MINGLANA, MITCH T.

BSA 301

PROBLEM 1:

Endless Company provided the following shareholder’s equity on December 31, 2020:

Preference share capital, 12% P100 par 1,000,000

Ordinary share capital, P100 4,000,000
Share premium 2,000,000
Retained earnings 1,000,000

Dividends have been paid on the preference share up to December 31, 2018.

Required:

Compute the book value per ordinary share and per preference share under each of he
following conditions with respect to preference share:

a. Cumulative and fully participating

ANSWER AND SOLUTION:

Excess Preference Ordinary

P3, 000,000 1,000,000 4,000,000
(240,000) 240,000
(480,000) 480,000
P 2,280,000
1/5 456,000
4/5 1,824,000
Balance 1,696,000 6,304,000
Outstanding shares / 10,000 / 40,000
Book value per share P 169.6 P 157.6
b. Cumulative and fully participating after ordinary share receives 15%

ANSWER AND SOLUTION:

Excess Preference Ordinary

P3, 000,000 1,000,000 4,000,000
(240,000) 240,000
(600,000) 600,000
P 2,160,000
1/5 432,000
4/5 1,728,000
Balance 1,672,000 6,328,000
Outstanding shares / 10,000 / 40,000
Book value per share P 167.2 P 158.2

c. Cumulative and participating up to 16%

ANSWER AND SOLUTION:

Excess Preference Ordinary

P3, 000,000 1,000,000 4,000,000
(240,000) 240,000
(480,000) 480,000
P 2,280,000
4% 40,000
2,240,000
Balance 1,280,000 6,720,000
Outstanding shares / 10,000 / 40,000
Book value per share P 128 P 168

d. Cumulative and nonparticipating

ANSWER AND SOLUTION:

Excess Preference Ordinary

P3, 000,000 1,000,000 4,000,000
(240,000) 240,000
P 2,760,000 2,760,000
Balance 1,240,000 6,760,000
Outstanding shares / 10,000 / 40,000
Book value per share P 124 P 169
 e. Noncumulative and nonparticipating

ANSWER AND SOLUTION:

Excess Preference Ordinary

P3, 000,000 1,000,000 4,000,000
(120,000) 120,000
P 2,880,000 2,880,000
Balance 1,120,000 6,880,000
Outstanding shares / 10,000 / 40,000
Book value per share P 112 P 172

PROBLEM 2:

Zonal Company reported the following information for the current year:

Income before tax 5,000,000

Income tax 1,600,000
Loss from discontinued operations 600,000

Required:

Present the basic earnings per share on the face of the income statement under each of the
following assumptions:

1. The entity has only one class of share capital, 50,000 ordinary shares with par
value of P100.
2. The entity has two classes of share capital:
Preference share, 10% cumulative, P100 par 2,000,000
Ordinary share, P100 par, 50,000 shares 5,000,000

ANSWER AND SOLUTION:

A. Net income = P2,800,000

Outstanding ordinary share 50,000

BASIC EARNINGS PER SHARE = P 56

B. Net income = P2,800,000- 200,000

Outstanding ordinary share 50,000

BASIC EARNINGS PER SHARE = P 52

PROBLEM 3:

New Company had the following ordinary share transactions for the current year.

January 1 Beginning balance, 120,000 shares, P 50 par

June 1 Issued 12,000 shares at P60 per share
September 30 Purchased 24,000 shares at P55 per share to be held as treasury

The entity reported net income of P 3,630,000, after an expropriation loss of P605,000 for
the current year.

Required:
1. Compute the average shares outstanding.
2. Compute the basic earnings per share.

ANSWER AND SOLUTION:

Date shares Months Outstanding Peso Months

Jan. 1 120,000 12/12 120,000
Jun. 1 12,000 7/12 7,000
Sept. 30 (24,000) 3/12 (6,000)
121,000

EPS= P 3,630,000
121,000

EPS= P 30