Chapter 7 – Corporation: Transactions Subsequent to Formation

Exercises

True or False
1. T 11. F 21. T 31. T

2. T 12. F 22. F 32. F

3. F 13. F 23. T 33. T

4. T 14. F 24. F 34. T

5. T 15. F 25. T 35. F

6. T 16. T 26. T

7. T 17. T 27. F

8. F 18. T 28. T

9. T 19. T 29. T

10 F 20. T 30. F
.

Multiple Choice
1. B 11. C 21. B

2. D 12. C 22. C

3. A 13. A 23. D

4. D 14. A 24. A

5. C 15. A 25. D

6. A 16. C

7. C 17. B

8. A 18. C

9. B 19. C

10 B 20. B
.

Problems
Problem 1

(a)
Retained Earnings 180,000 Share Dividends Distributable (6,000 x 20) 120,000 Share Premium
(6,000 x 10) 60,000
 Share Dividends Distributable 120,000 Share Capital 120,000

(b)
Retained Earnings (12,000 x 20) 240,000 Share Dividends Distributable 240,000

Share Dividends Distributable 240,000 Share Capital 240,000

Problem 2

Retained Earnings 110,000 Dividends Payable 110,000 800,000 x 5% x 2 years 80,000

600,000 x 5% 30,000
Total 110,000

Dividends Payable 110,000 Cash 110,000

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Problem 3
Metallic, Inc.
Shareholders’ Equity
Contributed Capital
Ordinary Share Capital, 550,000 shares, P10 par P 5,500,000 Share Premium 10,100,000 Total
contributed capital P15,600,000 Retained Earnings (50,000,000 – 600,000) 49,400,000 Total
Shareholders’ Equity P65,000,000

Problem 4

Oct. 4 Retained Earnings (30,000 x 100 x 5%) 150,000 Dividends Payable 150,000
21 Retained Earnings (75,000 x 3) 225,000 Dividends Payable 225,000

Dec.15 Dividends Payable (225,000 + 150,000) 375,000 Cash 375,000

Problem 5

Retained Earnings 2,200,000 Property Dividends Payable 2,200,000

Property Dividends Payable 2,200,000 Sales 2,200,000

Cost of Sales 1,800,000 Inventories 1,800,000

(or on the date of distribution, instead of the last two entries above)
Property Dividends Payable 2,200,000 Inventories 1,800,000 Gain on Distribution of Property
Dividends 400,000

Problem 6

(a) The preference is cumulative and participating and the amount of dividend declared is P130,000.
Preference Ordinary
Dividends in arrears, including current year
10% x 250,000 x 2 years P50,000 10% x 500,000 50,000 Excess (130,000 – 100,000)
30,000 x 250/750 10,000 30,000 x 500/750 _______ 20,000 Total P60,000 P70,000 Dividend Per
Share P 12.00 P 14.00

(b) The preference is non-cumulative and participating and the amount of dividend declared is P60,000.
Preference Ordinary
Current year dividend on preference
10% x 250,000 P25,000 Available to ordinary (60,000 – 25,000) P35,000 Dividend Per Share P
5.00 P 7.00
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(c) The preference is non-cumulative and participating and the amount of dividend declared is P35,000.
Preference Ordinary
Current year dividend on preference
10% x 250,000 P25,000 Available to ordinary (35,000 – 25,000) P10,000 Dividend Per Share P
5.00 P 2.00

(d) The preference is cumulative and participating and the amount of dividend declared is P60,000.
Preference Ordinary
Dividends in arrears, including current year P50,000 Available to ordinary (60,000 – 50,000)
P10,000 Dividend Per Share P 10.00 P2.00

(e) The preference is non-cumulative and non-participating and the amount of dividend declared is
P60,000.
Preference Ordinary
Current dividends P25,000 Available to ordinary (60,000 – 25,000) P35,000 Dividend Per Share P
5.00 P 7.00

Problem 7

(1)
a. Treasury Shares 90,000 Cash 90,000

b. Cash (2,400 x 42) 100,800 Additional Paid-in Capital 28,800 Treasury Shares (90,000 x 2,400/3,000)
72,000

c. Ordinary Share Capital (600 x 20) 12,000 Additional Paid-in Capital (500,000/300,000) x 600 1,000
Retained Earnings 5,000 Treasury Shares (90,000 – 72,000) 18,000

d. Income Summary 500,000 Retained Earnings 500,000

(2)
Villanueva Company
Shareholders’ Equity
December 31, 2021
Contributed Capital
Ordinary Share Capital, P20 par, 299,400 shares issued and
outstanding P5,988,000 Additional Paid-in Capital 527,800 Total contributed capital
P6,515,800 Retained Earnings 2,995,000 Total Shareholders’ Equity P9,510,800

Problem 8

(1)

Mar. 1 Treasury Shares 700,000 Cash (50,000 x 14) 700,000

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July 1 Cash (10,000 x 16) 160,000 Treasury Shares (10,000 x 14) 140,000 Paid-in Capital from Treasury
Shares 20,000

Sept. 1 Cash (8,000 x 13) 104,000 Paid-in Capital from Treasury Shares 8,000
Treasury Shares (8,000 x 14) 112,000
Oct. 1 Cash (5,000 x 13) 65,000 Paid-in Capital from Treasury Shares 5,000
Treasury Shares (5,000 x 14) 70,000

Oct. 20 Retained Earnings 273,000 Dividends Payable 273,000 Issued (1,500,000/5) 300,000
Treasury shares 27,000
Outstanding shares 273,000
Dividend per share x P1.00
Total 273,000
Nov. 30 Dividends Payable 273,000 Cash 273,000

Dec. 15 Retained Earnings 300,000 RE Appropriated for Plant Expansion 300,000

31 Retained Earnings 378,000 RE Appropriated for Treasury Shares 378,000

31 Income Summary 250,000 Retained Earnings 250,000

(2) Paz Corporation

Shareholders’ Equity
December 31, 2021
Contributed Capital
Ordinary Share Capital, P5 par, 300,000 shares issued and
273,000 shares outstanding P1,500,000 Share Premium 1,000,000 Paid in Capital from
Treasury Shares _____7,000 Total contributed capital P2,507,000 Retained Earnings
Appropriated for Plant Expansion P300,000 Appropriated for Treasury Shares 378,000
Unappropriated 499,000 1,177,000 Total contributed capital and retained earnings P3,684,000 Less
Treasury Shares, 27,000 shares at cost ___378,000 Total Shareholders’ Equity P4,062,000

Problem 9

Number of shares outstanding

Preference (800,000/100) 8,000 shares
Ordinary (3,600,000/100) 36,000 shares
(a) Total shareholders’ equity P13,900,000 Equity identified to preference (par value) 800,000 Equity of
ordinary shareholders P13,100,000 Book value per share:
Preference (800,000 / 8,000 shares) P100.00 Ordinary (13,100,000 / 36,000 shares) P363.89

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(b) Total shareholders’ equity P13,900,000 Equity identified to preference
Par value P800,000
Dividends (800,000 x 10% x 3 years) 240,000 1,040,000 Equity of ordinary shareholders
P12,860,000

Book value per share:

Preference (1,040,000 / 8,000 shares) P130.00 Ordinary (12,860,000 / 36,000 shares)
P357.22

(c) Total shareholders’ equity P13,900,000 Equity identified to preference

Par value P800,000
Dividends (15% x 800,000) 120,000 920,000 Equity of ordinary shareholders P12,980,000

Book value per share:

Preference (920,000 / 8,000 shares) P115.00 Ordinary (12,980,000 / 36,000 shares) P360.56

(d) Preference Ordinary Par value P 800,000 P 3,600,000 Arrears and current year dividends
10% x 800,000 x 3 years 240,000
To ordinary (10% x 3,600,000) 360,000 Excess: 8,900,000 x 800/4,400 1,618,182
8,900,000 x 3,600/4,400 _________ 7,281,818 Total P2,658,182 P11,241,818 Book value per
share P332.27 P312.27
 Practice Exercises

A. 1. P360,000 Annual dividend

On preference (20,000 x P100 x Total annual dividend
10%) On ordinary (80,000 x P2) 200,000 160,000 360,000

2. P1,800,000 3,600,000 – (360,000 x 5) = 1,800,000 1,800,000

Retained Earnings
3. P5,000,000 Preference Share Capital (20,000 x Total
P100) Ordinary Share Capital (80,000 x 10) 2,000,000 800,000 400,000
Additional Paid-in Capital (80,000 x 5) 1,800,000 5,000,000

B. 4. P300,000 20,000 x 10% x 150 300,000

5. P2,500,000 Contributed capital before the 20% 6. P3,100,000 Bonus issue does not change the
bonus issue Bonus issue (20% x 2,000,000) total shareholders’
Total contributed capital after the bonus issue 2,100,000 400,000 2,500,000

equity. 3,100,000

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C. 7. P90,000 Retained earnings, beginning of year Bonus issue (1,500 x 20)
Profit for the year Retained earnings, end of year
Cash dividends declared 100,000 50,000 (30,000) (30,000) 90,000

D. 8. P180,000 100% bonus issue (large bonus issue) 6,000 x 30 par 180,000
Net loss for three months
E. 9. P580,000 Retained earnings, December 31, Retained earnings, March 31, 2021
2020 Bonus issue (1,000 x 70) 800,000 (70,000) (150,000) 580,000
PICfromTS-36,000 Shares (45 - 36) x 4,000
F. 10. TS – 144,000 Treasury Shares (4,000 x 36) 144,000 36,000
Paid in Capital from Treasury

G. 11. P2,000 Reissue price
Cost of treasury shares
Excess
Amount chargeable to PIC from treasury shares
Amount chargeable to retained earnings
H. 12. P1,006,000 July 1 (23 – 20) x 100,000
October 15
Fair value of land and building (1.3M + 1.2M)
2,500,000
Cash paid (800,000)
Par value of shares issued (50,000 x 20) (1,000,000) Treasury Shares (800 x 35 28,000
December 15
Issue of treasury shares 2,000 x (25 – 22)
Total additional paid in capital
I. 13. P286,533 Share Premium, January 1, 2021
APIC from TS
Issue of treasury shares (1,200 x 42) 50,400
Cost of treasury shares sold (1,200 x 35) 42,000
Retirement of remaining treasury shares*
APIC, December 31, 2021
*Entry upon retirement
Ordinary Share (800 x 20) 16,000
Share Premium (280,000 x 800/120,000) 1,867
Retained Earnings 10,133
J. 14. P1,680,000 January 1 issue of shares (100,000
x 15) Profit for the year
Cash dividends declared and paid
Purchase of treasury shares (6,000 x 12)
Reissue of treasury shares (4,000 x 8) 1,006,000 280,000
Total shareholders’ equity

K. 15. P41,000 Paid in from issue of shares (10,000 x 8,400

4) Paid in from sale of treasury shares (1,867)
800 x (15 – 13) = 1,600 286,533
200 x (10 – 13) = (600)
Additional paid in capital
20,000
25,000
5,000
3,000
2,000
1,500,000 450,000 (230,000) (72,000) 32,000
300,000 1,680,000 40,000

1,000
700,000 41,000

6,000

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16. P100,000 Ordinary share capital (10,000 x 10 par) 100,000
Net decrease in shareholders’ equity
17. P291,000 Ordinary share capital
Additional paid in capital 20. P70,000 Appropriation is equal to the cost of
Retained earnings remaining treasury
Total shareholders’ equity 100,000
41,000
L. 18. P722,000 Issue of shares (40,000 x 12) 150,000
Purchase of treasury shares (6,000 x 13) 291,000
Net profit for the year
Total shareholders’ equity 480,000 (78,000) 320,000 722,000

M. 19. P68,000 decrease Purchase of treasury shares (250,000) 110,000

(12,500 x 20) Reissue of treasury shares (5,000 x 72,000
22) (68,000)
Reissue of treasury shares (4,000 x 18)

shares (3,500 x 20) 70,000

December 31, 2020 Retirement of preference shares
N. 21. P4,573,000 Issue of shares (40,000 x 110) (1,000 x 25)
Purchase of treasury shares (1,000 x 120) Purchase of treasury shares (2,000 x 85)
Sale of treasury shares (600 x 105) Reissue of treasury shares (800 x 75)
Net profit Profit for the year
Dividends paid Total shareholders’ equity, December 31, 2021
Total shareholders’ equity 4,400,000 (120,000) 63,000
350,000 (120,000) 4,573,000
22. P221,000 Net profit
Dividends 350,000 (120,000) (9,000)
Sale of treasury at less than cost 600 x (120-105) 221,000
Retained earnings balance
5,520,000 (25,000) (170,000) 60,000
O. 23. P5,635,000 Total shareholders’ equity, 250,000 5,635,000
 24. P102,000 Remaining cost of treasury shares (1,200 x 85) 102,000

P. 25. P40,000 Preference

Current dividends (8% x 400,000) 32,000
Dividends in arrears (32,000 – 8,000) 24,000
Ordinary (96,000 – 56,000) 40,000

Q. 26. Zero Of the 500 treasury shares on December 31, 2021, 400 shares were sold and
the remaining 100 were retired and
cancelled.

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27. Zero Share premium – treasury shares, (2,000 x 100 x 10%)
December 31, 2020 Sale of treasury shares at less Dividends on ordinary shares
than cost (70 – 65) x 200 1,200
Sale of treasury shares at more than cost (72-70) x (1,000) 400
200
Retirement of remaining 100 shares
Cost of treasury shares (100 x 70) 7,000
Par value of shares (100 x 50) (5,000)
Share premium (100 x 10) (1,000) (600)
Amount charged to share premium – treasury shares0
Share premium – treasury shares, December 31,
2021 60,000

R. 28. P40,000 Total dividends declared 20,000 40,000

Current dividends on preference shares

S. 29. P21.50 Book value per ordinary share (1,075,000 / 50,000) 21.50
Dividends on preference share (10,000 x 8% x 3
30. P9.50 Total shareholders’ equity years)
Equity of preference (5,000 x 120) Dividends on ordinary shareholders
Equity of ordinary share 1,075,000 600,000 475,000 9.50
Book value per ordinary share (475,000/50,000
shares) 60,000
10,000
T. 31. P50,000 Retained earnings 50,000
Less appropriation for treasury shares
Amount of dividends declared 50,000
2,400
32. P47,600 Amount of dividends declared 47,600
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