ASIAN ACADEMY FOR EXCELLENCE FOUNDATION, INC.

2044 C.M. Recto , Bgy. 390, Zone 40, Quiapo, Manila

3rd Floor, San Agustin mall Builders, San Agustin, San Fernando, Pampanga
Ancon Bldg. Merchan Corner Evangelista St. 4301 Lucena City

PRACTICAL ACCOUNTING 1 CPA Review

SHAREHOLDER’S EQUITY M.C. Cerda, CPA,MBA, RCA
O2017

1. The shareholder’s equity section of Greg Company revealed the following information on
December 31, 2016:

Preference share capital, P100 par P 6,000,000

Share premium – preference share 1,610,000

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Ordinary share capital, P15 par 10,500,000

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Share premium – ordinary share 5,500,000

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Subscribed ordinary share capital 1,000,000
Retained earnings 4,000,000

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Note payable
Subscription receivable – ordinary share
8,000,000
800,000
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The amount of legal capital is:
A. 16,700,000 B. 17,500,000 C. 21,300,000 D. 24,610,000
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2. Japeth Company provide the following information on December 31, 2016:

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Share capital P10,000,000

Subscribed share capital 6,000,000
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Subscription receivable 3,000,000

Share premium 4,000,000
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Cumulative translation adjustment – debit 1,000,000

Treasury shares, at cost 1,400,000
Retained earnings 2,000,000
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Cumulative unrealized gain on futures

contract designated as cash flow hedge 1,200,000
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Total contributed capital on December 31, 2016 is:

A. 15,600,000 B. 17,000,000 C. 19,000,000 D. 21,000,000
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3. The following accounts appear in the December 31, 2016 trial balance of Mark
Company:
Preference share capital authorized, P100 par P5,000,000
Ordinary share capital authorized, P10 par 2,000,000
Unissued preference share capital 1,800,000

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 Unissued ordinary share capital 1,000,000
Subscription receivable, ordinary 180,000
Subscription receivable, preference 190,000
Preference share capital subscribed 300,000
Ordinary share capital subscribed 220,000
Treasury preference shares ( 700 shares, at cost ) 680,000
Share premium 850,000
Retained earnings 2,500,000

Total shareholder’s equity is:

A. 7,020,000 B. 7,390,000 C. 7,700,000 D. 8,380,000
4. At the beginning of the current year, LA Corporation issued 10,000 ordinary shares of
P20 par value and 20,000 convertible preference shares of P20 par value for a total of
P800,000. At this date, the ordinary shares were selling for P36 a share and the preference
shares at P27 a share.

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The amount to be allocated to the convertible preference shares is:
A. 440,000 B. 480,000 C. 540,000 D. 600,000

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5. At the beginning of the current year, Macky Company, a closely-held entity, issued 6%

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bonds with a maturity value of P6,000,000, together with 10,000 ordinary shares of P50
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par value, for a combined cash amount of P11,000,000. If the bonds were issued
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separately, they would have sold for P4,000,000 on an 8% yield to maturity basis.

The amount to be reported for share premium on the issuance of the ordinary shares is:
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A. 4,500,000 B. 5,500,000 C. 6,500,000 D. 7,500,000

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6. Presented below is the shareholder’s equity of Jun Company on January 1, 2016:

Share capital, par value P20, authorized 50,000 shares; issued

& outstanding, 30,000 shares P1,200,000
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Share premium 300,000

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Retained earnings 460,000

During the current year, the following transactions occurred relating to shareholder’s
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equity:
 1,000 shares were reacquired at P56 per share.
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 900 shares were reacquired at P60 per share.

 1,500 treasury shares were sold at P64 per share.
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For the year ended December 31, 2016, the entity reported net income of P250,000.

The amount to be reported as total shareholder’s equity on December 31, 2016 is:
A. 1,976,000 B. 2,172,000 C. 2,186,000 D. 2,196,000

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 7. Earl Company was organized on January 2, 2016 with an authorization of 1,200,000
ordinary shares with par value of P6 per share. During 2014, the entity had the following
capital transactions:
Jan. 5 Issued 675,000 shares at P10 per share.
July 3 Purchased 90,000 treasury shares at P11 per share.
Dec.31 Sold the 90,000 shares held in treasury at P20 per share.

Total amount of share premium on December 31, 2016 is:

A. 0 B. 2,250,000 C. 2,880,000 D. 3,510,000

8. Allan Company was incorporated on January 2, 2016 and provided the following
information:
Jan. 1 Number of shares authorized 100,000
Feb. 1 Number of shares issued 80,000
July 1 Number of shares reacquired but not cancelled 10,000
Dec. 1 Three for one share split

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On December 31, 2016, the number of outstanding ordinary shares is:

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A. 210,000 B. 225,000 C. 240,000 D. 270,000

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9. Of the 125,000 shares issued by Aguilar Company, 25,000 shares were held as treasury
on January 2, 2016. During the year, transactions involving share capital were as follows:
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 January 1 through October 31 – 13,000 treasury shares were distributed to officers

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as part of share compensation plan.

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 November 2 – A 3 for 1 share split took effect.

 December 1 – The entity purchased 5,000 of its own shares to discourage
unfriendly takeover. These shares were not retired.
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On December 31, 2016, the number of issued and outstanding shares, respectively, are:
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A. 325,000 & 324,000 C. 375,000 & 324,000

B. 334,000 & 334,000 D. 375,000 & 334,000
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10. Baracael Company issued all of its outstanding shares for P390 in 2015. On January 31,
2016, the entity acquired 200,000 shares at P360 per share and retired them. The equity
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accounts at December 31, 2015 are as follows:

Retained earnings P 75,000,000
Share premium 165,000,000
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Share capital, P300 par, 2,000,000 shares authorized,

1,800,000 shares issued & outstanding 540,000,000
The balance in share premium account immediately after the retirement of the shares is:
A. 147,000,000 B. 153,000,000 C. 159,000,000 D. 171,000,000

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 11. In 2015, Slaughter Company issued for P110 per share, 15,000 convertible preference
shares of P100 par value. One preference share may be converted into 3 ordinary shares
with P25 par value at the option of the preference shareholder. On December 31, 2016, all
of the preference shares were converted into ordinary shares. The market value of the
ordinary shares at the conversion date was P40.
The amount to be credited to ordinary share capital on December 31, 2016 is:
A. 1,125,000 B. 1,500,000 C. 1,650,000 D. 1,800,000

12. Penny Company bgan operations on January 2, 2016 by issuing one-half of its authorized
950,000 ordinary shares ( par value P1 per share ) at P15 per share. ordinary In addition,
the entity had 500,000 authorized preference shares of P5 par value. During 2016, the
entity had P1,025,000 net income and declared P230,000 ordinary shares dividends.

During 2017, the entity had the following transactions:

 Issued 100,000 ordinary shares for P17 per share.
 Issued 150,000 preference shares for P8 per share.

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 Authorized the purchase of custom-made machine to be delivered in January

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2018. The entity restricted P300,000 of retained earnings for the purchase of the

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machine.
 Issued additional 50,000 preference shares for P9 per share.

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 Reported P1,215,000 of net income and declared on December 31, 2017 a
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dividend of P635,000 to shareholders of record on January 15, 2018 to be paid
February 1, 2018.
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Total shareholders equity on December 31, 2017 is:

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A. 7,920,000 B. 11,550,000 C. 11,850,000 D. 12,485,000

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13. Nevada Company was incorporated on January 2, 2017, with the following authorized
capitalizations:
Ordinary share capital, 200,000 shares, no par,
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P100 stated value P20,000,000

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Preference share capital, 200,000 shares, 10% rate,

P50 par value 10,000,000
During 2017, the entity issued 150,000 ordinary shares for P18,000,000 and 50,000
preference shares at P60 per share. In addition, on December 15, 2017, subscriptions for
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for 20,000 preference shares were taken at a purchase price of P100. These subscribed
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shares were paid on January 15, 2018. Net income for 2017 is P5,000,000.

The amount to be reported as total contributed capital on 12/31/2017 is:

A. 21,000,000 B. 23,000,000 C. 26,000,000 D. 28,000,000
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14. The shareholder’s equity of Caguioa Company on January 1, 2016 contained the
following accounts:
Share capital, 250,000 shares authorized,
100,000 shares issued & outstanding P3,000,000
Share premium 4,000,000

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 Retained earnings 8,000,000
The board of directors declared a 10% dividend on April 1, 2016 when the market value
of the share was P70. The stock dividend was issued on July 1, 2016 when the market
value of the share was P100. The share has a par value of P30. The entity sustained a net
loss of P1,000,000 for 2016.
The amount to be reported as retained earnings on December 31, 2016 is:
A. 5,250,000 B. 6,300,000 C. 6,700,000 D. 7,000,000

15. The following data are extracted from the shareholder’s equity of Tenorio Company at
year end: 2015 2016
Share capital, P100 par P5,000,000 P5,100,000
Share premium 2,500,000 2,900,000
Retained earnings 5,000,000 ?

During 2016, the entity declared and paid cash dividends of P750,000 and also declared
and issued stock dividend. There were no other changes in shares issued and outstanding

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during 2016. The net income for 2014 isP1,500,000.
The amount to be reported as retained earnings on December 31, 2016 is:

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A. 5,250,000 B. 5,650,000 C. 5,750,000 D. 6,500,000

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For questions 16 to 18
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Global Company, a real estate developer, is owned by 5 founding shareholders. On
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December 1, 2017, the entity declared a property dividend of a one-bedroom flat” for
each shareholder. The property dividend is payable on January 31, 2018.
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On December 1, 2017, the carrying amount of a one bedroom flat is P1,000,000 and the
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fair value is P1,500,000. However, the fair value is P1,800,000 on December 31, 2017
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and P1,900,000 on January 31, 2018.

16. The dividend payable on December 1, 2017 is:

A. 0 B. 5,000,000 C. 7,500,000 D. 9,000,000
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17. The dividend payable on !2/31/2017 is:

A. 0 B. 5,000,000 C. 7,500,000 D. 9,000,000
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18. The amount of gain to be included in the profit & loss as a result of the settlement of
property dividend on January 31, 2018 is:
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A. 2,000,000 B. 2,500,000 C. 4,000,000 D. 4,500,000

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