COLLEGE OF BUSINESS

MANAGEMENT AND ACCOUNTANCY

COMPETENCY APPRAISAL
Auditing Practice

AUDIT OF SHAREHOLDERS’ EQUITY

PROBLEM 1- Subscription and Issuance of Share Capital

ABC Company was authorized to issue share capital of P4,000,000 divided into 40,000 shares with par
value of P100. On January 12, 2021, ABC received subscription of 10,000 shares at par from DEF and GHI
Company (5,000 shares each) and collected the 25% of the shares subscribed. On March 2, 2021, GHI
paid the remaining balance of the subscription.

PROBLEM 2- Issuance for Cash Consideration

Case 1- Par Value Shares
10,000 ordinary shares of P100 par value are sold at P150 per share.

Case 2- No Par Value Shares

20,000 ordinary shares of P50 stated value are issued at P80 per share.

PROBLEM 3- Issuance for Noncash Consideration

Jala Inc. issued 10,000 ordinary shares of P100 par value in exchange for land with fair value of
P1,500,000. The fair value of the shares issued is P180 per share.

PROBLEM 4- Issuance for Noncash Consideration

Mimi Company issued 1,000 ordinary shares of P100 par value to lawyers for their legal services in
getting the corporation organized. The fair value of such services is reliably determined to be P120,000.

PROBLEM 5- Share Issuance Costs

The entity was authorized to issue share capital as follows:
Preference share capital, P100 par, 30,000 shares

Ordinary share capital, P50 par value, 100,000 shares

 40,000 ordinary shares were issued for cash at P60 per share.
 10,000 preference shares were subscribed at P120 per share.
 Received full payment from above subscription. Cost incurred related to issuance of preference
shares amounted to P50,000.

PROBLEM 6- Callable Preference Share

On January 2, 2015, Coco Corp. issued 10,000 callable preference shares with par value of P100 at P120
per share. On June 5, 2015, the preference shares are called in at
Case 1: P150 per share

Case 2: P100 per share

Page 1 of 6
 COLLEGE OF BUSINESS
MANAGEMENT AND ACCOUNTANCY

PROBLEM 7- Redeemable Preference Share

On January 5, 2021, Global Co. issued 10,000 preference shares at the par value of P100 per share. The
preference shares have a mandatory redemption by the issuer for P1,200,000. Global paid P100,000
dividend on March 1, 2015 and the preference shares are redeemed by the issuer on April 15, 2021.

PROBLEM 8- Convertible Preference Shares

The following information are gathered from Saw Company:
Preference share capital, 10,000 shares, P100 par P1,000,000
Ordinary share capital, 200,000 shares authorized,
100,000 shares issued, P30 par 3,000,000
Share premium- PS 200,000
Share premium- OS 1,000,000
Retained Earnings 2,000,000

Case 1: The preference share is converted into ordinary share in the ratio of one preference share
for three ordinary shares.

Case 2: The preference share is converted into ordinary share in the ratio of one preference share
for five ordinary shares.

PROBLEM 9- Preference Share with Share Warrants (Relative Fair Value)

On July 1, 2021, Joji Company issued 20,000 preference shares of P100 par value for P3,250,000 with
20,000 share warrants to acquire 10,000, P50 par value ordinary shares at P60 per share. On that date of
issuance, the market values are:
Preference share ex-warrant P120
Warrant 10

On August 4, 2021, 10,000 warrants are exercised.

On September 30, 2021, the remaining warrants are expired.

PROBLEM 10- Preference Share with Share Warrants (Intrinsic Value)

Kimberly Company issued 1,000 preference shares with par value of P100 for P135,000. The preference
shares included 1,000 share warrants that entitle the holder to acquire 500 ordinary shares with par
value of P50 for P70 per share. The fair values of the preference shares and share warrants are not
available. However, the ordinary shares have a fair value of P100 per share.

PROBLEM 11- Purchase of Treasury Shares

An entity reacquired its 2,000 shares with par value of P100 at P150 per share.

PROBLEM 12- Reissuance of Treasury Shares

An entity reacquired its 2,000 shares with par value of P100 at P150 per share. Subsequently, the
treasury shares are reissued at
Case 1: P200 per share

Case 2: P100 per share

Page 2 of 6
 COLLEGE OF BUSINESS
MANAGEMENT AND ACCOUNTANCY

PROBLEM 13- Retirement of Treasury Shares

Ordinary share capital, 50,000 shares, P100 par P5,000,000
Share premium- OS 500,000
Share premium- treasury shares 100,000
Retained earnings 1,000,000
Treasury shares, 5,000 shares at cost 750,000

All treasury shares are retired.

PROBLEM 14- Donated Shares

On January 4, 2021, Melanie Corporation received 1,000 shares with par value of P100 and fair value of
P120 per share from a shareholder as donation.

On June 3, 2021, Melanie Corporation reissues the 1,000 donated shares at P130 per share.

PROBLEM 15- Cash Dividends

The Board of Directors at their meeting on November 30, 2021 declared a dividend of P20 per share,
payable April 30, 2022, to shareholders of record on December 31, 2021. The entity had 20,000 shares
issued and outstanding with par value of P100.

PROBLEM 16- Property Dividend

On November 1, 2021, an entity declared a property dividend of equipment payable on March 1, 2022.
The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1,
2021. However, the fair value less cost to distribute of the equipment is P3,100,000 on December 31,
2021 and P2,000,000 on March 1, 2022.

PROBLEM 17- Stock Dividends

Share capital, P100 par, 20,000 shares authorized,
10,000 shares issued and outstanding P1,000,000
Share premium 500,000
Retained earnings 500,000

The fair value of the share is P150 per share.

Case 1: The entity declared dividends of 2 shares for every 10 shares held.

Case 2: The entity declared dividends of 1 share for every 10 shares held.

PROBLEM 18 - Total Stockholders’ Equity

Kaye Company provided the following adjusted trial balance at year-end:
Share capital P15,000,000
Share premium 5,000,000
Treasury shares, at cost 2,000,000
Unrealized loss on forward contract designated as
cash flow hedge 1,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translation adjustment- credit 1,500,000

What amount should be reported as shareholders’ equity?

Page 3 of 6
 COLLEGE OF BUSINESS
MANAGEMENT AND ACCOUNTANCY

PROBLEM 19- Comprehensive

The shareholders’ equity section of Bunta Corporation’s Statement of Financial Position as of December
31, 2020, is as follows:

Ordinary share capital (P5 par, 250,000 shares

authorized, 137,500 issued and outstanding) P687,500
Share premium 275,000
Total paid-in capital P962,500
Unappropriated retained earnings 667,500
Appropriated retained earnings 250,000
Total retained earnings 917,500
Total shareholders’ equity P1,880,000

Bunta Corporation had the following shareholders’ equity transactions during 2021:
Jan 15 Completed the building renovation for which P250,000 of retained earnings had been
restricted. Paid the contractor P242,500, all of which is capitalized.
Mar 3 Issued 50,000 additional ordinary shares for P8 per share.
May 18 Declared a dividend of P1.50 per share to be paid on July 31, 2021, to shareholders of record
on June 30, 2021.
Jun 19 Approved additional building renovation to be funded internally. The estimated cost of the
project is P200,000, and retained earnings are to be restricted for that amount.
Jul 31 Paid the dividend.
Dec 31 Declared a property dividend to be paid on January 10, 2022, to shareholders of record on
January 5, 2022. The dividend is to consist of equipment with a carrying value of P150,000.
The equipment’s fair value at December 31, 2021 is P157,500.
Dec 31 Reported P442,500 of net income on December 31, 2021 Income Statement.

1. The balance in the ordinary share capital account at December 31, 2021 should be
a. P1,095,000
b. P1,087,500
c. P937,500
d. P687,500

2. The balance in the share premium account at December 31, 2021 should be
a. P425,000
b. P125,000
c. P275,000
d. P250,000

3. The balance in the unappropriated retained earnings account at December 31, 2021 should be
a. P921,250
b. P713,750
c. P200,000
d. P721,250

4. The total shareholders’ equity at December 31, 2021 should be

a. P2,233,750
b. P2,283,750
c. P2,083,750
d. P2,371,250
Page 4 of 6
 COLLEGE OF BUSINESS
MANAGEMENT AND ACCOUNTANCY

PROBLEM 20- Comprehensive

CAPSIE Company was formed on July 1, 2018. It was authorized to issue 600,000 shares of P10 par value ordinary
shares and 200,000 shares of 8% P25 par value, cumulative and nonparticipating preference shares. CAPSIE has a
July 1-June 30 fiscal year.

The following information relates to the shareholders’ equity accounts of CAPSIE Company.

ORDINARY SHARES

Prior to the 2020-2021 fiscal year, CAPSIE Company had 220,000 of outstanding shares issued as follows:

I. 190,000 shares were issued for cash on July 1, 2018 at P31 per share.
II. On July 24, 2018, 10,000 shares were exchanged for a plot of land which cost the seller P140,000 in 2012
and had an estimated market value of P440,000 on July 24, 2018.
III. 20,000 shares were issued on March 1, 2020; the shared had been subscribed for P42 per share on October
31, 2019.
During the 2020-2021 fiscal year, the following transactions regarding ordinary shares took place:

2020
Oct 1 4,000 were issued for cash at P46 per share.
Nov 30 CAPSIE purchased 4,000 of its own ordinary shares on the open market at P39 per share.
Dec 15 CAPSIE declared a 5% stock dividend for shareholders of record on January 15, 2021, to be issued on
January 31, 2021. CAPSIE was having a liquidity problem and could not afford a cash dividend at the
time. CAPSIE’s ordinary shares were selling at P52 per share on December 15, 2020.
2021
Jun 20 CAPSIE sold 1,000 of its own ordinary shares that it had purchased on November 30, 2020 for
P42,000.

PREFERENCE SHARES

CAPSIE issued 100,000 preference shares at P44 per share on July 1, 2019.

CASH DIVIDENDS

CAPSIE has followed a schedule of declaring cash dividends in December and June with payment being made to
shareholders of record in the following month. The cash dividends which have been declared since the inception of
the company through June 30, 2021, are shown below:

DECLARATION DATE ORDINARY SHARES PREFERENCE SHARES

12/15/2019 P0.30 per share P1.00 per share
06/15/2020 P0.30 per share P1.00 per share
12/15/2020 - P1.00 per share

No cash dividends were declared during June 2021 due to the company’s liquidity problems.

RETAINED EARNINGS

As of June 30, 2020, CAPSIE’s retained earnings accounts had a balance of P1,380,000. For the fiscal year ending
June 30, 2021, CAPSIE reported net income of P80,000.

In March 2020, CAPSIE received a term loan from DME National Bank. The bank requires CAPSIE to establish a
sinking fund and restrict retained earnings for an amount equal to the sinking fund deposit. The annual sinking
fund payment of P100,000 is due on April 30 each year; the first payment was made on schedule on April 30, 2021.

1. What is the ordinary share capital account balance at June 30, 2021?
a. P2,350,000
b. P2,320,000
c. P2,510,000
d. P2,500,000

Page 5 of 6
 COLLEGE OF BUSINESS
MANAGEMENT AND ACCOUNTANCY

2. The total share premium – ordinary shares at June 30, 2021, is

a. P5,435,000
b. P5,579,000
c. P4,970,000
d. P5,693,000

3. The unappropriated retained earnings at June 30, 2021, should be

a. P788,000
b. P571,000
c. P217,000
d. P1,033,000

4. The total number of ordinary shares issued and outstanding at June 30, 2021, should be
a. 248,000
b. 251,000
c. 232,000
d. 235,000

5. The total shareholders’ equity at June 30, 2021, should be

a. P13,117,000
b. P13,576,000
c. P12,783,000
d. P13,000,000

-----end-----

Page 6 of 6