BCACCTG2 – ACCOUNTING FOR PARTNERSHIP

AND CORPORATION

Exercise 4
SHAREHOLDERS’ EQUITY

1. Mara Company provided the following data at year-end:

Authorized share capital 5,000,000
Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 600,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 150,000

What total amount should be reported as shareholders’ equity?

ANSWER: 5, 150, 000

Authorized share capital 5, 000, 000

Unissued share capital (2, 000, 000)
Issued share capital 3, 000, 000
Subscribed share capital 1, 000, 000
Subscription receivable (400, 000)
600, 000
Share premium 600, 000
Retained earnings:
Unappropriated 600, 000
Appropriated 300, 000
900, 000
Revaluation surplus 200, 000
Total 5, 300, 000
Treasury share (150, 000)
Shareholder’s equity 5, 150, 000

2. Glenn Company provided the following information at year-end:

 Preference share capital, P100 par 2,310,000
Share premium - preference share 805,000
Ordinary share capital, P10 par 5,255,000
Share premium - ordinary share 2,750,000
Subscribed ordinary share capital 500,000
Retained earnings 1,900,000
Notes payable 4,000,000
Subscription receivable - ordinary share 400,000
Revaluation surplus 100,000

What is the amount of legal capital?

ANSWER: 11, 220, 000

Preference share capital, P100 par 2, 310, 000

Share premium – preference share 805, 000
Ordinary share capital, P10 par 5, 255, 000
Share premium – ordinary share 2, 750, 000
Subscribed ordinary share capital 500, 000
Total legal capital 11, 620, 000
Subscription receivable – ordinary share (400, 000)
Total Legal Capital 11, 220, 000

3. East Company issued 1,200 shares with P15 par to Howe as compensation for 1,000 hours of legal
services performed.

Howe usually bills P143 per hour for legal services. On the date of issuance, the share was trading on a
public exchange at P147.

By what amount should the share premium account increase as a result of the transaction?

ANSWER: 153, 600

Additional paid in capital
= (issued price per share – Par value per share) x No. of share issued
= (143 – 15) x 1, 200
Additional paid in capital = 153, 6000

Legal expenses (1,200 x 143) 171, 600

Common stock (1, 200 x 15) 18, 000
Additional paid in capital 153, 600

4. At the beginning of the current year, Ria Company 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 share was selling for 36 and the convertible preference share was selling for
P27.
 What amount of the proceeds should be allocated to the preference shares?

ANSWER: 480, 000

MV Percentage AP
Ordinary shares (10, 000 x 36) 360, 000 36/90 320, 000
Reference shares (20, 000 x 27) 540, 000 54/90 480, 000
900, 000 800, 000

5. At the beginning of the current year, Ria Company issued 10,000 ordinary shares of P20 par value and
20,000 convertible preference shares of P20 par value for a total of P900, 000.

At this date, the ordinary share was selling for 40 and the convertible preference share was selling for
P30.

What amount of the proceeds should be allocated to the ordinary shares?

ANSWER: 360, 000

Total Percentage Issuance price AP

Ordinary share (10, 000 x 40) 400, 000 40/10 900, 000 360, 000
Preference shares (20, 000 x 30) 600, 000 60/10 900, 000 540, 000

6. At the beginning of the current year, Ria Company issued 10,000 ordinary shares of P20 par value and
20,000 convertible preference shares of P25 par value for a total of P900, 000.

At this date, the ordinary share was selling for 40 and the convertible preference share was selling for
P30.

What is the share premium from the issuance of preference shares?

 ANSWER: 40, 000

Total Percentage Issuance price AP

Ordinary share (10, 000 x 40) 400, 000 40/10 900, 000 360, 000
Preference shares (20, 000 x 30) 600, 000 60/10 900, 000 540, 000

Cash 900, 000

Ordinary shares (10, 000x 20) 200, 000
Share premium ordinary share (360, 000 – 200, 000) 160, 000
Convertible preference share (20, 000 x 25) 500, 000
Share premium – convertible preference shares 40, 000
(540, 000 – 500, 000)

7. At the beginning of the current year, Ria Company issued 10,000 ordinary shares of P35 par value and
20,000 convertible preference shares of P20 par value for a total of P900, 000.

At this date, the ordinary share was selling for 40 and the convertible preference share was selling for
P30.

What is the share premium from the issuance of ordinary shares?

ANSWER: 10, 000

Total Percentage Issuance price AP

Ordinary share (10, 000 x 40) 400, 000 40/10 900, 000 360, 000
Preference shares (20, 000 x 30) 600, 000 60/10 900, 000 540, 000

Cash 900, 000

Ordinary share (10, 000 x 35) 350, 000
Share premium – ordinary shares (360, 000 – 350, 000) 10, 000
Convertible preference shares (20, 000 x 20) 400, 000
Share premium – convertible preference shares (540, 000 – 400, 000) 140, 000

8. At the beginning of current year, Ashe Company was organized with authorized capital of 100,000
shares of P200 par value.

January 10 Issued 25,100 shares at P220 a share

March 25 Issued 1,010 shares for legal services when the fair value was P240 a share
September 30 Issued 5,001 shares for a tract of land when the fair value was P260 a share

What amount should be reported as share capital?

ANSWER: 6, 522, 000

January 10 (25, 100 x 200) 5, 020, 000

 March 25 (1, 010 x 200) 202, 000
September 30 (5, 000 x 200) 1, 300, 000
Share capital 6, 522, 000

9. At the beginning of current year, Ashe Company was organized with authorized capital of 100,000
shares of P190 par value.

January 10 Issued 25,000 shares at P220 a share

March 25 Issued 1,000 shares for legal services when the fair value was P240 a share

September 30 Issued 5,000 shares for a tract of land when the fair value was P260 a share

What amount should be reported for share premium?

ANSWER: 840, 000

January 10 (25, 000 x 20) 500, 000

March 25 (1, 000 x 40) 40, 000
September 30 (5, 000 x 60) 300, 000
Total share premium 840, 000

10. Negros Company was incorporated on January 1, 2021 with the following authorized capitalization:

Ordinary share capital, 200,000 shares, no par,

100 stated value 20,000,000
Preference share capital, 200,000 shares, 10% fixed rate, P50 par value 10,000,000

During 2021, the entity issued 150,000 ordinary shares for a total of P18, 838,000 and 50,000
preference shares at P63 per share.

In addition, on December 15, 2021, subscriptions for 20,010 preference shares were taken at a
purchase price of P101. These subscribed shares were paid for on January 15, 2022.
Net income for 2021 was P5, 000,000.

What amount should be reported as total contributed capital on December 31, 2021?

ANSWER: 22, 191, 010

Ordinary share capital – 150, 000 shares 18, 838, 000

 Preference share capital – 50, 000 shares x 63 3, 150, 000
Subscribed preference share capital – 20, 010 x 101 203, 010
Contributed capital 22, 191, 010

11. Day Company held 10,000 shares of P10 par value as treasury reacquired for P120, 001. At year-end, the
entity reissued all 10,000 shares for P190, 080.

What is credited for the excess of the reissue price over the cost of treasury shares (State the
amount and account)?

ANSWER: 70, 079

Reissuance price 190, 080

Treasury share, at cost (120, 001)
Share premium 70, 079

12. At the beginning of current year, Hanna Company reported the following shareholders’
equity:
Share capital, P10 par, and outstanding 225,000 shares 2,250,000 Share premium
900,000 Retained earnings 2,190,000

During the current year, the entity had the following share transactions: * Acquired
6,000 treasury shares for P270, 000.
* Sold 3,601 treasury shares at P51 a share.
* Sold the remaining treasury shares at P43 per share.

What is the total amount of share premium at year-end?

ANSWER: 930, 010

Treasury share 270, 000

Cash 270, 000

Cash (3, 601 x 51) 183, 651

Treasury shares (3, 601 x 41) 147, 641
Share premium – treasury 36, 000

Cash (36, 000 x 43) 1,548, 430

Share premium – treasury 6, 000
 Treasury shares (36, 010 x 41) 1,476, 410

Share premium – issuance 900, 000

Share premium – treasury (36, 010 – 6, 000) 30, 010

Total share premium 930, 010

13. At the beginning of current year, Rona Company issued 50,000 shares of P11 par value for P100 per
share.

During the year, the entity reacquired 2,000 shares at P155 per share and immediately cancelled these
2,000 shares.

1.) In connection with the retirement of shares, what amount should be debited to share premium?
2.) In connection with the retirement of shares, what amount should be debited to retained
earnings?

ANSWER: 178, 000 and 100, 000

Share capital (2, 000 x 11) 22, 000

Share premium (2, 000 x 89) 178, 000
Retained earnings (balancing) 100, 000
Cash 300, 000

14. At year-end, Pack Company canceled 5,000 shares of P25 par value held in treasury at an average cost of
P130 per share.

Before recording the cancelation of the treasury shares, the entity had the following balances:

Share capital issued originally at P30 per share 624,000

Share premium 750,000
Retained earnings 900,000
Treasury shares, at cost 650,000

What is the share capital outstanding at year-end?

ANSWER: 499, 000

Share Capital (5, 000 x 25) 125, 000

Share Capital, Dec 31 (624, 000)
Share Capital Outstanding 499, 000
15. Vicar Company was organized at the beginning of current year with 100,000 authorized shares
of P105 par value and issued 75,000 shares at P141 per share.

During the year, the entity purchased 5,000 shares at P112 per share. The entity used the par value
method to record the purchase of the treasury shares.

1.) What is the balance of the share premium from the original issuance of shares at year-end?

2.) What is the balance of the share premium from treasury shares at year-end?

ANSWER: 2, 500, 000 and 170, 000

Cash (75, 000 x 141) 10, 575, 000

Share capital (75, 000 x 105) 7, 875, 000
Share premium – issuance 2, 700, 000

2, 700, 000 – 200, 000 = 2, 500, 000

Treasury share (5, 000 x 105) 525, 000

Share premium issuance (5, 000 x 41) 205, 000
Cash (5, 000 x 112) 560, 000
Share premium – treasury 170, 000