MODULE 3 – EXERCISES - STATEMENT OF CHANGES IN EQUITY

II. ACTIVITY

Directions: Answer the following questions and discuss it with your groupmates.

1. Differentiate the forms of business according to ownership?

2. What is Statement of Changes in Equity?
3. What are the accounts to be seen in SCE?
4. Create transactions that affect every account in SCE?
5. In connection with question #4, journalize the transactions.

III. ANALYSIS

Directions: Encircle the letter of the correct answer for the following statements.

1. Which of the following is not an advantage of partnership?

A. Ease of formation.
B. No government regulation.
C. Unlimited liability.
D. Larger pool of human capital than sole proprietorship
2. Which of the following is not a disadvantage of a corporation?
A. Subject to less stringent government regulation.
B. Double taxation.
C. Not easy to establish.
D. More expensive to establish than sole proprietorship.
3. The profits of a sole proprietorship are taxed on?
A. The company level only.
B. The individual level only.
C. Both the company and individual levels.
D. Profits of a sole proprietorship are exempted from taxation.
4. If the ending capital is 55,000; gross income is 130,000; expenses 10,000; drawing 1,000. The beginning
capital must be?
A. 80,000 C. 69,000
B. 90,000 D. Cannot be determined.
5. One of the following events decreases equity. Which is it?
A. Michael Maguana invested 50,000 in Jolen Corporation. This was a new issuance of shares and
he received 5,000 common shares.
B. Jolen Corporation paid 10,000 for electricity expense in the month of November.
C. A used truck, in Jolen Corporation’s books at 100,000 was sold for 500,000 resulting in again.
D. Jolen Corporation, engaged in the business of selling small glass balls, reported sales of
12,000,000 for the year ended 2018.
V. APPLICATION

A. Directions: Answer the following questions.

1. Which form of business organization puts the least risk on its owners?
2. Which form of business organization is owned by only one person?
3. Increases in owner’s equity without additional investment
4. Decreases to owner’s equity apart from net effect of revenues and expenses.
5. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional
investments and withdrawals for the period. Compute for total increase in equity for the year.
6. Ending owner’s equity amounted to P70,000. Additional investments during the year amounted to
P30,000. Withdrawals totaled P50,000. Compute for the company’s net income for the year assuming
beginning equity is P10,000.
7. Decreases in equity aside from withdrawals of the owners
8. A type of business that is owned by at least 2 persons.
9. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial services
company. During the first year of operations (2016), the company had a loss of P25,000. Because of
this, Juan invested additional capital amounting to P50,000 in 2017. In the second year (2017), the
company had a net income of P100,000 and Juan withdrew P10,000 for personal use. Compute for the
ending capital balance of Juan for the year 2017.
10. Owner Juana invested P100,000 to start her laundry business. During the first year of operations
(2016), the company had a net income of P15,000. Juana invested additional P100,000 to grow the
business. In 2017, the business earned P50,000. As of December 31, 2017, Juana’s capital balance is
P200,000. How much is Juana’s withdrawal?

B. Directions: Read each sentence carefully and determine whether the statement is True or False. Write
your answers in the space provided before the number.

__________1. The SoCE is dated “as of the year ended.”

__________2. There are two equity accounts reported on the SoCE of a sole proprietorship, namely,
Owner’s Capital and Drawings.
__________3. The number of capital accounts presented in a SoCE of partnership is equal to the number
of partners.
__________4. The Drawings account is used for sole proprietorship, partnership and corporation.
__________5. The partnership net income is allocated to each partner’s capital using the profit and loss
sharing agreement stated in the contract of partnership.
__________6. Paid-in capital is the amount of contributions given to the corporation in exchange for a
stock.
__________7. All equity accounts have normal credit balances.
__________8. The capital stock account reports the proceeds from the issuance of the stocks.
__________9. The SoCE of a corporation presents the reconciliation from the beginning to the ending
balances of all the equity accounts.
_________10. Dividends distributed by corporation are credited against retained earnings.
C. Directions: Prepare the Statement of Changes in Equity

Sole Proprietorship

The following balances were retrieved from the records of Juan’s Janitorial Services for the year ended
December 31, 2016: Capital, Jan. 1, 2016 500,000, Withdrawals 100,000, Additional Investments 50,000,
Net Loss 45,000

Partnership

The following are taken from GHI Partnership.

December 31, 20X3 Gardo, Capital 58,960 Henry 63,200 Irene 64,890. The partnership generated net
income of 75,400 in 20X4. According to the partnership contract, the profit and loss sharing ratio are as
follows: Gardo 25%, Henry 37.5%, and Irene 37.5%. The following transactions with the partners during the
year: Gardo made additional contribution of 7,640, Henry withdrew 5,000 from the business, and Irene
contributed 12,000 but withdrew 5,430
.
Corporation

At the start of the fiscal year, JKL Company has 100,000 shares of its 10 par value common stock. The
stocks were initially issued at 18 per share. On June 16, the company issued additional 20,000 shares at
20 per share. JKL has retained earnings of 245,600 at the beginning of the fiscal year. The company
reported net income of 89,540. On September 30, cash dividends of 60,000 were distributed to
stockholders.