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FINANCIAL ACCOUNTING & REPORTING 2
SET – L, SOLUTION

1) Gel Company was organized on January 1, 2022 with 100,000 authorized shares of P100 par value.
January 15 Sold 30,000 shares at P150 per share.
February 14 Issued 2,000 shares for legal services with a fair value of P300,000. The shares on this date are
quoted at P160 per share.
March 27 Purchased 5,000 treasury shares at a cost of P12 per share.
October 31 Issued P4,000,000 convertible bonds at 110. The bonds are quoted at 97 without the conversion
feature.
November 5 Declared a 2-for-1 share split when the market value of the share was P160.
December 17 Sold 10,000 shares at P75 per share.
What total amount should be recognized as share premium on December 31, 2022?
A. 1,830,000 B. 1,850,000 C. 2,390,000 D. 2,370,000
SOLUTIONS: D
SC – Ordinary Share Premium Retained earnings Treasury shares
Jan. 15 3,000,000 1,500,000
Feb. 14 200,000 100,000
Mar. 27 60,000
Oct. 31 520,000
Dec. 17 500,000 250,000
Total 2,370,000

Use the following information for the next two (2) questions:
Shokt Company’s adjusted balance at December 31, 2021, includes the following account balances:
8% preference stock (preference shares), P100 par 900,000
Common stock (ordinary shares), P3 par 500,000
Subscribed common stock (subscribed ordinary shares) 400,000
Subscription receivable (on ordinary shares) 150,000
Additional paid-in capital (share premium) – common stocks 300,000
Additional paid-in capital (share premium) – preferred stock 250,000
Retained earnings: appropriated for uninsured earthquake losses 100,000
Retained earnings: unappropriated 200,000
Treasury stock at cost 70,000
Net unrealized loss on investment measured at fair value through other comprehensive income 40,000
Net unrealized gain on foreign currency translation adjustment 25,000
Revaluation surplus 280,000
2) The amount that Shokt Company should report as total stockholders’ equity in its December 31, 2021 balance sheet is
A. 2,695,000 B. 2,775,000 C. 2,995,000 D. 2,970,000
3) What is Shokt Company’s contributed capital?

A. 2,200,000 B. 2,130,000 C. 2,350,000 D. 2,280,000
ANSWER: A, A
Subscription receivable (on ordinary shares) (150,000)
Retained earnings: appropriated for uninsured earthquake losses 100,000
Retained earnings: unappropriated 200,000
Treasury stock at cost (70,000)
Net unrealized loss on investment measured at fair value through other comprehensive income (40,000)
Net unrealized gain on foreign currency translation adjustment 25,000
Revaluation surplus 280,000
Total 2,695,000


• J.S. CAYETANO ♣ • • J.S. CAYETANO ♣ • • FEU – MANILA • • SHAREHOLDERS’ • • FIN ACCOUNTING 2 •
Subscription receivable (on ordinary shares) (150,000)
Total 2,200,000

4) The accounts below appear in the December 31, 2019 trial balance of Daimon Company:
Authorized common stock 10,000,000
Unissued common stock 4,000,000
Subscribed common stock 3,000,000
Subscription receivable 1,000,000
Additional paid-in capital (share premium) 4,000,000
Retained earnings – unappropriated 2,000,000
Retained earnings – appropriated 2,500,000
Revaluation increment 1,500,000
Treasury stock at cost 500,000
In its December 31, 2019 balance sheet, Daimon Company should report total equity at
A. 17,500,000 B. 19,500,000 C. 18,500,000 D. 20,000,000
SOLUTION: A
Authorized common stock 10,000,000
Unissued common stock (4,000,000)
Subscribed common stock 3,000,000
Subscription receivable (1,000,000)
Additional paid-in capital (share premium) 4,000,000
Retained earnings – unappropriated 2,000,000
Retained earnings – appropriated 2,500,000
Revaluation increment 1,500,000
Treasury stock at cost (500,000)
Total shareholders’ equity 17,500,000

5) The accounts below appear in the December 31, 2016 trail balance of Klanx Company:
Authorized share capital 30,000,000
Unissued share capital 5,000,000
Subscribed share capital 3,000,000
Subscription receivable 1,000,000
Share premium 10,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 2,000,000
Revaluation surplus 4,500,000
Treasury shares 1,500,000
In its December 31, 2016 statement of financial position, Klanx should report total equity at
A. 58,000,000 B. 49,000,000 C. 48,000,000 D. 43,500,000

SOLUTION: C
Authorized share capital 30,000,000
Unissued share capital (5,000,000)
Subscribed share capital 3,000,000
Subscription receivable (1,000,000)
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 2,000,000
Revaluation surplus 4,500,000
Treasury shares (1,500,000)
Total 48,000,000
6) Hana Company had 700,000 ordinary shares authorized and 300,000 shares outstanding at January 1, 2020. The
following events occurred during 2020.
January 31 Declared 10% stock dividends
June 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November 30 Declared 2-for-1 stock split

• J.S. CAYETANO ♣ • • FEU – MANILA • • SHAREHOLDERS’ • • FIN ACCOUNTING 2 • • PAGE 2 OF 15 •
On December 31, 2020, how many ordinary shares are outstanding?
A. 560,000 B. 600,000 C. 630,000 D. 660,000
SOLUTION: A
Outstanding 1/1 300,000
1/31 share dividend x1.10
6/30 reacquisition (100,000)
8/1 reissuance 50,000
11/30 share split x2
Outstanding 12/31 560,000
7) Regine Company was organized at the beginning of current year with authorized capital of 100,000 shares of P200 par
value. During the year, the entity had the following transactions affecting shareholders’ equity:
• Issued 25,000 shares at P220 per share.
• Issued 1,000 shares for legal services when the fair value was P240 a share.
• Issued 5,000 shares for a tract of land when the fair value was P260 a share.
What amount should be reported for share premium at year-end?

A. 840,000 B. 800,000 C. 540,000 D. 500,000
SOLUTION: A
Consideration received (25,000 x 220) 5,500,000
Consideration received (1,000 x 240) 240,000
Consideration received (5,000 x 260) 1,300,000 7,040,000
Par value of shares (25,000 + 1,000 + 5,000) x 200 (6,200,000)
Share premium 840,000
8) Jose Company began operations on January 1, 2018 by issuing at P15 per share one-half of the 800,000 ordinary
shares of P10 par value that had been authorized for sale. In addition, the entity had 500,000, P5 par value, 6%
preference shares authorized. During 2018, the entity had P1,000,000 net income and declared P200,000 of dividends.
The following transactions relate to 2019:
• Issued an additional 100,000 ordinary shares for P18 per share.
• Issued 150,000 preference shares for P8 per share.
• Authorized the purchase of a custom-made machine to be delivered in January 2020. The entity restricted
P300,000 of retained earnings for the purchase of the machine.
• Sold an additional 50,000 preference shares for P10 per share.
• Reported P2,500,000 of net income and declared a dividend of P800,000 to shareholders of record on January 15,
2020, to be paid on February 1, 2020.
What is the total shareholders’ equity on December 31, 2019?

A. 12,000,000 B. 11,700,000 C. 11,200,000 D. 13,000,000
SOLUTION: A
Date Share Share Share Share Unappropriated Appropriated Treasury Total
capital premium capital premium retained retained shares
ordinary ordinary preference preference earnings earnings
2018
Issuance 4,000,000 2,000,000
Net income 1,000,000
Dividends (200,000)
2019
Issuance 1,000,000 800,000
Issuance 750,000 450,000
Appropriation 300,000 (300,000)
Issuance 250,000 250,000
Income 2,500,000
Dividend (800,000)
Total 5,000,000 2,800,000 1,000,000 700,000 300,000 2,200,000 --- 12,000,000

9) Dunn Company issued 2,500 ordinary shares. The shares have a P2 par value and sold them for P12 per share. During
the current year, Dunn reacquired 1,000 of these shares for P24 per share to be held as treasury, effected a 2-for-1
split, and reissued 500 of treasury shares for P28 per share. Dunn is using the cost method. What is included in the
entry to reissue the treasury shares?
A. A credit to share premium – treasury of P2,000 C. A debit to treasury shares of P24,000
B. A credit to share premium – treasury of P8,000 D. A credit to share capital of P6,000
SOLUTION: B
Consideration received from issuance (2,500 x 12) 30,000
Par value of shares issued (2,500 x 2) (5,000)
Share premium – ordinary shares 25,000
Treasury shares – at cost 1,000 x 24 24,000
Selling price of treasury shares (500 x 28) 14,000

Cost of treasury shares (24,000/2,000 Note 1) x 500 (6,000)
Share premium – treasury 8,000
Cash (500 x 28) 14,000

Treasury shares [(24,000 / 2,000) x 500] 6,000
Share premium – treasury shares (14,000 – 6,000) 8,000
To record the reissuance of treasury shares
Note 1 – the number of treasury shares is doubled due to the share split

10) The shareholders’ equity section of Saito Corporation’s balance sheet at December 31, 2020 was as follows:
Ordinary share (P10 par value, authorized 1M shares issued and outstanding 900,000 shares) 9,000,000
Accumulated Profits and Losses 1,300,000
On January 2, 2021, Saito Corporation purchased and retired 100,000 shares of its stock for P1,800,000. Immediately
after retirement of these 100,000 shares, how much is the balance in the Share Premium and Accumulated Profit?
A. B. C. D.
Share Premium 2,700,000 2,400,000 2,200,000 1,900,000
Retained Earnings 500,000 800,000 1,300,000 1,300,000

SOLUTION: B
Date Share Share Share Treasury Unappropriated
capital premium premium shares retained
ordinary ordinary treasury earnings
Beginning 9,000,000 2,700,000 1,300,000
01/2 (1,000,000) (300,000) (500,000)
8,000,000 2,400,000 200,000 --- 800,000

11) Alligator Company provided the following information on December 31, 2019:
Preference share capital P 3,000,000
Ordinary share capital 5,000,000
Treasury shares – ordinary 500,000
Retained earnings – January 1 4,000,000
Dividends 1,500,000
Sales 9,000,000
Total expenses 7,000,000
What is the total shareholders’ equity?

A. 14,500,000 B. 13,000,000 C. 12,500,000 D. 11,000,000
SOLUTION: B
Retained earnings 1/1 4,000,000
Net income (9,000,000 – 7,000,000) 2,000,000
Dividends (1,500,000)
Preference share capital 3,000,000
Ordinary share capital 5,000,000

Treasury shares – ordinary (500,000)

12) Itik Corporation was incorporated on January 2, 2019. The following information pertaining to Itik’s ordinary share
transactions:
January 2 80,000 shares were authorized
February 1 60,000 shares were issued
July 1 5,000 shares were reacquired but not canceled
December 1 A 2 for 1 stock split took effect
What is the number of shares of Itik ordinary share outstanding at December 31, 2019?
A. 150,000 B. 120,000 C. 115,000 D. 110,000
SOLUTION: D
Issued share 2/1 60,000
Reacquired shares (5,000)
Split X2
Outstanding shares 110,000
Outstanding shares are shares issued and in the hands of shareholders, outstanding shares does not include
treasury shares

13) Jaguar Company issued 50,000 ordinary shares. Of these, 5,000 were held as treasury at December 31, 2019. During
2020, transactions involving the company’s ordinary share capital were as follows:
May 1 3,000 shares of treasury were sold
August 1 10,000 shares of previously unissued share capital were sold
November 1 A 5 for 1 share split took effect
At December 31, 2020, how many ordinary shares were issued and outstanding, respectively?
A. 300,000; 298,000 B. 300,000; 290,000 C. 256,000; 240,000 D. 250,000; 248,000

SOLUTION: B
Issued Outstanding
12/31/19 balance 50,000 45,000
Reissuance --- 3,000
Issuance 10,000 10,000
Split X5 X3
Balance 300,000 290,000

14) The following are Storm Blade Company’s equity accounts at December 31, 2020:
Ordinary share, par value, P10; authorized 200,000 shares; issued and outstanding 120,000 shares 1,200,000
Additional paid-in capital (share premium) 140,000
Retained earnings 720,000
The following transactions occurred in 2021:

• Acquired 2,000 ordinary shares for P30,000.
• Sold 1,200 treasury shares at P18 per share.
• Retired the remaining treasury shares.
What is the total additional paid-in capital on December 31, 2021?

A. 136,000 B. 140,400 C. 143,600 D. 139,600
SOLUTION: D
Date Share Share Share Share Retained Treasury Total
capital premium premium premium earnings shares
ordinary ordinary treasury retirement
Beginning 1,200,000 140,000 720,000
Reacquisition 30,000
Reissuance 3,600 (18,000)
Retirement (8,000) (933) (3,067) -- -- (12,000)
Total 1,192,000 139,067 533 -- -- --
Selling price (1,200 x 18) 21,600

Cost of treasury shares sold (30,000 / 2,000) x 1,200 18,000
Gain on sale (SP – treasury) 3,600

Par value of ordinary shares retired (800 x 10) 8,000
SP – original issuance of ordinary shares retired (140,000 / 120,000) x 800 933
Issuance price of shares retired 8,933
Retirement price (30,000 / 2,000) x 800 (12,000)
Loss on retirement (to be directed to: (1) SP – treasury; (2) Retained earnings 3,067

Use the following information for the next two (2) questions:
The stockholders’ equity for Power Company on December 31 was:
Preference share, P20 par, 60,000 shares issued and outstanding 1,200,000
Share premium in excess of par – preference share 300,000
Ordinary share, P10 par, 300,000 shares issued and outstanding 3,000,000
Share premium in excess of par – ordinary share 600,000
Accumulated profit 2,500,000
Each share of preference is convertible into 1 ordinary share. In June, Power converted 4,000 of preference shares into
ordinary shares.
QUESTIONS:
15) The entry to take up the conversion includes a credit to:
A. Preference share for P80,000 C. Share premium for P60,000
B. Ordinary share for P80,000 D. Accumulated profit for P60,000
16) Assuming that each share of preference is convertible into 4 ordinary shares and Power converted 4,000 preference
shares into ordinary, the entry to take up conversion includes a debit to
A. Preference share for P160,000 C. Accumulated profit for P60,000
B. Ordinary share for P160,000 D. Accumulated profit for P80,000
SOLUTION: C, C
Par value of preference shares converted (4,000 x 20) 80,000
Share premium – original issuance of preference shares converted (300,000/60,000) x 4,000 20,000
Total issue price of preference shares retired 100,000
Total par value of ordinary shares (4,000 x 10) (40,000)
Gain on conversion (SP – ordinary shares) 60,000
Journal Entry:
Share capital – preference share 80,000
Share premium in excess of par – preference 20,000
Share capital – ordinary shares 40,000
Share premium in excess of par – ordinary 60,000
To record the conversion of 4,000 preference shares
Par value of preference shares converted (4,000 x 20) 80,000

Share premium – original issuance of preference shares converted (300,000/60,000) x 4,000 20,000
Total issue price of preference shares retired 100,000
Total par value of ordinary shares (4,000 x 4 x 10) (160,000)
Loss on conversion (to be directed to Retained earnings) 60,000
Journal Entry:
Share capital – preference share 80,000
Share premium in excess of par – preference 20,000
Share capital – ordinary shares 160,000
To record the conversion of 4,000 preference shares

17) On June 1, 2019, Passport Corporation declared a bonus issue entitling its shareholders to one additional share for
each share held. At the time the dividend was declared, the fair value was P10 per share and the par value was P5 per
share. on this date, Passport had 600,000 of ordinary shares outstanding. What entry should Passport make to record
this transaction?
A. Retained earnings 6,000,000 C. Retained earnings 3,000,000
Share dividend distributable 3,000,000 Share dividend distributable 3,000,000
B. Share dividend payable 6,000,000 D. No entry
Share dividend distributable 3,000,000

SOLUTION: A
Outstanding ordinary 600,000
Share bonus 100%
Share dividend 600,000
Fair value 10
Retained earnings 6,000,000
Par value of the 600,000 shares (600,000 x 5) (3,000,000)

18) The directors of Hand Corporation, whose P50 par value ordinary share is currently selling at P70 per share, have
decided to declare a bonus issue. Hand has an authorization for 250,000 ordinary shares, has issued 100,000 shares
of which 10,000 are now held as treasury, and desires to capitalize P945,000 of the Retained earnings balance. To
accomplish this, the percentage of bonus issue that the directors should declare is
A. 18.9% B. 15.0% C. 12.0% D. 9.0%
SOLUTION: B
Outstanding shares (100,000 – 10,000) 90,000
Percentage of dividend SQUEEZE 15%
Share dividend 13,500
Fair value/par value per share 70
Deduction to the retained earnings 945,000

19) Hero Co. had outstanding 20,000 shares of P100 par value 8% cumulative preference share capital and 30,000 shares
of P50 par value ordinary share capital on December 31, 2019. At December 31, 2019, dividends in arrears on the
preference shares were P80,000. Cash dividends declared in 2020 total P300,000. The amount paid to preference
shares and ordinary shareholders are
Preference Ordinary Preference Ordinary
A. 80,000 220,000 C. 220,000 80,000
B. 160,000 140,000 D. 240,000 60,000
SOLUTION: D
Dividend declared 300,000
Dividends to preference – basic + in arrears [(20,000 x 100 x 8%) + 80,000] 240,000
Remaining for the ordinary 60,000
20) Ayer Company reported the following in its statement of shareholders’ equity on January 1, 2019:
Ordinary share capital, P5 par value, 200,000 shares authorized; 100,000 shares issued 500,000
2,516,000
Less: treasury shares, 5,000 shares at cost 40,000
The following events occurred in 2019:

May 1 1,000 treasury shares were sold for P10,000.
July 9 10,000 shares of previously unissued ordinary shares were sold for P12 per share.
October 1 The distribution of a 2-for-1 share split resulted in the ordinary share’s par value being halved.
How many shares are issued and outstanding at December 31, 2019?
Issued Outstanding Issued Outstanding
A. 220,000 216,000 C. 110,000 106,000
B. 220,000 212,000 D. 100,000 95,000
SOLUTION: B
Shares issued 1/1/19 100,000
July 9 shares issued 10,000
Share split x2
Total shares issued 12/31/19 220,000
Shares outstanding 1/1/19 (100,000 – 5,000) 95,000

Reissuance 1,000

Issuance 10,000
Share split x2
Total shares outstanding 212,000
21) Dream Company declared 5% share dividend on 100,000 issued and outstanding shares of P20 par value, which had a
fair value of P50 per share before the share dividend was declared. This share dividend was distributed 60 days after
the declaration date. What is the increase in current liabilities as a result of the stock dividend declaration?
A. 250,000 B. 100,000 C. 150,000 D. 0
SOLUTION: D
Share dividend is not a liability, instead a adjunct equity account.
22) Aha Company declared and distributed 10% share dividend with fair value of P1,500,000 and par value of P1,000,000,
and 25% share dividend with fair value of P4,000,000 and par value of P3,500,000. What aggregate amount should be
debited to retained earnings for the share dividends?
A. 4,500,000 B. 3,500,000 C. 5,000,000 D. 5,500,000
SOLUTION: C
10% small share dividend (fair value) 1,500,000
25% large share dividend (par value) 3,500,000
Total 5,000,000
23) On September 30, 2022, Limbo Company issued 4,000 shares with P100 par value in connection with a share
dividend. The market value per share on the date of declaration was P150. The shareholders’ equity before issuance of
the share dividend was as follows:
Share capital, P100 par, 20,000 shares outstanding 2,000,000
What is the retained earnings balance immediately after the share dividend?
A. 1,100,000 B. 1,500,000 C. 2,100,000 D. 900,000
SOLUTION: A
Retained earnings balance before share dividend 1,500,000
20% (4,000/20,000) large share dividend (4,000 x 100) (400,000)
Retained earnings balance after share dividend 1,100,000
24) Ignition Company reported the following capital accounts at year-end:

Share capital, par P25, authorized 150,000 shares, 55,000 shares issued of which 5,000 shares are
in treasury 1,375,000
Treasury shares, at cost 150,000
The share was selling at P40 at this time. A 100% share dividend was declared and that all the treasury shares were
issued as share dividends and the balance from the unissued shares. What amount of retained earnings should be
capitalized?
A. 1,250,000 B. 1,800,000 C. 1,275,000 D. 1,125,000
SOLUTION: C
Cost of treasury shares 150,000
100% large share dividend [(50,000 x 100%) – 5,000] x 25 1,125,000
Total 1,275,000
25) On January 1, 2022, Down Company had 220,000 P5 par value shares outstanding. On June 1, the entity acquired
20,000 shares to he be held in the treasury. On December when the market price of the share was P20, the entity
declared a 10% share dividend to be issued to shareholders of record on December 16, 2022. What was the impact of
the share dividend on retained earnings?
A. 100,000 decrease B. 400,000 decrease C. 440,000 decrease D. none
SOLUTION: B
Outstanding shares (220,000 – 20,000) 200,000
Share dividend 10%

Number of share dividend 20,000
Fair value (since small share dividend) 20
Total reduction to retained earnings 400,000
26) Brokenhearted Company reported the following shareholders’ equity on January 1, 2022:
Share capital, P20 par, authorized 200,000 shares, issued and outstanding 100,000 shares 2,000,000
On March 1, 2022, the board of directors declared a 15% share dividend, and accordingly 15,000 additional shares
were issued. On March 1, 2022, the fair value of the share was P60. The entity sustained a net loss of P1,000,000 for
the current year. What amount should be reported as retained earnings on December 31, 2022.
A. 5,600,000 B. 6,200,000 C. 6,600,000 D. 7,200,000
SOLUTION: A
Share dividend (15,000 x 60) (900,000)
Net loss (1,000,000)
27) Millionaire Company provided the following information:

Preference share capital, P500 par value, 2,200 shares 1,100,000
Treasury preference shares, 100 share at cost 110,000
Ordinary shares capital, no par, 3,000 shares at issue price 600,000
The board of directors resolved to pay a 100% share dividend on all shares outstanding capitalizing amounts of
retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding,
respectively. Subsequently, the board of directors resolved to pay a cash dividend of 10% on preference share and a
cash dividend of P10 per ordinary share. what is the shareholders’ equity after effecting the dividend transactions?
A. 4,090,000 B. 3,810,000 C. 3,820,000 D. 3,955,000
SOLUTION: C
Shareholders’ equity before dividend 4,090,000
Cash dividend P.S. (2,100 x 200% x 500 x 10%) (210,000)
Cash dividend O.S. (3,000 x 200% x P10) (60,000)
Shareholders’ equity after dividend 3,820,000

28) Chain Company provide the following information:
• Dividends on 10,000 cumulative preference shares of 6% P100 par value have not been declared or paid for 3
years.
• Treasury shares were acquired at a cost of P1,500,000. The treasury shares had not been reissued as of year-end.
What amount of retained earnings should be appropriated?

A. 1,500,000 B. 1,680,000 C. 180,000 D. 0

SOLUTION: A
Cost of treasury shares not reissued 1,500,000

29) Rock Company reported the following shareholders equity on December 31, 2022:
Share capital, P50 par value 3,000,000
A 15% share dividend was declared and distributed on December 31, 2022 when entity’s share was selling at P65.
What amount should be reported as share capital outstanding?
A. 3,450,000 B. 3,585,000 C. 3,615,000 D. 4,185,000

SOLUTION: A
Share capital 3,000,000
Share dividend 115%
Share capital outstanding 3,450,000


30) True Company reported the following shareholders’ equity on January 1, 2022:
Share capital, P5 par, 600,000 share authorized, 200,000 shares issued and outstanding 1,000,000
On January 31, 2022, the entity reacquired 10,000 shares at P30 per share to be held as treasury. On July 1, 2022, the
entity declared and issued a 30% stock dividend. On December 31, 2022, the entity declared and paid cash dividend
of P10 per share. The net income for the current year was P3,000,000. What is the unappropriated balance of retained
earnings on December 31, 2022?
A. 2,745,000 B. 3,045,000 C. 2,700,000 D. 2,600,000

SOLUTION: A
Retained earnings balance 2,800,000
Share dividend (200,000 – 10,000 x 30%) x 5 (285,000)
Cash dividend (200,000 – 10,000 x 130% x P10) (2,470,000)
Net income 3,000,000
Appropriation for treasury shares (300,000)
Total unappropriated 2,745,000

31) Bad Blood Company issued share capital of 20,000 shares with P5 par at P10 per share. On January 1, 2022, the
retained earnings were P300,000. In March 2022, the entity reacquired 5,000 shares at P20 per share. In June 2022,
the entity sold 1,000 of these shares to corporate officers for P25 per share. The cost method is used to record
treasury shares. Net income for 2022 was P60,000. On December 31, 2022, what amount should be reported as
unappropriated retained earnings?
A. 280,000 B. 365,000 C. 375,000 D. 360,000

SOLUTION: A
Retained earnings beginning balance 300,000
Net income 60,000
Appropriation for treasury shares (4,000 x 20) (80,000)
Total unappropriated 280,000

Use the following information for the next four (4) questions:
Passenger Company reported the following shareholders’ equity on December 31, 2022:
Preference share capital – 10% noncumulative, participating, P100 par, issued 5,000 shares 500,000
Preference share capita – 12% cumulative, participating, P100 par, issued 10,000 shares 1,000,000
Ordinary share capital, P50 par, issued 30,000 shares 1,500,000
The entity for the first time plans to declare cash dividend. The entity has not paid a cash or share dividend before. There
has been no change in the capital account since the entity started operations. The entity reported the following net income
for loss:
2018 300,000 loss
2019 200,000 loss
2020 100,000 loss
2021 350,000 income
2022 1,260,000 income
32) What is the maximum dividend that can be declared on December 31, 2022?
A. 1,010,000 B. 1,100,000 C. 1,610,000 D. 1,000,000
33) If the maximum amount of dividend was declared, what amount of dividend the 10% preference shares will receive?
A. 85,000 B. 250,000 C. 35,000 D. 50,000
34) If the maximum amount of dividend was declared, what amount of dividend the 12% preference shares will receive?
A. 600,000 B. 70,000 C. 465,000 D. 670,000
35) If the maximum amount of dividend was declared, what amount of dividend the ordinary shares will receive?
A. 150,000 B. 105,000 C. 495,000 D. 255,000

SOLUTION: A, A, D, D
Retained earnings 1/1/18 0
2018 loss (300,000)
2019 loss (200,000)
2020 loss (100,000)
2021 income 350,000
2022 income 1,260,000
Retained earnings 12/31/22 1,010,000

10% 8%
Ordinary Preference Preference Total
Balance of retained earnings 1,010,000
a. Basic dividend 150,000 50,000 600,000 (800,000)
b. Participation 105,000 35,000 70,000 210,000
Total 255,000 85,000 670,000
36) Maroon Company reported the following shareholders’ equity on December 31, 2022:
Preference share capital, 12% cumulative, 3 years in arrears, and participating, P100 par, 15,000 shares 1,500,000
Ordinary share capital, P100 par, 20,000 shares 2,000,000
Subscribed ordinary share capital, net of subscription receivable of P400,000 600,000
Treasury ordinary shares, 5,000 at cost 400,000
What is the book value per ordinary share?

A. 160 B. 192 C. 176 D. 208

SOLUTION: C
Preference share capital, 12% cumulative, 3 years in arrears, and participating, P100 par, 15,000 shares 1,500,000
Subscribed ordinary share capital, gross 1,000,000
Treasury ordinary shares, 5,000 at cost (400,000)
Total shareholders’ equity excluding subscription receivable 6,440,000
a. Return of capital of preference (1,500,000)
b. Dividend of preference (1,500,000 x 12% x 3) (540,000)
Remaining for ordinary 4,400,000
Outstanding and subscribed (20,000 – 5,000 + 10,000) 25,000
Book value per share 176
37) Peas Company reported the following shareholders’ equity on December 31, 2022:
Preference share capital, 10% cumulative, P100 par, 40,000 shares 4,000,000
Subscribed ordinary share capital, net of subscription receivable of P1,500,000 2,000,000
Treasury ordinary share, 20,000 shares at cost 1,200,000
Preference dividend have not been paid for 3 years and the preference share has a P110 liquidation price. What is the
book value per ordinary share?
A. 103.89 B. 85.00 C. 69.26 D. 74.80

SOLUTION: D
Preference share capital, 10% cumulative, P100 par, 40,000 shares 4,000,000
Subscribed ordinary share capital, gross 3,500,000
Treasury ordinary share, 20,000 shares at cost (1,200,000)
Total shareholders’ equity excluding subscription receivable 24,300,000
a. Return of capital (40,000 x 110) (4,400,000)
b. Dividend for P.S. (4,000,000 x 10% x 3) (1,200,000)
Remaining for ordinary shareholders 18,700,000
Outstanding and subscribed ordinary (200,000 – 20,000 + 70,000) 250,000
Book value per share 74.8

38) Showtime Company had the following ordinary share activity during the current year:
Shares
January 1 Outstanding 500,000
March 1 New shares issued 60,000
June 1 2 for 1 split 560,000
November 1 Treasury shares acquired 48,000
The entity had 200,000 cumulative preference shares of P20 par value outstanding throughout the year. The preference
dividend rate is 10%. The entity reported a net income of P5,860,000 for the current year. What is the basic earnings
per share?
A. 5.00 B. 4.93 C. 5.04 D. 5.05
SOLUTION: A
1/1 500,000 x 12/12 x 2 1,000,000
3/1 60,000 x 10/12 x 2 100,000
11/1 48,000 x 2/12 (8,000)
Weighted average 1,092,000

BASIC EARNINGS PER SHARE
(net income – preference share dividend) 5,860,000 – (200,000 x 20 x 10%)
5.00
weighted average outstanding ordinary 1,092,000
39) Safeguard Company reported the following capital structure on January 1, 2022:
Shares issued and outstanding
Ordinary share capital 200,000
Preference share capital 50,000
On October 1, 2022, the entity issued a 10% stock dividend on ordinary shares and paid the annual cash dividend of
P200,000 on preference shares. The preference shares is noncumulative, nonparticipating and nonconvertible. The net
income for the current year was P1,920,000. What amount should be reported as basic earnings per share?
A. 8.20 B. 8.72 C. 9.36 D. 7.82
SOLUTION: D
(net income – preference share dividend) 1,920,000 – (200,000)
7.82
weighted average outstanding ordinary 220,000
Use the following information for the next three (3) questions:
Bringmeout Corporation reported profit for 2020 of P177,500. Bringmeout began the year with 100,000 shares of P5 par
value ordinary shares outstanding and 2,500 shares of P100 par value 8% preference shares outstanding. On October 1,
Bringmeout sold 10,000 shares of ordinary shares for P6 per share. Bringmeout paid dividends to both the ordinary and
preference shareholders in December.
40) The weighted average number of ordinary shares to be used in the computation of basic earnings per share for 2020 is
A. 100,000 B. 102,500 C. 105,000 D. 110,000
41) How much is the basic earnings per share for 2020?
A. 1.43 B. 1.50 C. 1.54 D. 1.73
42) If each preference share is convertible into 8 ordinary shares, what is the diluted earnings per share for 2020?
A. 1.29 B. 1.45 C. 1.54 D. 1.73
SOLUTION: B, C, B
1/1 Outstanding at beginning 100,000
10/1 10,000 x 3/12 2,500
Outstanding at year end 102,500
1/1 150,000 x 12/12 150,000

7/1 15,000 x 6/12 7,500
11/1 15,000 x 2/12 2,500
Weighted average 160,000


(net income – preference share dividend) 177,500 – (2,500 x 100 x 8%)
1.54

DILUTER 1: CONVERTIBLE PREFERNECE
Net income 177,500
1.45
Weighted average outstanding ordinary + potential 102,500 + (2,500 x 8)
43) Bianca Company had the following capital during 2020:

Preference share capital, P100 par, 10% cumulative, 30,000 shares 3,000,000
The entity reported net income of P4,000,000 for the current year. There are no preference dividends in arrears on
December 31, 2018. The entity paid no preference dividends during 2019 and paid P500,000 in preference dividends
during 2020. What amount should be reported as basic earnings per share for 2020?
A. 74 B. 80 C. 70 D. 68
SOLUTION: A
(net income – preference share dividend) 4,000,000 – (3,000,000 x 10%)
74
44) Buda Corp. had P500,000 net income in 2022. On January 1, 2022, there were 200,000 shares of ordinary
outstanding. On April 1, 20,000 shares were issued and on September 1, bought 30,000 shares of treasury share.
there are 30,000 options to buy ordinary shares at P40 per share. The market price of the ordinary shares averaged
P50 during 2022. The tax rate is 40%.
During 2022, there were 40,000 shares of cumulative preferred stock outstanding. The preferred is P100 par, pays
dividend of P3.50 per year, and is convertible into three shares of ordinary.
Buda issued P2,000,000 of 8% convertible bonds at face value during 2021. Each P1,000 bonds is convertible into 30
shares of ordinary.
How much is the diluted earnings per share for 2022?

A. 1.71 B. 1.68 C. 1.54 D. 1.51
SOLUTION: D
1/1 200,000 x 12/12 200,000
4/1 20,000 x 9/12 15,000
9/1 30,000 x 4/12 (10,000)
Total weighted average outstanding ordinary 205,000

(net income – preference share dividend) 500,000 – 140,000
1.76
DILUTER TEST 1: SHARE OPTIONS (RANK 1)

increase in numerator (zero) 0
0.00
increase in denominator (incremental share) {30,000 – [(30,000 x 40)/50]}
DILUTER TEST 2: CONVERTIBLE PREFERENCE SHARE (RANK 2)

increase in numerator (P.S. dividend) 140,000
1.17
increase in denominator (potential ordinary) 120,000
DILUTER TEST 3: CONVERTIBLE BONDS (RANK 3)

increase in numerator (interest expense net of tax) 2,000,000 x 8% x 60%
1.6
increase in denominator (potential ordinary) 60,000
UPON BRINGING THE RANK 1

500,000 – 140,000 1.71

205,000 + 6,000
UPON BRINGING THE RANK 2

500,000 – 140,000 + 140,000
1.51
205,000 + 6,000 + 120,000

UPON BRINGING THE RANK 3 (NOT DILUTER)
500,000 – 140,000 + 140,000 + 96,000 1.52
205,000 + 6,000 + 120,000 + 60,000
45) Marynit Company provided the following share transaction for the current year:
January 1 Shares outstanding 44,000
February 1 Issued for cash 56,000
May 1 Acquired treasury shares 25,000
August 1 25% stock dividend
September 1 Resold treasury shares 10,000
November 1 Issued 3 for 1 share split
What is the weighted average number of shares for EPS computation?

A. 305,000 B. 307,500 C. 103,750 D. 311,250
SOLUTION: A
1/1 44,000 x 12/12 x 1.25 x 3 165,000
2/1 56,000 x 11/12 x 1.25 x 3 192,500
5/1 25,000 x 8/12 x 1.25 x 3 (62,500)
9/1 10,000 x 4/12 x 3 10,000
Total 305,000
Use the following information for the next three (3) numbers:
Hild Company reported the following data at December 31, 2016:
• Profit for the year – P3,464,000
• Ordinary share capital, P100 par – P2,500,000
• 10% Bonds payable (issued prior to 2016) – P1,000,000
The bonds are convertible into ordinary shares in the ratio of 10 ordinary shares for each P1,000 bond. The income tax rate
is 30%.
46) What is the basic earnings per share?

A. 141.28 B. 138.56 C. 100.91 D. 98.97
47) What is the diluted earnings per share?

A. 141.28 B. 138.56 C. 100.97 D. 98.97
48) Assuming that the 10% bonds payable were issued on July 1, 2016, what is the diluted earnings per share?
A. 117.63 B. 116.63 C. 100.97 D. 99.90

SOLUTION: B, C, B
(net income – preference share dividend) 3,464,000
138.56

DILUTER 2
Net income 3,464,000 + (1,000,000 x 10% x 70%)
100.97
Weighted average outstanding ordinary + potential 25,000 + (1,000,000/1,000 x 10)

DILUTER 2
Net income 3,464,000 + (1,000,000 x 10% x 70% x6/12)
116.63
Weighted average outstanding ordinary + potential 25,000 + (1,000,000/1,000 x 10 x 6/12)
49) Japan company reported the following data at December 31, 2021:
Net income for the year 2021 3,700,000
Ordinary share, P100 par 2,500,000

10% bonds payable (issued prior to 2021) 1,000,000
The bonds are convertible into ordinary shares in the ratio of 5 ordinary shares for each P1,000 bond. The income tax
rate is 35%. What is the diluted earnings per share?
A. 148 B. 125.50 C. 126.67 D. 150.60
SOLUTION: B
DILUTER 2: CONVERTIBLE BONDS
Net income – PS dividend + interest expense net of tax 3,700,000 + (1,000,000 x 10% x 65%) 125.5
Weighted average outstanding ordinary + potential 25,000 + 5,000
50) Filipina Company provided the following extract from the statement of comprehensive income for the year ended
December 31, 2020:
Income before tax 6,000,000
Income tax expense 1,800,000
The entity paid during the year an ordinary dividend of P1,000,000 and a dividend on the redeemable preference shares
of P500,000. The entity had P1,000,000 of P5 par value ordinary shares in issue throughout the year and 500,000
authorized ordinary shares. What amount should be reported as basic earnings per share for the year?
A. 30.00 B. 27.50 C. 21.00 D. 18.50
ANSWER: C
(net income – preference share dividend) 6,000,000 – 1,800,000
21
The preference share is redeemable, therefore the payment is considered as interest payment rather than dividends.


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FINANCIAL ACCOUNTING & REPORTING 2

3) What is Shokt Company’s contributed capital?

8% preference stock (preference shares), P100 par 900,000

What amount should be reported for share premium at year-end?

What is the total shareholders’ equity on December 31, 2019?

Treasury shares – at cost 1,000 x 24 24,000

Selling price of treasury shares (500 x 28) 14,000

Cash (500 x 28) 14,000

What is the total shareholders’ equity?

The following transactions occurred in 2021:

What is the total additional paid-in capital on December 31, 2021?

Selling price (1,200 x 18) 21,600

Par value of preference shares converted (4,000 x 20) 80,000

The following events occurred in 2019:

Shares outstanding 1/1/19 (100,000 – 5,000) 95,000

24) Ignition Company reported the following capital accounts at year-end:

27) Millionaire Company provided the following information:

What amount of retained earnings should be appropriated?

What is the book value per ordinary share?

1/1 150,000 x 12/12 150,000

43) Bianca Company had the following capital during 2020:

How much is the diluted earnings per share for 2022?

BASIC EARNINGS PER SHARE

DILUTER TEST 1: SHARE OPTIONS (RANK 1)

DILUTER TEST 2: CONVERTIBLE PREFERENCE SHARE (RANK 2)

DILUTER TEST 3: CONVERTIBLE BONDS (RANK 3)

UPON BRINGING THE RANK 1

UPON BRINGING THE RANK 2

What is the weighted average number of shares for EPS computation?

46) What is the basic earnings per share?

47) What is the diluted earnings per share?

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