Corporation Part 1 Lab Test Bank

Problem 1
The statement of Financial Position of MorkPiNong Partnership is presented as follows:

MorkPiNong Partnership
Statement of Financial Position
As of December 31, 2020

Assets Liabilities
Current Assets Current Liabilities
Cash 80,000 Accounts Payable 110,000
Accounts Receivables 90,000 Notes Payable 90,000
Merchandise Inventory 150,000 Total Current Liabilities 200,000
Prepaid Insurance 10,000
Total Current Assets 330,000 Partners’ Equity
Mork, Capital (40%) 300,000
Noncurrent Assets Pi, Capital (30%) 180,000
Land 250,000 Nong, Capital (30%) 170,000
Building, net 200,000 Total 650,000
Furniture and fixture, net 70,000
Total Noncurrent Assets 520,000
Total Assets 850,000 Total Liabilities and Partner’s Equity 850,000

At this date, they decided to incorporate their partnership. It was determined that before the
distribution, the following adjustments were to be made:
1. Accounts receivable amounting to P10,000 is uncertain to be collected.
2. Merchandise Inventory has a market value of P170,000
3. Prepaid insurance has no value whatsoever.
4. Land has a market value of P300,000
5. Building has a market value of P180,000
6. Half of the furniture and fixtures were disposed for P20,000.

The partners will contribute all of their share in the net assets of the partnership to the corporation and
will receive a total of 10,000 ordinary shares valued at P35 per share, and 5,000 preference shares
valued at P70 per share.

The corporation was authorized to issue 200,000, P25 par value ordinary shares, and 50,000, P50 par
value preference shares.

Additional share transactions were as follows:

1. Four other incorporators subscribed 4,000 ordinary shares each, at P30 per shares on January 1,
2021.
2. On January 15, 2021, when preference shares were selling at P60 per share, 1,000 preference
shares were issued to a law firm for the legal services they rendered. The estimated market
value of the services rendered was P58,000.
3. On February 15, 2021, two of the other incorporators paid their subscription in full.

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 4. On March 1, 2021, the remaining two other incorporators paid half of their subscriptions.
5. On April 1, 2021, one of the remaining subscribers was declared delinquent. The shares were
put into public auction. P5,000 were incurred for this action.
6. On April 15, 2021, the following bids were offered:
a. Bidder A: P60,000 for 3,000 shares
b. Bidder B: P65,000 for 3,500 shares
c. Bidder C: P60,000 for 2,900 shares
d. Bidder D: P65,000 for 3,200 shares

On the same date, the shares were distributed to the highest bidder, with the remaining shares,
if any, issued to the delinquent subscriber.
7. On April 30, 2021, 2,500 preference shares were exchanged for machine with a cash price of
P135,000. Shares at this time were selling at P60 per share.
8. Any subscription receivable balance is reflected in the equity portion.

With the above information, answer the following:

1. How much is the goodwill on the incorporation of the partnership?

2. How much was the offer price on the delinquent shares?
3. How many shares were given to the delinquent subscriber?
4. As of April 30, 2021, how much is the issued and subscribed Ordinary Share Capital?
5. As of April 30, 2021, how much is the issued and subscribed Preference Share Capital?
6. As of April 30, 2021, how much is the balance of the Ordinary Share Premium Account?
7. As of April 30, 2021, how much is the balance of the Preference Share Premium Account?
8. As of April 30, 2021, how many ordinary shares remained unissued?
9. As of April 30, 2021, how many preference shares remained unissued?
10. Assuming no other transactions occurred and ignoring depreciation, how much is the total assets as
of April 30, 2021?
11. Assuming no other transactions occurred and ignoring depreciation, how much is the total equity as
of April 30, 2021?

Solution:
1. The total market value of the net assets of the partnership is computed as follows:
Total Net Assets prior any adjustments
(850,000 – 200,000) or simply total partners’ equity 650,000
Allowance for A/R (10,000)
Merchandise inventory increase (170,000-150,000) 20,000
Prepaid insurance decrease (10,000)
Land increase (300,000 – 250,000) 50,000
Building decrease (180,000 – 200,000) (20,000)
Loss on furniture disposal (20,000 – 70,000/2) (15,000)
Total market value of net assets 665,000
Market value of shares
Ordinary (10,000 x 35) 350,000
Preference (5,000 x 70) 350,000 700,000
Goodwill 35,000

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 2. The offer price is simply the sum of the balance of the subscription receivable from delinquent
subscriber and the additional costs incurred for the public auction. It is computed as follows:
Total subscription (4,000 x 30) 120,000
Payment on March 1 (4,000 x 30 x 50%) 60,000
Unpaid balance 60,000
Add: Costs incurred for public auction 5,000
Total offer price 65,000

3. Of the bidders, only Bidder B and D were willing to pay for the total offer price. And comparing the
number of shares they are willing to take, the least number of shares belongs to Bidder D. With this, the
number of shares going to the delinquent subscriber is:
Total Delinquent Shares 4,000
Shares going to highest bidder 3,200
Shares going to delinquent subscriber 800

4-7 Before we proceed, remember that the balance in the subscription receivable is deducted from its
related share capital account to get the as of period share capital balance. To answer these, please see
table below:
Transactions Subscribed Subscription Ordinary Ordinary Preference Preference
Ordinary Receivable Share Share Share Share
Share Capital Premium Capital Premium
Jan-1 Incorporation
10,000 x 25 250,000
10,000 x (35-25) 100,000
5,000 x 50 250,000
5,000 x (70 – 50) 100,000
Jan-1 subscription
4,000 x 4 x 30 480,000
4,000 x 4 x 25 400,000
4,000 x 4 x (30 – 25) 80,000
Jan-15 exchange
1,000 x 50 50,000
58,000 – (1,000 x 50) 8,000
Feb 15 full payment
4,000 x 2 x 30 (240,000)
4,000 x 2 x 25 (200,000) 200,000
March 1 partial payment
4,000 x 2 x 30 x 50% (120,000)
April 1 delinquency
4,000 x 30 x 50% (60,000)
April 15 issuance after bid
4,000 x 25 (100,000) 100,000
April 30 exchange
2,500 x 50 125,000
135,000 – (2,500 x 50) 10,000
Balance 100,000 60,000 550,000 180,000 425,000 118,000

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 4. Ordinary share capital is as follows:
Shares issued and outstanding 550,000
Subscribed ordinary shares 100,000
Less: Subscription receivable (60,000) 40,000
Ordinary Share Capital 590,000

5. Preference share capital has no subscriptions. Thus, preference share capital is 425,000
6. Ordinary Share Premium is 180,000
7. Preference Share Premium is 118,000

8. Issued ordinary shares were 550,000/25 = 22,000. Which can also be solved as follows:
Issued on Jan-1 to partners 10,000
Issued on Feb 15 to two fully paid subscribers (4,000 x 2) 8,000
Issued on April 15 to highest bidder and delinquent subscriber 4,000
Total issued ordinary shares 22,000

Total ordinary shares authorized to issue 200,000

Total issued ordinary shares 22,000
Total unissued ordinary shares 178,000

9. Issued preference shares were 425,000/50 = 8,500. Which can also be solved as follows:
Issued on Jan-1 to partners 5,000
Issued on Jan 15 in exchange for services rendered 1,000
Issued on April 30 in exchange for machine 2,500
Total issued preference shares 8,500

Total preference shares authorized to issue 50,000

Total issued preference shares 8,500
Total unissued preference shares 41,500

10. Total assets are as follows:

Total assets prior to adjustments 850,000
Allowance for A/R (10,000)
Merchandise inventory increase (170,000-150,000) 20,000
Prepaid insurance decrease (10,000)
Land increase (300,000 – 250,000) 50,000
Building decrease (180,000 – 200,000) (20,000)
Furniture disposed (35,000)
Cash received on furniture disposed 20,000
Goodwill 35,000
Total Assets, Jan 1 900,000
Cash received on subscription (Feb 15) 240,000
Cash received on subscription (March 1) 120,000
Cash payment on cost incurred for public auction (5,000)
Cash received from highest bidder 65,000
Value of machine acquired through exchange 135,000
Total Assets, April 30, 2021 1,455,000

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 11. Total equity is computed as follows:
Ordinary share capital (#4) 590,000
Ordinary share premium (#6) 180,000
Preference Share Capital (#5) 425,000
Preference Share Premium (#7) 118,000
Retained Earnings (Organization expense exchanged for
Preference shares on Jan 15) (58,000)
Total Equity 1,255,000

To prove the validity of this, total liability and equity must equal total assets at 1,455,000
Total Equity 1,255,000
Total liability (no change) 200,000
Total liability and equity 1,455,000

Problem 2
Shown below are account balances found in the ledger of Sapphire Blue Corporation at the end of 2020:

Subscription receivable – Preference Shares 720,000

Subscription receivable – Ordinary Shares 364,000
10% Preference Share Capital, P50 par value, authorized 100,000 shares
Issued 2,880,000
Subscribed 1,440,000 4,320,000
Ordinary Share Capital, no par, P10 stated value, authorized 350,000 shares
Issued 2,720,000
Subscribed 560,000 3,280,000
Paid-In Capital in Excess of Par or Stated Value
Preference share 432,000
Ordinary shares 656,000 1,088,000

12. How much is the issued and subscribed ordinary share capital?
13. How much is the issued and subscribed preference share capital?
14. How many is the preference shares issued?
15. How many is the ordinary shares issued?
16. Average price per share received by the corporation on its preference share capital including
preference share capital subscribed? Round off your answers to two decimal places
17. Average price per share received by the corporation on its ordinary share capital including ordinary
share capital subscribed? Round off your answers to two decimal places
18. Average amount per share that the subscribers of preference share capital have not yet paid to the
corporation. Assume that subscription price is equal to the issue price of issued shares. Round off your
answers to two decimal places
19. Average amount per share that the ordinary share capital subscribers have already paid on their
subscriptions. Assume that ordinary share capital were subscribed at P12.50. Round off your answers to
two decimal places
20. Average price per share received by the corporation on its issued ordinary share capital assuming
that subscription price on subscribed shares was P11.50 per share. Round off your answers to two
decimal places

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 21. Average price per share received by the corporation on its issued preference share capital assuming
that the subscription price on subscribed shares was P53.75 per share. Round off your answers to two
decimal places

Solution:
12. Ordinary share capital is as follows:
Shares issued 2,720,000
Subscribed ordinary shares 560,000
Less: Subscription receivable (364,000) 196,000
Ordinary Share Capital 2,916,000

13. Preference share capital is as follows:

Shares issued 2,880,000
Subscribed shares 1,440,000
Less: Subscription receivable (720,000) 720,000
Preference Share Capital 3,600,000

14. Preference shares issued is 2,880,000 / 50 = 57,600 shares

15. Ordinary shares issued is 2,720,000 / 10 = 272,000 shares

16. Average price received per preference share is computed as follows:

Issued 2,880,000
Subscribed shares 1,440,000
Share premium 432,000
Total value 4,752,000
Divided by total shares issued and subscribed
Issued (#14) 57,600
Subscribed (1,440,000 / 50) 28,800 86,400
Average price received per preference share 55

17. Average price received per ordinary share is computed as follows:

Issued 2,720,000
Subscribed shares 560,000
Share premium 656,000
Total value 3,936,000
Divided by total shares issued and subscribed
Issued (#15) 272,000
Subscribed (560,000 / 10) 56,000 328,000
Average price received per preference share 12

18. Average amount of unpaid preference share subscription

Subscription receivable 720,000
Divided by number of subscribed preference share (#16) 28,800
Average unpaid balance 25

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 19. Average amount of paid ordinary share subscription
Number of Subscribed shares (#17) 56,000
Multiplied by subscription price 12.50
Total subscription 700,000
Less: subscription receivable 364,000
Total paid balance 336,000
Divided by number of subscribed shares 56,000
Average paid subscription 6

20. Average price received on issued ordinary shares

Total Share Premium 656,000
Share premium on subscribed shares (56,000 x (11.50 – 10)) 84,000
Share premium on issued shares 572,000
Add: issued shares at par 2,720,000
Total issue price 3,292,000
Divided by number of issued shares (#15) 272,000
Average price received on issued ordinary shares 12.10

21. Average price received on issued preference shares

Total Share Premium 432,000
Share premium on subscribed shares (28,800 x (53.75 – 50)) 108,000
Share premium on issued shares 324,000
Add: issued shares at par 2,880,000
Total issue price 3,204,000
Divided by number of issued shares (#15) 57,600
Average price received on issued ordinary shares 55.63

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