired below or above par value. The total cost of treasury shares shall be deducted from shareholders’ equity. : Treastirg shares may be recognized as financial asset. - Gain or loss on sale of treasury shares shall not be credited or charged to income. 767Problem 21-27 Multiple 1 2. » a choice (IAA) ‘An entity makes only @ memorandum entry when enti Entities give warrants to executives compensation, Le ntit b Entities. include warrants to make a security more attractive. . c. Entities issue rights d. All of the choices are correct. to existing shareholders. Which of the following is issued to shareholders of a corporation to acquire unissued shares.within a specified time at a specified price? Share option Share warrant Share subscription Share appreciation right Bose An entity issued rights to the existing shareholders to purchase unissued ordinary shares at more than par value. Share premium would be recorded when the rights Expire ; Are exercised Become exercisable . Are issued aeop - Share warrants outstanding account shall be reported as Liability Reduction of share premium Share capital Share premium ae rp Share split is issued primarily to Increase the number of outstanding shares Increase the numb. er of authori Increase legal capital rized shares Induce a decline in market value per share aeop 768 prep ole 21-28 Multiple choice (AICPA Adapted) hen collectibility is reasonably assured, the excess of "the subscription price over the stated value of no par ordinary share subscribed shall be recorded as . No par ordinary share capital Share premium when the subscription is recorded. ¢. Share premium when the subscription is collected. d, Share premium when the ordinary share is issued. 9, The purchase of treasury ordinary shares a. Decreases authorized ordinary share capital b. Decreases issued ordinary shares ¢. Decreases outstanding ordinary shares d: Has no effect on ordinary shares outstanding 3, When treasury shares are purchased for more than par value, what account or accounts shall be debited? a. Treasury shares for the par value and share premium for the excess of purchase price over the par value. b. Share premium for the purchase price. c. Treasury shares for the purchase price. Treasury shares for the par value and retained earnings d, for excess of the purchase price over the par value. 4, Which statement best describes the'net effect on retained earnings of the purchase and subsequent sale of treasury shares? : Retained earnings may never be increased but sometimes decreased b. Retained earnings sometimes may never be increased or decreased Retained earnings sometimes may be increased but 7 never decreased - Retained earnings account is always affected unless the sale price is exactly equal to cost 769acquired for cash at a price in excegy shares were subsequently gojq rae value, The Oe encead of acquisition cost. What ig wr cash al , ity? the effect on total shareholders equity? 6. Treasury shares were Purchase of treasury Sale of treasury Decrease a Increase No ited b. Decrease c Decrease Tperese da. No effect lo ired for cash at more than par 6. Treasury shares were acquired value, and then subsequently sold for cash at more than acquisition price. What is the effect on share premium from treasury shares? Purchase of Sale‘ of treasury. shares treasury shares a. Increase Increase ‘ b. Decrease No effect c. No effect Increase d. No effect No effect. 7. How would.a share split in which the par value per share decreases in proportion to the number of additional shares issued affect share premium and retained earnings, respectively? a. Increase and No effect b. No effect and No effect c. No effect and Decrease d. Increase and Decrease 8. How would a share split affect asset and shareholders’ equity, respectively? a. Increase and Increase b. No effect and No effect c.. No effect and Increase d. Increase and No effect - 770