Yvonne Antonette Duyao ACT1122 – SEC 9

Problem 1 – Pre- incorporation subscription requirement

Minimum Subscription Minimum Paid-In

A. 5,000,000 x 25% 1,250,000 none
B. 30,000 x 50 x 25% 375, 000 none

- There is no minimum paid in capital

Problem 2 – Accounting for share capital

1. Journalize transactions

A. Memorandum entry method

a) Corporation was authorized to issue 500,000 shares with a par value of 10 per
share

b) Subscription Receivable 1,500,000

Subscribed Share Capital 1,500,000

Solution: 150,000 shares x 10 par value = 1,500,00

c) Cash 450,000
Subscription Receivable 450,000

Solution: 1,500,000 x 30% = 450,000

d) Cash 630,000
Subscription Receivable 630,000

Solution: 90,000 x 10 = 900,000 original subscribed shares

900,000 x 0.30 = 270,000
900, 000 – 270,00 = 630,000

e) Subscribed Share Capital 900,000

Share Capital 900,000

Solution: 90,000 x 10 = 900,000

f) Cash 60,000
 Share Capital 60,000

Solution: 6,000 x 10 = 60,000

B. Journal entry method

a) Unissued Share Capital 5,000,000

Authorized Share Capital 5,00,000

Solution: 500,000 x 10 = 5,000,000

b) Subscription Receivable 1,500,000

Subscribed Share Capital 1,500,000

c) Cash 450,000
Subscription Receivable 450,000

d) Cash 630,000
Subscription Receivable 630,000

e) Subscribed Share Capital 900,000

Unissued Share Capital 900,000

f) Cash 60,000
Unissued Share Capital 60,000

Problem 3 – Issuance of share capital for cash

1. With Par Value

Cash 20,000 x 130 2, 600,000

Ordinary shares 2,000,000
Share Premium 600,000

2. Without Par Value

Cash 40,000 x 120 4, 800,000

Ordinary shares 3,200,000
Share Premium 1, 600,000

Problem 4 – Issuance of shares for noncash consideration

 a.
Land 500,000
Building 1,500,000
Ordinary Shares 1,500,000
Share Premium 500,000

Solution:
2,000,000 x 25 % = 500,000 – Land
2,000,000 – 500,000 = 1,500,000 – building
15,000 x 100 = 1,500,000 – ordinary share
b.
Land 3,500,000
Ordinary Shares 2,500,000
Share Premium 1,000,000

Solution:
Land = 25,000 x 140
Ordinary share = 25,000 x 100

c.
Professional Fee 125,000
Ordinary Shares 100,000
Share Premium 25,000

Solution:
Ordinary Shares = 1,000 x 100= 100,000
Share premium = 125,000 – 100,000 = 25,000

d.
Professional Fee 700,000
Ordinary Shares 500,000
Share Premium 200,000

Solution:
Fee - 500,000 x 140 = 700,000
Ordinary sale - 5,000 x 100 = 500,000

Problem 5 – Incorporation for a partnership

Journal entry:

Cash 55,000
Ordinary share capital 55,000
Problem 5 – Issuance of two classes of shares

Journal entry:

Cash 1,800,000
Ordinary share 200,000
Share Premium – Ordinary 250,000
Preference shares 400,000
Share premium – preference 950,000

Solution:
Total amount of ordinary and preference share = 1,800,000
20,000 x 10 = 200,000 – ordinary share
1,800,000 x 25% - share premium
40,000 x 10 = 400,000 – preference share
1,800,000 x 75% - share premium

Problem 6 – Organization Cost

a. Issuance of shares

Cash 7,500,000
Ordinary shares 5,000,000
Share Premium 2,500,000

Solution:
500,000 shares x 150 = 7,500,000
50,000 x 100 par value = 5,000,000
7,500,000 – 5,000,000 = 2,500,000 value of share premium
b. Incurrence of organization cost

Organization cost 45,000

Cash 45,000

Share premium – ordinary 35,000

Cash 35,000

Problem 7 – Computation of legal capital

Case A – with par value

Preference Share 2,500,000

Ordinary share 5,000,000
Subscribed ordinary share 65,000,00
 Legal capital 7,565,000

Case B – No par with stated value

Preference Share 1,200,000

Share Premium – PS 900,000
Ordinary Share 3,000,000
Share Premium – OS 2,800,000
Subscribed Share 80,000
Legal capital 7,980,000

Problem 8 - Delinquent subscription and highest bidder

a. Journal entry

Jan 2 Subscribed receivable 1,250,000

Subscribed share capital 1,250,000
Solution: 25,000 share x 50 par value = 1,250,000

Feb 28 Cash 750,000

Subscription Receivable 750,000

March 5 no entry

d) Receivable from highest bidder 38,000

Cash 38,000

e) Cash 560,000
Subscription receivable 500,000
Receivable from highest bidder 38,000
Interest Income 22,000
Solution: 1,250,000 – 750,000 = 500,000

b. Who was the highest bidder?

The highest bidder is Rey

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

Olive share 21,000

Rey 4,000

25,000 – olive original subscribed share