PROBLEM NO.

1 - Conviction Corporation

Question Nos. 1, 3 to 5 - B
Authorized common stock 4,000,000
Unissued common stock (800,000)
Common stock issued 3,200,000 1
Subscribed common stock 480,000
Subscriptions receivable (120,000) 360,000
Additional paid-in capital
Donated capital 800,000
Gain on sale of treasury stock 80,000
Premium on capital stock 320,000
Stock warrants outstanding 200,000 1,400,000
Retained earnings
Appropriated for sinking fund 400,000
Appropriated for treasury stock 144,000
Total appropriated retained earnings 544,000 3
Unappropriated (P720,000 - P144,000) 576,000 1,120,000
Revaluation surplus 800,000
Total 6,880,000
Less : Treasury stock (144,000)
Net unrealized loss on AFS (96,000) (240,000)
Total stockholders equity 6,640,000 5

Question No. 2 - B
Common stock issued 3,200,000
Subscribed common stock 480,000
Legal capital 3,680,000

AP-5801
PROBLEM NO. 2 - Determination, Inc.
2005
12.31.04 Transactions 12.31.05

Common stock 1,125,000 2/1 20,250 1,275,075 (1) C

7/31 111,825
10/1 18,000
Additional paid in capital 10,800,000 2/1 (33,750) 12,629,175 (2) A
2/1 249,750
4/1 12,000
7/31 1,379,175
10/1 (12,000)
10/1 234,000
12/1 (191,250)
12/1 191,250
Retained earnings 720,000 12/31 375,750 1,095,750 (3) B

Total stockholders' equity 12,645,000 15,000,000 (4) C

Journal entries for 2005

2/1 Cash (6,750 options x P35) 236,250
APIC-stock options (6,750 x P5) 33,750
Common stock (6,750 shares x P3) 20,250
APIC - excess over par 249,750
4/1 Cash 3,000,000
Bond discount [P3,000,000 - (3,000 x P996)] 12,000
Bonds payable 3,000,000
APIC-stock warrants 12,000
7/1 Memorandum: Issued rights to shareholders permitting holder to acquire for a
30-day period one share at P40 with every 10 rights submitted
—a maximum of 38,175 shares (381,750 shares ÷ 10).
7/31 Cash {[38,175 - (9,000/10)] x P40} 1,491,000
Common stock (37,275 shares x P3) 111,825
APIC - excess over par 1,379,175

10/1 Cash (3,000 x 2 x P40) 240,000

APIC-stock warrants 12,000
Common stock (3,000 shares x 2 x P3) 18,000
APIC - excess over par 234,000
12/1 APIC-stock options [P225,000 - (6,750 x P5)] 191,250
APIC - expired stock options 191,250
12/31 Income summary 375,750
Retained earnings 375,750
PROBLEM NO. 3 - Resilience Corporation
2005
12.31.04 Transactions 12.31.05

Preferred stock 1,800,000 1,800,000

Common stock 5,150,000 a (150,000) 6,450,000 (11) C
c 1,050,000
d 400,000
APIC - Preferred 90,000 90,000
APIC - Common 3,500,000 a (120,000) 4,880,000 (12) C
c 1,260,000
d 240,000
Retained earnings 4,000,000 b (750,000) 5,395,000 (14) D
e (180,000)
g (275,000)
h 2,600,000
Treasury stock (270,000) a 270,000 -
Net unrealized loss on AFS (245,000) f 110,000 (135,000)

Total stockholders' equity 14,025,000 18,480,000 (15) B

Journal entries for 2005

a Common stock (30,000 shares x P5) 150,000
APIC-common 120,000
Treasury stock 270,000
b Retained earnings 750,000
Trading securities 750,000
c Memorandum: Issued rights to shareholders permitting holder to acquire at P11
with every 4 rights submitted —a maximum of 250,000 shares (1,000,000 shares ÷ 10).
c Cash [(840,000/4) x P11] 2,310,000
Common stock ([(840,000/4) x P5) 1,050,000
APIC-common 1,260,000

d Cash (80,000 x P8) 640,000

Common stock (80,000 x P5) 400,000
APIC-common 240,000
e Retained earnings 180,000
Dividends payable-PS 180,000
f Net unrealized loss on AFS 110,000
Available for sale securities 110,000
g Retained earnings 275,000
Income tax payable 225,000
Rent income 500,000
h Income summary 2,600,000
Retained earnings 2,600,000
PROBLEM NO. 4 - Fortitude Company

Requirement no. 1
01/02/05 Capital stock [50,000 shares (P120-P100)] 1,000,000
Additional paid-in capital 1,000,000

08/30/05 Treasury stock 550,000

Capital stock 550,000

12/01/05 Retained earnings 287,500

Treasury stock (2,500 shares x P110) 275,000
APIC from reissuance of treasury stock 12,500

12/29/05 Retained earnings (P617,500 - P545,000) 72,500

Capital stock 545,000
Stock dividends distributable (4,750 x P100) 475,000
APIC - excess over par value 142,500
Shares issued 50,000
Treasury stock (5,000 -2, 500) (2,500)
Shares outstanding 47,500
Dividend rate (small stock dividend) 10%
Shares to be issued 4,750
Market value per share 130
Total amount to be charged to RE 617,500
Total par value of stock dividend payable 475,000
APIC - excess over par 142,500

12/31/05 Retained earnings (2,500 shares x P110) 275,000

Retained earnings appropriated for treasury stock 275,000

Requirement no. 2
Capital stock (P5,995,000-P1,000,000+P550,000-P545,000) 5,000,000 (1) C
Stock dividends distributable 475,000
APIC (P1,000,000+P12,500+P142,500) 1,155,000 (2) C
Retained earnings-appropriated 275,000
Retained earnings (P3,742,500-P287,500-P72,500-P275,000) 3,107,500 (3) C
Total 10,012,500
Treasury stock (P550,000-P275,000) (275,000) (4) C
Total stockholders' equity 9,737,500 (5) C
PROBLEM NO. 5 - Endurance Company
Requirement no. 1
a Fire loss 5,250
Retained earnings 5,250
b Goodwill write off 52,500
Retained earnings 52,500
d Loss on sale of equipment 48,300
Retained earnings 48,300
g Retained earnings 129,500
APIC-excess of par 129,500
h APIC-excess of par 10,000
Retained earnings 10,000
i Retained earnings 8,470
APIC from forfeited subscriptions 8,470
j Retained earnings 25,900
APIC from retirement of preferred stock 25,900
k Retained earnings 15,050
Gain on early retirement of bonds 15,050
l Retained earnings 10,500
Gain on life insurance settlement 10,500
q Retained earnings 40,000
Donated capital 40,000
r Retained earnings 250,000
Revaluation increment in property 250,000

Requirement no. 2
Unadjusted retained earnings balance 559,320
a 5,250
b 52,500
d 48,300
g (129,500)
h 10,000
i (8,470)
j (25,900)
k (15,050)
l (10,500)
q (40,000)
r (250,000)
Correct amount of RE before net income(loss) 195,950
OR
Jan. 1 Balance 726,400
c Stock dividend (140,000)
e Officers’ compensation related to income
of prior periods – accrual overlooked (325,500)
f Loss on retirement of preferred shares
at more than issue price (70,000)
m Correction of prior-period error 50,050
n Effect of change in accounting principle
from FIFO to weighted average 100,000
o Dividends payable (25,000)
p Loss on sale of treasury stock (20,000)
s Appropriated for property acquisition (100,000)
Correct amount of RE before net income(loss) 195,950
PROBLEM NO. 6 - Guts Company
Requirement No. 1
Capital stock
Preferred stock 400,000
Common stock 800,000 1,200,000
APIC
Premium on preferred stock 150,000
Premium on common stock 165,000 315,000
Retained earnings
Retained earnings, appropiated - bond retirement 320,000
Retained earnings, unappropiated 458,600 778,600
Total 2,293,600
Less treasury stock, at cost 84,000
Stockholders' equity 2,209,600

Requirement No. 2
Excess
over par Preferred Common
Balances 1,069,600 * 340,000 ** 800,000
Preferred dividend (P340,000 x 6%) (20,400) 20,400
Liquidation premium (3,400 x P15) (51,000) 51,000
Balance to common 998,200 998,200
Total 411,400 1,798,200
Divide by outstanding shares 3,400 8,000
Book value per share 121.00 224.78

* Premium on preferred stock 150,000

Premium on common stock 165,000
Retained earnings, appropiated - bond retirement 320,000
Retained earnings, unappropiated 458,600
Excess of cost of TS over par (P84,000 - P60,000) (24,000)
Excess over par 1,069,600
Note: For computation of BV/share purposes, TS is treated as a retired stock.
Shares Amount
** Preferred stock issued 4,000 400,000
Tresury stock, at par (600 x P100) (600) (60,000)
Outstanding preferred stock 3,400 340,000

Requirement No. 3
Excess
over par Preferred Common
Balances 1,069,600 * 340,000 ** 800,000
Preferred dividend (P340,000 x 6%) (20,400) 20,400
Liquidation premium (3,400 x P15) (51,000) 51,000
Common dividend (P800,000 x 6%) (48,000) 48,000
Balance for participation 950,200
Preferred (340/1,140 x P950,200) 283,393
Common (800/1,140 x P950,200) 666,807
Total 694,793 1,514,807
Divide by outstanding shares 3,400 8,000
Book value per share 204.35 189.35
 Page 1 of 1
PROBLEM NO. 7 - Courage Company

Basic earnings per share for 2004:

Net income for 2004 1,345,040
Less preferred stock dividend (270,000 x 12%) 32,400
Net income identified with common stock 1,312,640
Divide by weighted average number of common shares 153,360 *
Basic earnings per share 8.56

*Computation of weighted average

No. of shares Mos. o/s Total
Jan. 1 (65,000 x 1.08* x 2**) 140,400 12 1,684,800
May 1 (9,000 x 1.08* x 2**) 19,440 8 155,520
Total 1,840,320
Divide by 12
Weighted average number of shares for 2004 153,360
*Stock dividend issued on 7.31.04
**2-for-1 stock split issued on 5.31.05

Basic earnings per share for 2005

Net income for 2005 (see computation below) 991,520
Less preferred stock dividend (see computation below) 39,600
Net income identified with common stock 951,920
Divide by weighted average number of common shares 163,707
Basic earnings per share 5.81

Computation of net income for 2005

Retained earnings, 12/31/05 1,884,800
Retained earnings, 12/31/04 1,585,840
Increase in retained earnings 298,960
Add dividends declared in 2005:
Preferred (P330,000 x 12%) 39,600
Common (P1,642,400/P10 =
164,240 - 1,000 treasury shares =
163,240 shares x P4) 652,960 692,560
Net income for 2005 991,520

**Computation of weighted average

No. of shares Mos. o/s Total
Jan. 1 (79,920 x 2*) 159,840 12 1,918,080
Feb. 1 (2,200 x 2*) 4,400 11 48,400
Sept. 1 (1,000) 4 (4,000)
Nov. 1 1,000 2 2,000
Total 1,964,480
Divide by 12
Weighted average number of shares for 2005 163,707
*2-for-1 stock split issued on 5.31.05

PROBLEM NO. 8
1) A 6) C
2) A 7) D
3) D 8) A
4) B 9) D
5) C 10) A