ORIA, MAYBELYN S.

CFAS - SEC 10

ILLUSTRATIVE EXERCISES:

Problem 1. Pre-incorporation subscription requirement

Minimum Subscription (in Php) Minimum Paid-in Capital (in Php)

a. 50,000 shares x 25% = P 12,500 P 12,500 x 25% = P3,125

b. 30,000 shares x 25% = P 7,500 P 7,500 x 25% = P1,875

Problem 2. Accounting for share capital

A. Journalize the transactions using:

1. Memorandum Entry Method

a. The corporation was authorized to issue 500,000 shares with par value of P10 per share.

b. Subscription Receivable P 1,500,000

Subscribed Share Capital P 1,500,000

Solution: 150,000 shares x P10 par value per share

c. Cash 450,000

Subscription Receivable 450,000

Solution: P1,500,000 x 30% (initial payment)

d. Cash 630,000

Subscription Receivable 630,000

(30% of the subscribed share capital P900,000 has already paid amounting to P270,000)

e. Subscribed Share Capital 900,000

Share Capital 900,000

Solution for d and e:

90,000 shares + 60,000 shares = 150,000 shares

(90,000 x 10) + (60,000 x 10) = P1,500,000

(P900,000 x 30%) + (P600,000 x 30%) = P450,000

f. Cash 60,000

Share Capital 60,000

Solution: 6,000 shares x P10 par value per share

2. Journal Entry Method

a. Unissued Share Capital P 5,000,000

Authorized Share Capital P 5,000,000

Solution: 500,000 shares x P10 par value per share

b. Subscription Receivable 1,500,000

Subscribed Share Capital 1,500,000

Solution: 150,000 shares x P10 par value per share

c. Cash 450,000

Subscription Receivable 450,000

Solution: P1,500,000 x 30% (initial payment)

d. Cash 630,000

Subscription Receivable 630,000

(30% of the subscribed share capital 900,000 has already paid amounting to P270,000)

e. Subscribed Share Capital 900,000

Unissued Share Capital 900,000

Solution for d and e:

90,000 shares + 60,000 shares = 150,000 shares

(90,000 x 10) + (60,000 x 10) = P1,500,000

(P900,000 x 30%) + (P600,000 x 30%) = P450,000

f. Cash 60,000

Unissued Share Capital 60,000

Solution: 6,000 shares x P10 par value per share

B. Present the shareholder’s equity portion to be shown on the entity’s statement of financial
position under:

1. Memorandum Entry Method

Shareholders’ Equity:

Share Capital P 960,000

Subscribed Share Capital 600,000

Less: Subscription Receivable (420,000)

P 1,140,000
2. Journal Entry Method

Shareholders’ Equity:

Authorized Share Capital P 5,000,000

Less: Unissued Share Capital (4,040,000)

Issued Share Capital 960,000

Subscribed Share Capital 600,000

Less: Subscriptions Receivable (420,000)

P 1,140,000

Problem 3. Issuance of share capital for cash

1. With Par Value

Cash P 2,600,000

Solution: 20,000 ordinary shares x P130 per share

Ordinary Shares P 2,000,000

Solution: 20,000 ordinary shares x P100 par value

Share Premium 600,000

Solution: P2,600,000 cash - P2,000,000 ordinary shares

2. Without Par Value

Cash P 4,800,000

Solution: 40,000 ordinary shares x P120

Ordinary Shares P 3,200,000

Solution: 40,000 ordinary shares x P80 stated value

Share Premium 1,600,000

Solution: P4,800,000 cash - P3,200,000 ordinary shares

Problem 4. Issuance of shares for noncash consideration

Prepare journal entries.

a. Land P 500,000

Solution: P2,000,000 fair value x 25%

Building 1,500,000

Solution: P2,000,000 fair value - P500,000 land

Ordinary Shares P 1,500,000

Solution: 15,000 shares x P100 par value

Share Premium 500,000

Solution: P2,000,000 fair value - P1,500,000 ordinary shares

b. Land 3,500,000

Solution: 25,000 shares x P140 per share

Ordinary Shares 2,500,000

Solution: 25,000 shares x P100 par value

Share Premium 1,000,000

Solution: P3,500,000 land - P2,500,000 ordinary shares

c. Professional fee/Organization Cost 125,000

 Ordinary Shares 100,000

Solution:1,000 ordinary shares x P100 par value

Share Premium 25,000

Solution: P125,000 organization cost - P100,000 ordinary shares

d. Professional Fee 700,000

Solution: 5,000 shares x P140 per share

Ordinary Shares 500,000

Solution: 5,000 shares x P100 par value

Share Premium 200,000

Solution: P700,000 professional fee - P500,000 ordinary shares

Problem 5A. Incorporation of a proprietorship

Prepare journal entry.

a. Current Assets P 170,000

Equipment 200,000

Liability P 90,000

Share Capital 55,000

Solution: 5,500 ordinary shares x P10 par value

Share Premium 225,000

Solution: (P170,000 + 200,000) - (P90,000 + 55,000)

Problem 5B. Issuance of two classes of shares

1. If 2 fair market values given:

Ordinary Shares 400,000 4/16 x P1,800,000 = 450,000

Solution: 20,000 shares x P20 per share

Preference Shares 1,200,000 12/16 x P1,800,000 = 1,350,000

Solution: 40,000 shares x P30 per share

Prepare journal entry.

Cash P 1,800,000

Ordinary Shares P 200,000

Solution: 20,000 ordinary shares x P10 par value

Share Premium - ordinary shares 250,000

Solution: P450,000 - P200,000

Preference Shares 400,000

Solution: 40,000 preference shares x P10 par value

Share Premium - preference shares 950,000

Solution: P1,350,000 - 400,000

2. If only 1 fair market value given: (Ordinary shares only)

Ordinary Shares 600,000

Solution: 20,000 shares x P30 per share

Preference Shares 1,200,000

Solution: 40,000 shares x P30 per share

Prepare journal entry.

Cash P 1,800,000

Ordinary Shares P 200,000

Solution: 20,000 ordinary shares x P10 par value

Share Premium - ordinary shares 400,000

Solution: P600,000 - P200,000

Preference Shares 400,000

Solution: 40,000 preference shares x P10 par value

Share Premium - preference shares 800,000

Solution: P1,200,000 - 400,000

Problem 6. Organization cost

Prepare journal entries.

a. Issuance of shares

Cash P 7,500,000

Solution: 50,000 ordinary shares x P150 per share

Ordinary Shares P 5,000,000

Solution: 50,000 shares x P100 par value

 Share Premium 2,500,000

Solution: P7,500,000 - P5,000,000

b. Incurrence of organization cost

Organization 45,000

Cash 45,000

Share Premium - ordinary shares 35,000

Cash 35,000

Solution:

Cost of drafting articles of incorporation and by-laws P 25,000

Other legal costs 5,000 P 45,000

Incorporation fees 15,000

Cost of printing share certificate 10,000

Other share insurance cost 25,000 35, 000

Problem 7. Computation of legal capital

1. Case A - with Par Value

Preference Share P 2,500,000

Ordinary Share 5,000,000

Subscribed Ordinary Share 65,000

P 7,565,000
2. Case B - No Par, with Stated Value

Preference Share P 1,200,000

Share Premium - preference share 900,000

Ordinary Share 3,000,000

Share Premium - ordinary share 2,800,000

Subscribed Ordinary Share 80,000

P 7,980,000

Problem 8. Delinquent subscription and highest bidder

1. Prepare journal entry.

a. January 2 - Subscribed Receivable P 1,250,000

Subscribed Share Capital 1,250,000

Solution: 25,000 share x P50 par value

b. February 28 - Cash 750,000

Subscription Receivable 750,000

c. March 5 - NO ENTRY

d. Receivable from Highest Bidder 38,000

Cash 38,000

e. Cash 560,000

Subscription Receivable 500,000

Solution: P1,250,000 - P750,000

 Receivable from Highest Bidder 38,000

Interest Income 22,000

Solution: P560,000 cash - (P500,000 subscription receivable + 38,000 receivable from highest
bidder)

f. Subscribed Share Capital 1,250,000

Share Capital 1,250,000

2. Who was the highest bidder?

Rey was the highest bidder among the three bidders.

3. How many shares were actually issued to (a) Olive and to the (b) highest bidder?

Olive 21,000 shares

Rey 4,000 shares

There are 25,000 shares that Olive originally subscribes.