Chapter 5

CORPORATIONS – FORMATION AND OPERATION

PROBLEM 5-1
a.
MATT Corporation
Stockholders’ Equity of the Balance Sheet
July 31, 20 -

6% Preferred Stock, par P10, authorized 20,000 shares

issued 5,000 shares…………………………………P 50,000
Subscribed Preferred Stock………………P20,000
Less-Subscriptions Receivable-Preferred… 15,000 5,000 P 55,000
Common Stock, par P10, authorized 100,000 shares
issued 8,000 shares…………………………………P 80,000
Subscribed Common Stock……………….P40,000
Less-Subscriptions Receivable - Common 10,000 30,000 110,000
Paid-in Capital In Excess of par - Preferred….. 5,000

Total Stockholders’ Equity…………………… P170,000

b. The total contributed capital is P170,000

PROBLEM 5-2
Journal entries:
Jan 2 Subscriptions Receivable 1,875,000
Cash / Assets 625,000
Subscribed Common Stock 2,500,000
25% of P10,000,000; 25% of P2,500,000
10 Subscriptions Receivable -Feb 2 78,750
Subscriptions Receivable -Mar 2 78.750
Cash 157,500
Subscribed Common Stock 300,000
Paid-in Capital in Excess of Par 15,000
3,000 shares subscribed at 105;1/2 down
15 Organization Costs 1,200
Common Stock 1,000
Paid-in Capital In Excess of Par 200
10 shares issued for incorporation fees
16 Land 120,000
Common Stock 100,000
Paid-in Capital In Excess of Par 20,000
Land worth P120,000 for 1,000 shares

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Computation of total stockholders’ equity :
Common Stock, 1,010 shares issued P101,000
Add: Subscribed , 28,000 shares P2,800,000
Less-Subscriptions Receivable 2,032,500 767,500
Paid-in Capital In Excess of Par 35,200
Total Stockholders’ Equity P 903,700

PROBLEM 5-3

CORRECTION: ADD TO 1) LAND WORTH P2,500,000

a) Recording no-par shares at issue price -

Land 2,500,000
Inventories 90,000
Equipment 100,000
Machinery 100,000
Common Stock, no-par 2,790,000
Issued 500,000 no-par shares for various assets
Cash 3,000,000
Common Stock, no-par 3,000,000
500,000 shares sold at P6 per share
b) Recording no-par shares at stated value fixed
by the board of directors -
Land 2,500,000
Inventories 90,000
Equipment 100,000
Machinery 100,000
Common Stock, P5 stated value 2,500,000
Paid-in Capital in Excess of Stated Value 290,000
500,000 shares at stated value of P5 issued
Cash 3,000,000
Common Stock, P5 stated value 2,500,000
Paid-in Capital in Excess of Stated Value 500,000
Issued 500,000 shares at P6 per share

c)
RMM Corporation
Balance Sheet
July 1, 20 -
Assets Stockholders’ Equity
Current Assets: Common Stock, no-par, authorized
Cash………………………………P3,000,000 1,000,000 shares, stated value P5
Inventories……………………….. 90,000 1,000,000 shares……P5,000,000
Total current assets……………..P3,090,000 Paid-in Capital In Excess
Land…………………….P2,500,000 of stated value……… 790,000
Equipment……………… 100,000

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Machinery……………… 100,000 2,700,000
Total Assets…………………………P5,790,000 Total Stockholders’ Equity P5,790,000

PROBLEM 5-4

CORRECTION: DELETE WONDA, CORPORATION’S NAME IS

BIG FIVE CORPORATION

a) Adjusting and closing the partnership books -

1)
Inventories 20,000
Prepaid Expenses 1,000
Accrued Expenses 2,000
Ado, Capital 12,667
Boni, Capital 6,333
To adjust the books

2)
Stocks of Big Five Corporation 1,419,000
Accounts Payable 200,000
Accrued Expenses 2,000
Allowance for Doubtful Accounts 40,000
Accumulated Depreciation 60,000
Cash and Cash Equivalent 150,000
Accounts Receivable 220,000
Inventories 450,000
Prepaid Expenses 1,000
Furniture and Equipment 900,000
To transfer net assets for shares of stock

3)
Ado, Capital 812,667
Boni, Capital 606,333
Stock of Big Five Corporation 1,419,000
Shares of Big Five Corporation distributed

b) Entries on the books of corporation -

150,000
1) Cash and cash equivalents
Accounts receivable 220,000
Inventories 450,000
Prepaid Expenses 1,000
Furniture and equipment 900,000
Goodwill 81,000
Allowance for doubtful accounts 40,000

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 Accumulated depreciation 60,000
Accounts payable 200,000
Accrued expenses 2,000
Common stock 1,500,000
P1,500,000 - P1,419,000 = P81,000 goodwill

2) 1,200,000
Land
Cash 500,000
Organization Costs 150,000
Common Stock 1,600,000
Paid-in Capital in Excess of Par 250,000
Issued 160,000 shares for land, cash, and services

c)
Big Five Corporation
Balance Sheet
July 1, 20X0
Assets Liabilities & Stockholders’ Equity
Current Assets: Current Liabilities:
Cash and cash equivalents………… P650,000 Accounts Payable…………..P200,000
Accounts Receivable…….P220,000 Accrued Expenses………….
2,000
Less-Allowance for doubtful Total current liabilities……P
202,000
accounts…………… 40,000 180,000 Stockholders’ Equity
Inventories…………………………. 450,000 Common Stock, P10 par.
Prepaid expenses…………………… 1,000 authorized 500,000 shares,
Total current assets……………….P1,281,000 issued, 310,000 shares……3,100,000
Furniture & equipment……P 900,000 Paid-in Capital in Excess
Less-Accumulated depre- of Par…………………… 250,000
ciation………………. 60,000
Net book value…………….P840,000
Land……………………….1,200,000 2,040,000

Organization Costs…………P150,000
Goodwill…………………… 81,000 231,000 Total Liabilities & Stock-
Total Assets…………………………P3,552,000 holders’ Equity………….P3,552,000

PROBLEM 5-5

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CORRECTION : 6% PREFERRED SHARES……..P2,000,000

a) Earnings per share

1) Preferred shares are not convertible:
Net income………………………………………….P200,000
Less- Allocated to preferred (P2,000,000 X .06)…… 120,000
Amount allocated to common………………………P 80,000
Divided by common outstanding shares………… .. 100,000
Basic earnings per share……………………………P 0.80
2) Preferred shares are convertible into 2 common per share:
Net income………………………………………….P 200,000
Preferred shares outstanding:
P2,000,000 / P100 = 20,000 x 2 = 40,000
Common shares before conversion 100,000 140,000 shares total
Diluted earnings per share P200,000/140,000 = P1.428
b) Dividend per share
Preferred shares are non-cumulative and non-participating:
Preferred Common
6% of P2,000,000 P120,000
Remainder to common (P300,000 - P120,000) P180,000
Dividend per share P6.00 P1.80
c) Book value per share, assuming that preferred is non-cumulative and non-
participating -
Preferred Common
Capital stock…………………………………P2,000,000 P5,000,000
Retained earnings…………………………… 120,000 180,000
Total………………………………………… P2,120,000 P5,180,000
Outstanding shares…………………………. 20,000 100,000
Book value per share……………………….. P106.00 P53.80

PROBLEM 5-6

a) Number of shares to be issued each partner-

Net assets before adjustment (P3,340,000 - P551,000 ) = P2,789,000
Adjustments:
Receivables…………………………(50,000)
Inventories………………………….200,000
Equipment………………………….( 50,000)
Prepaid expenses…………………… 3,000
Accrued expenses…………………..( 1,000) 102,000
Net assets after adjustment…………………………………P2,891,000

Divided among the partners as follows:

Cucio P600,000 + P102,000 x .2 = P620,400/P10 = 62,040 shares
Cuenco P900,000 + P102,000 x .3 = 930,600/P10 = 93,060 “

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 Cinco P1,289,000 + P102,000 x .5 = 1,340,000/P10 = 134,000 “
b) Journal entries on the books of the corporation (assume that P50,000 Allowance for
doubtful accounts exists on the books of the partnership before adjustment)
1) Cash………………………………….P 240,000
Receivables………………………….. 850,000
Inventories…………………………… 1,300,000
Equipment…………………………… 1,150,000
Prepaid Expenses……………………. 3,000
Allowance for doubtful accounts… P 100,000
Accrued expenses………………… 7,000
Accounts payable………………… 545,000
Common stock…………………… 2,891,000
Issued 289,100 shares for net assets transferred
2) Cash…………………………………. 1,000,000
Common stock ………………….. 1,000,000
Issuance of 100,000 shares to Dino and Duena
3) Organization costs………………….. 13,000
Common stock…………………. 10,000
Cash…………………………….. 3,000
Registration fee paid and legal expenses during incorporation

c)
TriCDD
Balance Sheet
January 10, 20 -

Assets Liabilities & Stockholders’ Equity

Current Assets: Current Liabilities:
Cash………………………………..P1,237,000 Accounts payable………P545,000
Receivables………………..P850,000 Accrued expenses………. 7,000
Less-Allowance for doubtful Total Current Liabilities P 552,000
accounts……………… 100,000 750,000 Stockholders’ Equity:
Inventories…………………. 1,300,000 Common Stock, P10 par,
Prepaid expenses………….. 3,000 authorized, 1,000,000 shares
Total current assets……… P3,290,000 issued 390,100 shares P3,901,000
Equipment……………………. 1,150,000
Organization costs ……….. 13,000
Total Liabilities & Stock-
Total Assets…………………………. P4,453,000 holders’ Equity………..P4,453,000

PROBLEM 5-7

a) Journal entries -
1) Treasury Stock-Common 60,000

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 Cash 60,000
20,000 shares purchased
2) Cash 20,000
Treasury Stock-Common 15,000
Paid-in Capital from Sale of Treasury Stock 5,000
5,000 treasury shares sold
3) Cash 315,000
Preferred Stock 300,000
Paid-in Capital In Excess of Par-Preferred 15,000
3,000 preferred shares sold at 105
4) Cash 2,650,000
Common Stock 2,500,000
Paid-in Capital In Excess of Par-Common 150,000
50,000 shares issued at P53
5) Dividends Declared 907,500
Dividends Payable 907,500
Preferred: 125,000 + 3,000 = 128,000 X P5 =P640,000
Common: 500,000 + 50,000 = 550,000 - 15,000 =
535,000 X P.50
=P267,500
6) Dividends Payable 907,500
Cash 907,500
Payment of dividends

c)
Robina, Inc.
Stockholders’ Equity
December 31, 20 -
5% Preferred Stock, P100 par (200,000 shares authorized
128,000 shares issued…………………………………..P12,800,000
Common Stock, P50 par (1,000,000 shares authorized,
550,000 shares issued of which 15,000 are in the
Treasury)……………………………………………… 27,500,000
Paid-in Capital in Excess of Par - Preferred….P1,140,000
Paid-in Capital in Excess of Par - Common….. 5,150,000
Paid-in Capital From Sales of Treasury Stock-
Common………………… 5,000 6,295,000
Retained Earnings………………………………………….. 7,092,500
Total………………………………………………………P 53,687,500
Less- Treasury Stock- Common, 15,000 shares at cost …. 45,000
Total Stockholders’ Equity……………………………….P 53,642,000

c) Book value per share - assuming preferred shares are non-cumulative and non-
participating -
Preferred Common
Capital stock……………………………………….P12,800,000 P27,500,000

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 Additional paid-in capital………………………….. 1,140,000 5,155,000
Retained earnings:
5% to preferred (12,800,000 X .05)……….. 640,000
remainder to common………………………
6,452,000
Treasury shares, 15,000 common at P3…………… (45,000)
Total………………………………………………..P14,580,000 P39,062,500
Divided by outstanding number of shares…………. 128,000 535,000 sh
Book value per share………………………………. P113.906 P73.014

PROBLEM 5-8

a) Stock Dividends Declared………………………..567,100

Stock Dividends Distributable-Common……. 535,000
Paid-in Capital from Stock Dividends-Common 32,100
535,000 sh X .02 = 10,700 X 53 = 567,100
b) Stock dividends distributable shown in the stockholders’ equity section -
5% Preferred Stock, P100 par…….. P12,800,000
Common Stock, P50 par………….. 27,500,000
Stock dividends distributable in January……………………… 535.000
Paid-in Capital in Excess of Par-Preferred………….P1,140,000
Paid-in Capital in Excess of Par-Common…………. 5,150,000
Paid-in Capital From Sale of Treasury Stock………. 5,000
Paid-in Capital From Common stock dividend…….. 32,100 6,327,100
Retained Earnings………………………………….. 6,525,400
Total………………………………………………… P53,687,500
Less- Treasury Stocks-Common, 15,000 shares at cost 45,000
Total Stockholders’ Equity…………………………. P53,642,500

PROBLEM 5-9

CORRECTION: Assets should be current and plant ;

EXCESS OF ISSUE PRICE OVER PAR…..P1,000,000;
RETAINED EARNINGS…..P1,995,000;
10% STOCK DIVIDENDS.

a) Number of shares to be issued as stock dividends -

500,000 shares issued
13,000 shares in the treasury
487,000 shares outstanding
10% % of stock dividend
48,700 shares to be issued as stock dividend

b) Computation of amount to be debited to Retained Earnings -

48,700 shares X P25 = P1,217,500 10% as stock dividend is considered small
and therefore selling price per share is the multiplier and not the par value.

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 P1,995,000 - 1,217500 = P777,500

PBM Corporation
Balance Sheet
December 31, 20X0

Assets Liabilities & Stockholders’ Equity

Current assets……………..P6,250,000 Current liabilities……………P1,250,000
Plant assets………………..12,300,000 Long-term Debt…………….. 4,500.000
Total liabilities………………
P5,750,000
Stockholders’ Equity
Common stock, P20 par, authorized
1,000,000 shares, issued 500,000
shares (13,000 shares in
treasury)P10,000,000
Stock dividends to be issued Jan.
974,000 Excess of issue price over par…
1,000,000
Paid-in capital from stock dividends 243,500
Retained earnings………………
777,500
Total……………………………P12,995,000
Less- Treasury stock 13,000 at
cost…………………… 195,000
Total stockholders’ equity……P12,800,000
Total liabilities & stockholders’
Total assets…………….. P18,550,000 equity………………………… P18,550,000

Problem 5-10

a) Earnings per share in 20X0 -

Net income in 20X0…………………………………………….P495,000
Divided by weighted average outstanding shares……………… 542,200 =
P0.9129

Computation of weighted average outstanding shares in 20X0:

Jan. 1 balance………………………..500,000 x 6/12 = 250,000
July 1 13,000 treasury shares bought 487,000 x 6/12 = 243,500
Dec. 31 10% stock dividend……….. 48,700 x 12/12 = 48,700
Total………………………………………… 542,200

b) Adjusted earnings per share for last year -

Net income last year……………………………………………P200,000

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 Divided by weighted average outstanding shares……………… 548,700 =
P0.36445

Computation of weighted average outstanding shares:

Jan 1 balance……………………………..500,000 x 12/12 = 500,000
Jan 1 stock dividend……………………… 48,700 x 12/12 = 48,700
Total……………………………………………….. 548,700

c) Book value per share after stock dividend -

Total stockholders’ equity as shown in Problem 5-9………….P12,800,000
Divided by total outstanding shares after stock dividends …… 535,700 =P23.894
(500,000 - 13,000 + 48,700)

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