Chapter 18: Accounting or Prssiions, Contingencies, aud Othe,
PROBLEM 18-51 Other Liabilities ~ Refundable Deposits Lichen,
Here Company sells ts products in reusable containers. The customer
Chapt 19
Haren 10; te? b Shana Eqn
it ‘ oh ;OUNTING
‘a deposit for each container delivered and receives 2 refund for each gel aces IG FOR SHAREH :
returned within two years after the year of delivery. COntang (OLDERS’ EQUITY
EOINTING STANDARD REFERENCE(S},
‘The company accounts for the containers not returned within the time j KOS Franca Instruments: Presentation
being retired by sale at the deposit amount. mit ag | gg
Gpapter Outline: ——
vided the folowing information for 2022: et Produetion to Shareholders Eau
Se 1 cin She ety
: 75,000 3 Accounting for Treasury Shares, Rights Issue, an.
at 215,000 290,000 3+ Regained Eamings ~ Dividends” Shae Sls
: _5._ Retained Earnings ~ Appropriation anc Quas-Reorganization
Deposit for containers delivered in 2022 390,000 Sree
(PART a: ntroduction te Shareholder” Eq
Deposits for containers returned in 2022 from deliveries in:
2020 45,000 Equity
2022 143,000 313,000 .
es ae
‘On December 31, 2022, what is the liability for deposits? & ae fer to the difference between assets and liabilities of an
milters eo ee SS ea ee eee ee
PROBLEM 18-51 Answers & Solutions Guide - spastic
ZEEQRLEEL 051 Anewer Sletios Guts ———
Less: Deposits refunded during 2022 (313,000) = Another term for equity used in sole proprietorship,
Las Deets in nr —asr) “(30.00
Liability for deposits, 12/31/2022 337,000 + Under this concept, the ending balance of OE is
commonly computed as follows:
OE, endit
Y Partnership
aa xrm of business ownership that is run and owned by two
yr more persons bind themselves to contribute property,
industry and money with the intention to divide profits anc
losses among themselves.
* Gapital
+ Another term for equity used
interchangeably used as0 in
inparnershi, although,
sole proprietorship.
963 v
hapten (9: Accsnatng fon Shas is
Under this concept, the ending balance of cy °y,
‘commonly computed as follows: cong?
Refers to a legal entity with the right of stcession ana
powers, attributes, and properties expressly granted pot®
or asa result of its existence. 1,
A corporation is @ legal or juridical person with sexe
SeS"goiner personaly from the Indvdualshatag®
who are amalgamated into one corporate body as nat
persons.
‘The corporation is not @ person In fact or realty, bute
law treats It as if it were through process or fiction.
‘The corporation is made up of shareholders or member,
however they are not the corporation.
Shareholders’ Eauity
+ Another term for equity used in corporation,
General Components of shareholders’ equity includes
© Share Capit
‘0 Pertains to the portion capa
that represents the total
of the shares issued.
‘© Contains common and preferred stocks
© Additi -in_capital (API
‘premium a
© The portion of the paid-in capital
or stati
represents excess over the par
value.
© Common sources of
1. Excess of issuance pri
stated value,
2. Resale of treasury shares at more
is cost
3, Issuance of share warrants.
964
Chasen
4. ‘Donated canna’ *” SM Egat
5. Quesi-reorganizatios
Feceptalzaton
6. Distribution of dvdends,
* Retained earnings
© The accumilated bal
lance of
Emo, der dons, grt peed
rors, and other catal adjustrents
loving ar some ote ky tes tat re ety we in
‘Subscribed share capital
The part of the authorized share capital that hi
2 2s been
sacibed but not completely paid and hence remains
Authorized share capital
to the amount fixed in the articles of |
n.
carrying amount ofthe revalued asset.
‘Treasury shares
‘Refer to corporation's own shares that have been issued
‘and then reacquired
Par value share
‘J. A form of share capital whose value is specified in the
articles of incorporation and reflected on the stock
certificate,
V The par value's used to determine the share’ minimum |
issue price.
‘capital without any value appearing on
fock certificate. This is the main reason
usually the isuance price
re, a no-par share is
Furthermore 2 n-Par Se Consieratn for which Rs
(or stated value based on the cons
issued.
ee aaa
965 Chapter 19: Aecounting for Si
F Based on the Corporation code, the vant
fr consideration for no-par share is PS,” Pray
Ordinary Share Capital
J if there is only one type of share capital, it my
‘ordinary share capital NS ip
¥ Ordinary shares derive their name from the fact
shareholders have the same rights and prigigt®
‘Ordinary shareholders do not have a preference oye
another. i
The key advantages of being an ordinary stockha
includes: all
The ordinary share grants the owner the igh
vote,
© To share inthe profits;
‘¢ To subscribe for increased share capit
through their pre-emptive right, which means tha
before hares are offered to outsdes,
ordinary shareholders have first access to them.
‘en the event of a liquidation, to share in all ass
‘after creditors' and preference shareholders’ csirs|
hhave been satisfied.
WV. The key disadvantages of being an ordinary stockholder
Includes:
© The ordinary shareholders have no fixed or
return on investment.
Their financial rewerd is dependent on tH)
operations of the entity. |
eT the entity is exceptionally profitable, Ye
holdings of ordinary shareholders will becom)
more valuable.
+ Conversely, if an entity suffers losses, these
inary shareholders’ equity Wl
fever assets are avaliable t 5
residual claims.
® Preference Share Capital 3
7 the tem prefered share refers tothe eights Prom
to stockholders.
eo
Chapter 19;
Tv Trike evertot a iquamioe gee Slanetdos'
to the preference shararongtne Preferences usually refer
net ase,
role cms on cvdends aed
chanel tne mde ee
Example: 3
A holder of 8 P10 par va
210 par value, 10% preference
cnttled shore fs
fo an annual dividend of 10% of P10 or Pt i
declared,
Legal Capital
‘¥ Pertains to the portion of the paid-n capital resulting
the s5ng of sare capital that cannot be retuned
har in any way throughout the corporation's
The folowing formulas used to deter
ne lea capt
1 The aggregate par value ofthe shares sued ond
Stbseied i he egal apa the
value shares, uae
‘© Legal capital isthe total consideration received from
shareholders, including the excess over the stated
value, in the case of no-par value shares.
© Thus Fund Doctrine
The trust fund doctrine states that a corporation's share
capital is treated as a trust fund for the protection of
creditors.
‘VAs result, returning such legal cept! to shareholders,
‘during the corporation's itetime is prohibited.
The corporation, on the other hand, can pay dlvidends to
shareholders, but only up to the amount of retzined
earings.
> Accordingly, itis legal to pay didends ifthe endy has
a deficit.
> Deposits on subscriptions to a proposed increase in stare cpie! TOY
be reported as part of shareholders’ equity as 2 separate tem Inthe
St emully section, Se
967 > Memorandum Method
To record the authorized share capital, 0 entry is made
© Only a memorandum is made for the total authorized share
Received full payment for 60,000 shares originally subscribed.
Issued the share certificates for 60,000 shares which are f
When share capital is issued, It is credited to the share *
account. any
cme eet
A
tion 19.4
"An entity received authorized shares amounting to P5,000,000 diy
into 500,000 shares with par value of P10. ig
Memo entry
‘The entity was authorized to issue share capital of PS,000,000, digg
into 500,000 shares with par value of PLO. |
Received subscription to 100,000 shares at par.
[Subscription recenable __1,000,000.00
Subscribed share capital 1,000,000.00
Collected 25% of the subscription receivable.
——_——
[Cash 250,000.00
Subscription receivable 250,000.00
[ear 50,000.00,
‘Subsctionrecevable 450,000.00
subsctotion price (60,000 x 10) 600,000.00
Less: Parte peyment (25% x 600,000) __{150,000.00)
Balance “450,000.00,
iets es welled eo tt
uly sete
[Subscibed share capkal 60,006.00
Based on the Corporation Code, the shares are isued only
‘subscriptions are full paid.
Received a cash subscription for 40,000 shares at par-
iota
‘The share capital account
subscroton.. ' directly credited when there isa cash
@ By debiting unissued share capt
share capital, the authorization
‘and crediting authorized
recorded. ‘tm Issue share capital is
The unissued sha
Tapas sued, 2 APRA! account is credited when share
Tastration 29.2:
Hlustne same information provided in lusvaton 19.
tarbertinent journal entries per transaction: 9.1, the folowing wil be
‘Trissued share capital 5,000,000.00
‘Authoriaed share captal
Subscription receabke ——_1,000,000.00
‘Subscribed share captal
Cash 250,000.00
Subscription receivable
cach 450,000.00
Subscription recevable
Subscribed share capital 600,000.00
Unissued share capital
400,000.00
Issuance of Share Capital
> When par value shares are sold, the proceeds are credited to the share
capital account up to the par value, with any excess being recognized as
share premium.
Sipe eed ej ct eee ener
(Tus
istration 19.3:
| Me Company issued 35,000 shares, wth apr vu of P20 er tre atta
© Question: What is the appropriate joural ent ‘@ Answer:
[cash
‘Ordhary share captal
value of the issued shares.
> When shares without pa
Scere is ceded to shoe premium.
Iustration 19.4:
0 each,
& question: What is the appropriate journal entry?
@ Answer:
00,000.00,
pal 80,000.00
20,000.00
[cash
‘Ordinary share car
Share premium
Share premium reflects the excess ofthe Esuance pice over ns
value are sol, the proceeds shall be
to the share captal account tothe extent of the stated vaiue
Rafael Company issued 10,000 shares, with a stated value of PS per share, a
“Tne discount share ca
© Ftotlshreholers eau
cl
iy, count seated a a deduction Re
rtis worth noting thatthe roht
” only applies theif issue ofa shane
Srthat sare by the entity.
‘sug shares at 2
Nota treqet ante
os
iccoding to PFRS 2 Daagraph 10, ety
, shal
Spd services received, 0s well os the
the fair value ofthe go. Corresponding
oved payment transactions,
>
measure the goods
increase in equity, at
‘eres eaves or enutyseted Se.
Beh ott at areal Suet
| ere Smet ot
SS rest ren y ogee ees ee
reference to the fair value ofthe entity instruments used e
pert, OF services, the share capital is
When shares are issued at discount
"> Shares are considered to be Issued at @ discount when they are sol fr
Jess than par or stated value.
> The issuance of shares at a discount is prohibited under our Corporator
Code. As a result, when 2 shareholder sells a share at a dlscount, te
‘discount /s not considered a loss to the issuing company, but te
shareholder is held lable,
> Asa resit, the issue of the share therefore Is not canceled but te
shareholder must pay for the discount.
> A discount should be accounted for separately because it
Investment deficiency.
Tilustration 19.5:
each,
% Question: What is the appropriate journal entry?
@ Answer:
35,000.00,
10,000.00
[csr
Discount on share capa
Ontinary share captal 45,000.00,
970
er of priority:
3. Par value of the shares issued.
Tilustration 19.6:
‘Accompany acquired machinery for P2,000,
with 2 par value of P12 at a price of PIS
value
® Questior
the appropri
* '® Question 2: Using fair value of the shares Issued, what isthe appropriate
Soumal entry?
tion 3: Using par value of the shares issued, what isthe appropriate
entry?
|| Mectinery 7000, 000.00
Ordinary share capital
| Sia yen
PL
(ose)
> oper vlue of the shares issued
aval 1,200,000.00
a stares ate sed SE epage fr Serves a Hav Aen
> Shares may
can es asm 0 De P5000 wth reason
v
[Legal expenses
‘Ordinary share captal
‘Share premigm
‘Share Issuance Costs
> Share issuance costs are the direct costs associated with the
rendered.
PRS 2,
cordance with applicable law an ,
inser camer the saree a6 rtd
caerare ef ele af the shares issued, whichever is mare ye
determined.
6,000 ordinary shares with a par value of PO to
services in organizing the corporation. T
typically include legal fees, CPA fees, und
isions, the cost of printing certificates and documentary sts
s, and the cost of advertising and promotion oF nen
related
According to PAS 32, paragraph 37, transaction casts arecty reat
the issue of additional shares shall be deducted from equity,
associated income tax benefit.
at
1n other words, share issuance costs shall be deducted from the
Premium after the issuance of the shares,
©
If the share premium is inadequate to cover such charges: gs
determined that the excess should be credited to. “share SUIT i}
{and reported as a contra equity account as a deduction from the|
in order of priority
1, Share premium from previous share issuance
2, Retained earings
972 i
: Chat, Aa 7
‘The Philippine Interpretations
‘ociated with stock marke tin
{b the issuing of new shares,
Commitee concuded that "casts
oes
ela eae wma
re etatioal oes
Igy SPM ty oe ond ey
Promptly recorded as an expense ‘upon
incurrence.
> Costs of listing shares include the folowing: °
{Broker commission
2. Road show presentation
3, Public relations consultant's fees
aint costs
1 ecording to PAS 32, paragraph 3, transacton cots
ng andl sane of ne shares, 5 wel ab Wao
‘ust be shared between nen sued and eed ence
red newy listed exising shares, However PAS 92 ae seat
recommendations about te alocaton methodology ke os
> Acordng to the Phipine Inteetatins Commit, the jot
Shal be allocated or rata on the bas of unas femy ecen
Ine shares and outstanding nl Ise ols entre san
‘ode provides that the board of crectors may declare
's due and payable at any time.
iclal declaration Is referred to as 2 call, and itis typically made in
Cf @ board resolution spectying the date for payment of unpaid
ons.
8 shareholder falls to make 2 payment on the specified date,
the shareholder is declared delinquent, end the delinquent
share is sold at public auction.
At the public auction, the highest bidder will receive as many
delinquent shares as necessary to cover the unpeid subscription,
interest accrued on the subscription, advertising expenses, and
other costs of sale.
‘¥ The highest bidderis te individual viling to pay the
offer price for the delinquent shares in exchange for
the least number shares. Typically, the offer price
© Interest accrued on the subscription due
73 Chapter 9: Acnartng for Sharla:
expenses of advertising and other «©
sie cout
Che '9: esting
} The offer price is com; Sharcebdow"
Subscription receivable = ME ‘ong
interest ;
Expenses on deinauency sale 32:00
Total
af shares at par value of P10, paying
nce was called, and he
There are currently 9
corporation has the
bidders. 85 previous)
right to bid in ly stated, the
‘Nika 40,000 shares id in the absence ofa bidder or
Niki 50,000 shares:
Niko 60,000 shares:
® Question: WhoIs considered the highest bidder?
@ Answer: "counting for Callable Preference Shares
rei is clearly the highest bidder. As a resi, all 200,000 shares | A callable preference share is one that
Geemed fully pald. Nika receives 40,000 shares, wile Mack, 4 peice atthe entity's discretion ‘can be redeemed at a specified
|___ original subscriber, receives 60,000 shares _____ |
E > In contrast to redeemable preference shares, callable
a i ara eg ae | thave no fixed redemption date because they are meee
> In the absence of bidders, the 1ay purchase the delinquent “call
shares for itself. The del iber is then released fem
liability for the deemed fully
Easels |
Using the same informs tion 19.8:
Mack subscribes strares at P10 par value.
1,000,000
Subscribed share capital 1,000,000
‘Problem: What Is the appropriate journal entry to record he lsunce
the preference shares? : ~ Cece
°
ash 800,000
Subscription receivable 800,000 Cavemen
‘© Mack defaults when the subscription balance is called.
Receivable from highest bidder 200,000
‘Subscription receivable 200,000
The entity pays 45,000 in expenses related 2
delinquent share auction.
‘Receivable from highest bidder 45,000
Gash 45000 |
perce onesie ge tea Le es
974 > 7s shares are called in at a price greater
is debited to retained earnings,
> When preference
triginal price, the excess:
excess of the cal price over the Par value of ys |
lowing:
nce ofthe preference share
| Retained earings
en preference shares are caled ina ls th
nen reer: py credo 0 Share premium rane
defined as:
sr preference share that provides fr mandatory redemption by
serra wed or determinable amount ata future date,"
“& Acpreference share that gives the holder the right to requ the
ener to redeem the instrument for a fixed or determinable amour.
ata future date.
Note:
y Depending on the redemption date, a redeemable preference sha
shall be classified as current or noncurrent financial liability.
To eee
‘Tilustration 19.10:
‘At-a par value of P10 per share, Aga Company issued 100,
‘Shares. The issuer Is required to redeem the preference shares
@ Problem 4: What is the appropriate journal entry to record the issuance
the redeemable preference sheres?
= |
[fo record the lesuance of redeemable preference shares:
[cash
preference
1,300,000 |
1,300,000.00
Redeemable preference shares
@ Problem 2: What if redeemable preference shareholders were pad
220,000 worth of dividends, what would be the journal entry?
@ Answer 2:
interest expense
Cash
976
epee
at would be the journal entry
grasa
unseat
emt redeemed by the issuer fr Pi,400,00gp, PSTENe® shares are
ys
Be cference between he redemption pean
is accounted for 35 gal on rice an the financial abi
rena oer gt tan cere oy
__parogragh 66
1, an entity isued preference shares with a par
farence shares were exchange for cas Preference shores
are tts paid on these shares, but preference shareholders hve the
due the issuer to redeem them fr 6,050,000 on January one
‘@ problem: What are the appropriate journal entries tor re
matters in the transaction? reflect al the relevant,
5,000,000
Redeemable preference shares pee
Ipec-33
Interest expense (10% x 5M)
‘Accrued interest payable
550,000.00,
[edemable preference shares
cued interest payable
ah i Caper 19: Ae bor Shay, nyse
mie
sett nt se rn
occa cass Aas
+ scumpengnonncd eter va
Ae ae erin
Se "s
pp ee tae
> geese rats te
> Preference shares are usually convertible into common stock,
aa
| Breterence shar captal 20,000 shares, P100 par x
londnary share cata 200,000 shares authorzed, 80,000
|haresesved, P40 par
Isnae premium - PS
Isnare premium - onary
[Retaned earings
‘10
|e rb 8 a: ach rire hr comet i try
| Seta ale Seep mal oe!
Part 3: Accounting for Treasury Shares, Rights Issue, and
Share Splits
‘Nature of Treasury Shares
>. Treasury shares pertain to owned shares of the entity that have
and later repurchased but not cancelled.
A
> The following are three major requisites to be qualified 26
shares:
978 s
Cater: eng :
‘The shares must be owned by the ae Eguty
another company is not treasury, but rather an ines snares in
°
ec techy te
we. ares May be reissued at a discount without curing
aca ese
at least at par or stated value, eee
fed shares are identical in all other
‘equity rather than assets
4 The shares are reacquired but not cancelled,
>
‘Note:
Legal. liitations on treasury shares inludes:
‘The Corporation Code states that “no corporation shall redeem,
repurchase, oF rescquire its own shares, regardless of Case,
unless it has an adequate quantity of unrestricted retained
‘earnings to cover the cast of said shores”
4 Asa result, the corporation may acquire treasury sh
to the amount of retai ane
> Treasury shares must be valued at cost, regardless of whether they are
‘acquired at an amount below or above its per or stated value
> Trash is used to acquire treasury shares, the cost equivalent to the
25h paid,
lance on the acquisition of treasury
However, PAS 32, tates that ro gain or loss on the
acquisition, sale issue, or cancellation of an entity's equity
‘instrument shall be recognized.
979 Chapter 19: Accounting ior Si y
ses are acquired for wont wan So, Chapter 19;
te
> Asa rest if east ng the caring Valve ofthe non st “Gan 4 BH
ak ean Ponca Sec cin 15 ie
i = ' ays a TERE X2A0 srx2¢9n EO
pan en a 2.0090
Tilustration 19.33: 5 esas
Jerey Company had the following transactions: oe 5
feseaston ie
sued 10,000 shares with PB Par value at P12 ey, | :
January 1, 2021 1S" red 8,000 shares a PS per share, Zea, | pane —2.
=
Rec 600 shares fo PIO each Sea =
Resa prestrPs coh af tresury shares re rele below ts
Reissued 4,000 shares for PS. each. teen aen eae se hal eae
Retired 3,000 shares at PS each. | eee a of fe ca
Ore premium ~ easy shares
E Retained earings
v
[ior wens tm ar atts antl easy ues eee
wt ek hom te gure veniee
oe toad cortnetoeny ae ee
Eo
When originally issued, the common way of recording the transaction > Asstated earfler, treasury shares are accounted for us
We seat cash emounting to the’ total issuance price the crx fh ths case varus Ceaoury shares wee squved rare cas
‘rdinery share capital equivalent to the par value then share prem. therefore, careful checking ofthe units of treasury shares was made:
‘ordinary forthe excess of the total issuance price over Its par value, The latest reissuance of 4,000 shares composed of 2,000
“may sas (F9 x8000) rag00a0 shares costing P9 each acquired on February J,2021 end
per sae, "2 r sae |i. | 2,000 shares costing P7 each acquired on Api 1,2021.
| rsa snr x
> The treasury shares are intially recorded at its acquisition cost | sue saean Thesny set ee
Sie sem
|» subsequent, the reosury shares may be ressved or sol at
‘more than cost or Below cost. > When treasury shares are retired, the share capital accounts debited
at par or stated value and the treasury shares account i credited at
| 28 rs0x0.000) «0,000.09 cost.
sear 3.2021 “Tray et sae
Shee en 2
> If the retirement resuits in a gain, that is, if the par value of the
> No gatn or loss shot be recognized on the sole, purchase, Ee treasury shares exceeds the cost of the treasury shares, the gain is
cateton or the cocpony’s exty hstornent rected to the share premium from treasury shares.
Mlustration 19.14:
>> sa result, gain rom the sale of treasury shares shall not be cet
to income but recognized direty in equity as share premium. |
5,000,000.00
seniaons "eee 25200 100 a ass
> fin wey shares ar rece at cst, even his ne i “| a5.00000
el ee wereniem: ‘What will be the appropriate journal entry If treasury shares are
te es Ri een eee
9800 > 981 Share captal (10,000 x PSO)
Sry asm (10.00/10 00 450,000
Sho prem trey ses
8p
In the absence of a specific amount associated with the treasury sha, = |
TAarS emiom from the original isuance is cancelled pro-rata, Ste
Note: os
She following information shall be included in the dy,
| concering treasury sheres: ou
‘@ Number of treasury shares held.
‘The restriction on the distribution of dividends equal to
of treasury shares from retained earnings. theca
sg problem 2: Prepare memorandum ene,
tem 2: What if these donated shares
ser yare wat se arora puma aay Mbseauenty sod for piz0
problem 3: What these donated shares ae retred or
‘Brefesance, whats the appropriate joural eneyr "arene Before
eanswer tt
“pec shareholders as donation 100,000 ordinary shares with P100
par value.’
PAS 32, paragraph 33, states that when an entity repurchases ity | @ answer 2:
auty newuments, the treasury shares are deducted from eq Gish (120 x 100,000) 12,000,000.00
ed Capital
> According to PAS 32 Application Guidance 36, an ents ovn equ | bones 12,000,000.00
secon PS 2 Aplin Glens 36 on RS ay) sree 3: |
|____torthe reacquistton,
crt Shae Catal (P100 x 100,000) 10,000,00.09
> Example of Presentation of Treasury Shares: mamas
[Ordinary share capital, 100,000 shares, PSO par '5,000,000.00]
|Share premium 450,000.00
Retaned earings (of which P6S5,000 & appropriated for
1,000,000.)
‘Accounting for Donated Capital
'> Donated shares are those that an entity received as a donation fom 8
shareholder.
> Donated shares are actually treasury shares, they may be reissued at"
rice without incurring any discount liability.
secured ato cost, which has no effect on thes
shareholders’ equity, but reduces the nut
.
Rese ox ress of donated shares, onthe other hand, increases
‘and donated capital or share premium.
ym shareholders, including shares of an entity, shall be
value with a crecit to donated capital.
Entities occasionally receive gifts or grants of funds or other assets from
Ron-shareholders that are designated for property and equipment
additions,
received or recelvable, they must be
‘its or grants from non-shareholders are
lered subsidies and are therefore credited to income.
TF such items are net subsidies, the offsetting credit shal be ality
the restrictions are satisfied. When the restrictions on
grants are satisfied, the ‘capital gifts or grants are
transferred to income. Le Wnt te ag OD ik AE ere a
Assessment on Shareholders
rassessments on shareholders may be levied when shares y
Resear han coneny 69 UOTE NEE of
issued at discount, the dsoun
> wher shares ate ovina a
‘a receivable from the shareholder. is a,
Tiiustration 19.16:
T there is 2 dcount on share capital of 200,000 and the same cha)
shareholders asa result of a board of directors assessment, sy
(@ Problem 4: What is the appropriate journal entry?
@ Answer 15
Cash or share assessment recelvable 200,000.00 |
__ Discount on share captal 200,000.09, |
> when 2 corporation is in urgent need of financial assay,
Shareholders can vote tO assess themselves 2 certain amos
share owned. |
@Problem 2: If a company issues and sells 200,000 shares and te)
shareholders are assessed P30 per share, whats the appropri our a
@ answer 2: |
Castor sare assessment recevable
6,000,000.00
6,000,000.00,
Recapitalization
> Recapitalization occurs when an entity's capital structure changes.
‘ld shares are canceled and new ones issued.
1. WHAT IF:
All the 300,000 shares are called in for cancellation. st
300,000 no-par shares with stated value of PS are isH®
Ordinary share capa
Share premium
‘Ora hare
Share premium
*
Chapin 19,
is . cots fo, Shasatdns’ Equity
Fi re 900,05 stares are Caled in for cancelation, instead,
300,000 no-par shares with stated value or pag stom stead,
Valle ofPI8 are ees,
xd scot
Seem Sansn
fetaned cans anon
Crna stare capa (00,00 pig) 49,000.00 foal
Ghanges inthe pr vl ofa company's sack
charged or cece ee share peman M
>
1 creas in share capt exced share re
‘excess is charged to retained earnings. =
Change from par to no-par
Ordinary share cna nopar PO stated va, 30,
Fete eos Saeed ee
1, WHAT IF:
All the 300,000 shares are called in for cancellation.
Instead, 300,000 shares of PS par value are issued.
All the 300,000 shares are called in for cancelation.
Instead, 300,000 shares with par value of PIS are issued.
sm g0009
‘Orcnary share cepal P10 par, 300,000 tres sehen
Share premium 309.000.00
fetanedeamigs 233.0000,
985 Chapter 19: Hecoanting lr Startaey
ste journal entry to reflect the recapitalization ig; & 7
‘nary share contd 2 x 300,000) 600,000.00 ‘simple tip:
‘snare prerum - ection P Pi the, frst number in the share spit ara
tay, the second, such as 5-for-1, where Sis undoubted ees an
‘Note:
Ene par value of PO per share is reduced
Share ina recaptalizaion. en]
the unit market price.
© In this case, the company can sel me
shares at a ower price. The company ust
execute this kind of activity to accumu
funds.
Example:
Wiha par value ofP100, an entity hast
shares issued and outstanding. If Ye Se
are split up S-for-, the new capa
Would be 250,000 shares with par |
j
986 s
Corday share cata P10 sated abe, 300,000 shares ‘ing t
‘etabed eaings oun } > Aga, there must be no change In the an
gota in order fori tobe propery ter
“The journal entry to reflect the recapitalization is: ea bi tamed
nly the number of shares andthe par
‘ncnary sare cept (P2 ) 600,000.00 7 ar val
‘Shae premio - reap soy | > To record a share split, no formal entry is required,
‘Note: (ene ae > Amemorandum for the number of new share
re pe eral Amer mnie ts dn cage
|” per share in a recapitalization zal value, is sufficient:
© ‘Share split 100 new shares with par value of P20, as a result of 5~
‘J Two forms of share split include: I ‘of 50,000 old shares with par value of P100."
© Solitua
PPR splt up is a transection in vii
shares are cancelled and rep * Split down or Reverse share split
number of shares witha lover par value | + Spt down isthe opoaste of salt up.
valve.
+ Tels a transection In which the oxiginal
+ This action is driven mosty by a desire to sett shares are canceled and replaced with a
umber of outstanding shares in order tole ‘ower number of shares but wth the par
value or stated value being increased.
+ In this instance, shareholders can keep
their holdings in the company and selling
these shares may not be a priority for
them owing to an increase in the par
value or stated value, which may make it
dificult for investors to purchase.
Bample:
With a par value of P100, an entity has
50,000 shares issued and outstanding. If
the shares are split down 1for4, the
new capitalization would be 12,500
shares with par value of P400,
987 Acta siete
ares ei ral weg
oun of te ee ae, Howe
500 000 Tyas the nue f Shores,
Accounting for RIOHtS TSN. ane shareholders to enable them tg
fags sues ae Fee cringe spect period, "=
ilippines to indicate a righ
vce Plies 5
> Te oh fsioh eset
The erate or instrument proving OWNETEIP OV 2 Hh amy
‘asa share warrant.
seen as unt of shares the holder May PUrChaS® as Wel & he
Tre aint ofS spected on the shore Warrants cording
vn isuance
s Lis increased and new shares are,
When 2 compan’ share capt s ncreased and ne shar :
shareholdings before subs from the general public are accept
‘@ The right of preemption isa legal privilege granted to sharcholies
> The exerase pce i usually lower than the current market value of
shares.
. :
When share warrants are issued to existing shareholdes, no eb
Necessary because the warrants are” ‘normally issued
consideration.
> The entity just needs to make a memorandum eritry to show ee
‘ights have been issued to shareholders and how many shares
Purchased through the exercise of those rights.
Expiration of Rights
> For the expiration of rights, only a memorandum entry is necessa"
Exercise of Rights pet
> If the rights are’ exercised, a memorandum is prepared to
i, a pl
‘ett the number of sharesclanabe as ars ofthe OS
“ene
Chase 19,
The exercise of rights results in the sal
> Rtorded the usual way.
Accomnting jon Shanchaldens Equity
le of shares, which is subsequently
‘example:
so ted coo tit Gale
1 2 a eae PME et of
secon
a donc
‘800,
800,000.00
However, if an entity received cash amounting to P950,000 as a result of
the exercise of rights, which is PLS0,000 higher than its par values be
journal entry would be:
Oh aed 950,000.00,
‘Ordeary share ceo
00,000.00
‘Share premium
150,000.00
‘accounting for Preference Shares issued with Share Warrants,
> Warrants may be incorporated in the issuance of variols forms of
securities, such as bonds and preference shares, as an "additional to
‘make the securities more appealing to prospective investors.
> When share warrants and preference shares are issued concurrently, tho
securities are sold: the preference share and the share warrants.
> As a result, the received consideration will be allocated between the
preference share and the share warrants based on thelr market value.
Millicent Company issued 40,000, P60" par value preference shares for
3,500,000, along with 10,000 warrants to purchase 5,000, P80 par value
ordinary shares at P70 each. The market value ofa preference share ex-warrant
'sP100 on the date of issuance, whereas the warrant is P25,
+ Problem 1: What is the appropriate journal entry to reflect the issuance of
the preference shares and warrants?
+ Problem 2: What is th rate journal entry to reflect the exercise of
Warrants? eee
Market value Fraction
re (40,000 x P100) 4,000,000.00 40/50, 2,800,000.00
000 x P25) 1,900,000.00." 10/50 __700,000.00
§,000,000.00 —3,500,000.00-
>. To arrive at the allocated price, the fraction is calculated using the
‘market value and fultiplied by P3,500,000. Answer i:
cash
reference share capal (40,000 x P60)
share premium - PS
Share warants outstanding
@ answer 2: 350,000.00
ace 5 700,000.00
ccna a 000 x P80)
Share premium
Ir the warants are not exercised for any reason, the share
> eng accounts simpy closed and credited ty".
premum.
1. WHATIE: |
See varrants are not exercised, the journal erty wou te
‘Share warants outstanding
‘Share premium
Journal entry?
Preference share (20,
Waren (3,000,000
ct 3,000,000.00
Preference share ceptal (20,000 x P70) i
‘Share premum- PS
Shae warants cutstanding
The preference shares ex-warrant and the warrant have 2
market velue but the ordinary share has a market value ofS
What is the appropriate journal entry?
ee eee ee ewereg eae ta Re |
Imai vole of arnt
‘Mabel by: No of Oriya: wih werants 10.09
‘Total value of wareente = "™
‘som pce
| ies! Vat of share warns 300,000.00
| ‘Valve assigned te preferenca shares. 5 2t0000.00),
Szmes00.00-
cos
Preference share cata (20,000 x P70) ae
are perm = 3.
cm 4: Retained Earnings - Dividends
petained Earnings.
Accumulated profits"'s the IFRS term for retained earings,
>> Retained earnings represent the cumuictne balance of ing
@ Net income or loss for the period is
‘& Distributions of dividends
4 Prior period errors
© Changes in accounting policy
*
Reclassifications of some components of Other comprehensive
Income
© Other capital adjustments
jated retained earnings represent that component which
and can be declared as dividends to shareholders,
* Appropriated retained earnings are those that have been restricted
and hence are not available for dividend declaration,
A deficit occurs when the retained earings account has a debit
balance.
VA deftit is not an asset, but rather @ reduction in shareholder
equity.
“Accumulated losses”is the IFRS term for deficit Chapter 19: Accounting fon Shanehatge,
ide to sharehold: ony Chapeer 19,
me Ddends are payments made 1 shareholders In proportion
thay
J Based on te Pil
shareholdings of earings or capita board of rectors does
iti
renee, te declaration by the
further
> Classification of dividends include: approval
Dividends out of earninas |
"Dividends can be declared legally only from retaineg |
comings. |
Ifthe entity hasa defi It’s prohibited to pay di
ei the entity distributes dividends in excess of wets
: e
earings balance, the excess 's considered aya Pee cividends paid out of earrings are co
rani inthe form of
capt and 50 violates the ust fun doctrine @ > Gash Dividend
The mostpreveletsorofpayeutis aca
The Secures and Exchange Commision has determines ng alone, the term dvidend ustaly refers te Soren enone
stock dividends from premium on par value shares mat cash, Dividends canbe expressed in thefalowing ace
distributed. © A fixes sum of i ;
‘¥ The corporation's board of directors isin charge of delay
+, Aperomige of apr rad lt er
mee 10h der sat eee See eee
V When the board of directors legally declares dividends, thre mee
atev fe prin fr acon porpoces When cash dens are dec, 2 caren a
established by debting retnedcarings or Ure a
a reno dents ooo eco one
: :
‘The date on which the board of directors authoriae ‘¥ When dividends are dectared dur
the distribution of dividends to shareholders. in tt idends* ‘cost he mae
account 7 oy
ings.
re civdend declared during the years directly
+ Date of record 2 Ho
5 tained earrings, no objections can be raise
The date on which the stock and transfer book of he
‘company will be closed for registration.
‘¥ When the declared dividends are paid, the entry becomes debit
Onty stockholders who were registered on that day at cividends payable and credit cash,
cligible to receive dividends.
No entry is required on this date but a lst of bi; AtIts meeting on November 15,2021, the Board of Directors déclared a dividend
shareholder entitled to receive dividends is prepare {P30 per share, payable on February 15,2022, to shareholders of record on
enuary 15,2022. The entity had 50,000 shares with a par value of P8O issued
es ieee and outstanding,
willbe settled
+The date on which dividend liabi
paid.
“Distribution of non-cash assets to OME,
ity to pay dividend is recognized wher i
Gividend ts properly authorized and no longer at the discretion
‘company, which isthe date: oor
‘® When the dividend declaration by management or the bow
Girecors ifthe local jurisdiction does not require further 90
992. =
993 EE eee
November 15,2021 -Dedaration date a
Retained eamings 1,500,000,00
vlends payee
January 15,2022 - Record date
ro
February 15,2022 - Settlement date
Bacends parade :
41,500,000,00
© Property Dividend
V Property ci lso known aS dividends in king
distributions earings to shareholders in hg St
‘of noncash
V The Intemational Financial Reporting Interpret
Te ete a7 now covers he ccna ee
dividends. ropety
Property dividends are defined as. the “distribution of nce,
assets to owners." With regard to pro fends, there ae
on en
et ‘The-entity deciared
January 15, 2022 0
dividend to its owners at the asset’ fair value.
+ According to paragraph 13, the entity shall review ad
‘amend the carrying amount of the dlvidend due ate
end of each reporting period and on the dey
settiement, with any change recorded in equty 253
‘adjustment to the amount of distribution.
plies that the dividend payable i ints
recognized at the fair value of the noncash asset
the date of declaration and is increased or decree!
as a result of changes in the assets fair value
‘end of the fiscal year and the date of settlement
+ Settlement of property dividend payable 7
According to IFRIC 17, paragraph 14, We 3000.00 on ono
entity setties the dividend payment, the me
poebie ere aa Oe ne 32 ce in dividend payable atthe end ofthe reporting period
2 carrying
distributed is recorded in profit or oss ~=_—
Chapter 19: bo Share
> The carrying amount of the investment of P2,000,000 ise
because it Is less than the fair value of 3,600,000 gn Shan?
31,2021, Ort |
> The investment is measured on December 31,2021 af ig
amount. yy
January 15,2022: ment
Retained earinos 200,000.00
dens payable znomg
3,800,000.00
3,500,000.00,
"200,000.00
To record the settiement of the dividend payable on January 15,2022:
Far value ~ January 1
Far value - December
Increase in dividen«
Didend payable. 3,800,000.00
Tavesment fh equty securtes
‘Gah on detrbution of property clvkend
tend pabe - Dasa 15,2022 3,800000.00
| anys amour of weamere 3000000 20
| GSxch douwution of propery dividend —i,600,000.00 |
|
Company declared a property dividend «|
equipment payable on 022.
The carrying amount of the equipment is P1,500,000 and the fair valves
1,250,000 on December 1, 2021.
However, the fair value less cost to distribute the equipment is P1,100,000 0
December 31, 2021 and P1,000,000 on April 1, 2022.
@ Problem: Provide necessary journal entries to reflect the transactions
@ Answer:
‘To tecogrie the dividend payable on the date of declaration on Decembet +
Retained eamings 1,250,000.00
Dividends payable t 1,280
To recognize the decrease in dividend payable the report 7)
giDeta sae Payable at the end of 0
[ee Soe re et See gee ee
oan
gra eainas
rent on December
costo dt “2 he lowe of caring
$00,000.00
400,000.00,
conying amount
Grvaiae less cost to dstrbute
Smpairment loss
1 recognize the decrease in dividend payable on
Page YBble on the date of payment on Api
ove ae =e
tne canoe i
zi 100,000.00
fae A 400900000
4 —{1.100,000.00)_
Becta in ced tsar
Dyidend payable -
2022
(Gveg amount of the eauipment - December 31,202
Loss on distribution of property diviend
Note:
> IFRIC 17, paragraph 12, provides that if an entity gives its owners a
cchoice of either a noncash asset or a cash altemative, the entity shall
estimate the dividend payable ing both the fair value of
tive and the associated probabilities of owners selecting
each alternative. |
> At the end of each reporting period and atthe date of settlement, the
entity shall adjust the dividend payable based on the alternative
~—— chosen through equity or retained earnings. _____]
997 Tilustration 49.24:
On December 31,2021, Nica Company decared dividends on orn
payable on May 1, 2022. a
Mica Company agreed to give shareholders the option of receiving »
dividend of P500,000 o a property dividend inthe form ofa none
Inventory with a carrying value of P625,000 and a fair value Kot
Ry)
distribute of P750,000.
‘Mice Company anticipates that 60% of shareholders will chy
10se
dividend and 40% will choose the noncash asset. the
@ Problem 3: What if there Isa choice of cash dividend or & no
much would be the estimated dividend,
| entry on the declaration date?
nash
Pavan
(Problem 2: What fhe shareholders have chosen the cash aera
payment ofthe cvidend on May 1,2022, what wil be the corresponging ea
entry?
lem 3: What if the sharehole’s have chosen the noncash amy
fair vale ofthe inventory remained at P750,000 on May 12027 we
will be the corresponding journal entries to reflect the transactions?
1 Problem 4: What if the shareholders have chosen the Aoncash ati
‘and the fair value of the inventory is P825,000 on May 12022, what will bbe,
corresponding journal entries to reflect the transactions? ‘
© Answer 1: |
>If there is an option of cash dividend or a noncash asset as prose
‘lvdend, the entity shall estate the dividend payable by conse)
all essociated probabil
Cash atemative (60% x 500,000) 300,000.00,
Noncash alternative (40% x P750,000) 300,000.01
Dividend payable 600,000.00
> The declaration of the dividend is recognized on December 31,202:
Retained earings
600,000.00,
Dvidends payable
0 0008)
@ Answer 2:
Payment of the dividend on May 1,2022 is recognized as:
Dhtend payabie 00
= 600,000.01
Retaned earings
[Eaten arene ag eery St eee
peaking eee
chor
value ofthe Inventor 086 the noncash alter
$e ito heey ered eran a
oa 2 :
4soo00.00
E00
7300090
answer 4:
the shereoldes have opted chon ts
the far value of the brea ome
Estbison of te nonce
he nonce trative and
on May 1.2022, the
aed as felons:
etaned eamngs
# 2sp00c0
some
ames 225,000.00
fart -Nay 32022
Biden oye “December gsm
ines dividend aya —ieooen
Dated mabe 2520020
«2500000
scons
® Scrip Dividend
‘V Scrip dividends are ike notes in that they are official evidence
Of indebtedness to pay a sum of money at some future time.
Mlustration 19,22:
Script dividends are dectared in the am
Sere cen inthe amount of P350,000 payable in six months
Problem: What will be the journal entries on the declaration date and
tedemption date?
Sse te
‘Retaned earni sen
‘Ser dividend payable ee
Redemption date
neater ‘nie
LMSgE eens 8000 6% x12) 10500 0500.00
998 i 999 or cn re
oie ema uss oe i
serge at
oe
Orage
wise |
the date of»
v'' The only difference between the bi
and the result i the same, Both result In a decree Mey,
and an increase inthe company's obligation. The sg 03
between bond and srip dividends i thatthe former oS.
maturity date. Sag
Thus, although the Issuance ‘of bond dividends a
Company's long-term commitment, the esunc/ MX
dividends increases its present liabilies, Inthe cage &
dividends, stockholders have a stfonger claim aga
company than in the case of scrip payouts. ty
Bonds that pay dvgends always ave interes attached tg
This indicates that the company accepts a set respon
make annual interest payments on the principal amount}:
bond at the maturity date. It should be noted that the cone”
is taking on ths obligation in exchange for nothing mare a,
credit for decaring the dividend. :
Tilustration 19.23:
Dividends are issued in the amount of P1,500,000, payable in the companjs
| own bonds at a rate of 10 percent anc value of P1,500,000, Interests)
paid semi-annually. The bonds mature in five years |
@ Problem: Provide journal entries reflecting the complete cyce of te
transaction. |
@ Answer |
Deciaration of dividends:
150,000.00
2 see
Bond duidende payable,
‘Bonds payable
150009009 oan
Periodic payment of sembannual interest on the bonds:
bond:
‘Cash (P1,500,000 x 10% x 1/2)
7500.09 sat
Redemption of
Bonds payable
ca
sty te
000.00 0)
150,000.09 sy
1000 fs
Chapter
19: pemetg
fo Shondobios Et,
oon au eT Share idea,
share dividends are dsr butions of an
‘own shares. : nisty's earrings inthe form of ts
When share dividends ae decared, hy
ae effectively captalzed, or tere,
>
red tote ee earings
‘The entity's assets are the sam
dividends.
’
We before and ater the issuing of share
Share dividends only affect the components
resulting in @ decrease in retained eaminge bor t
but an increase in
copital. re
Cndnary share dhidends end speci share
Share dividends. ‘$7208 share cident are to tems for
> Dividends in terms of ordinary st
preference shares granted to r
special share dividends,
i to preference shareholders or
harcholders are refered to as
v
Ifthe share dividend is ess than 20%, the amount charged to retained.
the fair value on the date of declaration.
, however, cannot be less than the par or stated
wise, the amount debited from retained earnings is
‘equal to the stated value or par,
dividend since, empirically, It does notre
for the outstanding shares.
If the share dividend is 20% or more, the par or stated value is
capitalized because itis expected to have @ material effet onthe
share market value.
> _A share dividend of 20% or more's termed a large share dividend.
1001 Tlustration 19.24:
Some information about Mejia Company becomes available:
ower 1
‘Share captal, P100 par, 40,000 shares authorized, 20,000 SNe (10% 5 20,000) x 9209
shores issued and outstanding ‘aa ire payee (2,000 x P10,
Share premum 700009,
Retaned earnings oggen
‘The entity declared @ 20% share dividend, or 4 shares for every 19
owned, for a total share distribution of 4,000 shares (20% x 20,999 Si
issued and outstanding). Shay
pT should be noted that he sha
cniy be recorded tothe exent of enor pve acount shoud
@ Problem: What are the joumal entries on the date of decsraton |
issuance of share dividends? m4
Journ jecaration
eta esx P100) 400,000.00 |
‘shore saad
tis important to note that the amount capitalized 1s eau than
value of the shares.
The share dividend payable account Is an addition to share ents
tinea a statement of financial poston is prepared pris othe tee fends are Issued is often impel to dstbute full
othe share cidend nani
vider
"> Because a share dividend never reduces assets carat get one share for evry ten shares has 2a wt
dassified as a liability. .
+ Asaresult shareholder wth35 stares ete tree complete
Journal Entry - Date of Share dividend issuance shares and al on re.
oun Et - Dae ania and a fractional one-half sha
‘Share captel coco > There is no accounting concem ‘with the issuance of the whole shares.
The accounting issue concerns the fractional shares.
Illustration 19.25:
Cristina Company shows an excerpt information from his financial recorés
Share captal, P100 par, 40,000 shares authorized, 20,000 @ The entity may issue warrants for fractional shares and provide
sauieciond ‘outstanding 2 holders enough time to accumulate enough warrants fora full share.
Retained eamings ce % In lieu of a fractional share, the entty may pay cash.
Z This i “share dividends are pad from coined
& Problem 1: What ifa 10% share dividend is declared and the make 8 ‘ ae! pensciek ae a lana
of the share is P200, what is the appropriate journal entry to ref
transaction? The cash payment of share cidends is egal tte source of
the income is share premium.
& Problem 2: What if 2 50% share dividend is declared and the matt
of the share is P200, what is the appropriate journal entry to ref
transaction?
a
ividends
% Problem 3: In connection to problem 2, wi
journal entry
declared and immediately issued, what is th
Scare di is the appropri
ania de. 1003 Tilustration 19.26: =
“The following information were recéived from Carmina Company;
Share capt, P100 per, 20,000 shares sue
‘Share dividends decored
2 Problem a What s the apron uma ery When share cdg
declared?
a
shoe ae
1,000,000.00
4,000,000.00,
A :
When shareholders opted to receive cash instead of a sha]
dividend, the amount charged to retained earnings should '|
‘equal to the optional cash dividend.
9 the reporting period.
ce, the proposed increase and cise?)
be recorded in the statement off?
xl
These matters, however, should be stated in the fat!
statements notes,
rar Mating vided refers ta when
When dlissoNed and i hehe
sally pad tothe shareholders,» “MORE Felton idends are
> Returning funds to shareholders in
Is legal during the entity’ ifetime, Ith the mt fae theory
dividends not only
of retained earnings, but also ny a7 to ance
depletion.
4p to the amount of cumulative
that is mainly or primarily involved in
rces,
Id be P4,000,0002
2000.09 |
‘o0.00.00
40,000.00 |
> Any amount declared In excess of the retained eamings balance Is
recognized as liquidating dividends and applied to the capital |
Nquidated account, which represents 2 cation tt tal|
une Chapter (9: Aeenuating Yr Sharatay,
Dividend as expense
end Ba DEO, of uly nsrments shal be dete, "™% - Spt 1: Aer :
cut by te ent, according to PAS 32, paraoraph 35, "ay, Pitre toc rer ean fat ke
"® Dhidends out-of earings, in other words, are Issues may impose dividend payne reference share
retained earnings. Bee contractual appropriation, PY™*M* restctions leads to
However, distributions to holders of an equi
+ THs ensue thatthe bor
cS ds wl be pats
[eeignated ase nanco labiltyere treated the safe ng, | inte ue ns SE be eee
Sepersron a bond under paragraph 36, feet = at
> Dividends cassifed as an ewense may be included in the redemption” ard. eee Tari te bd
Zaterent eter wth eestor other obligations or a9 sayy oromraion, Tee Sire eet Ways deine te
ite, according to paragraph 40. ihe poropriaton,
© A redeemable preference sha tration ofan egy Voluntary appropriation
instrument characterized 2s . ‘¥ Management must exercise ds
J A redeemable. preferen one that fay vearage eon en it comes to
inant edenpion date or one hat mst be reece oe ee
folders discretion.
earings appropriated “for pant
+ Retained ‘ppropriated for increase in
working capita
* Retained earnings appropriated for
contingencies,
‘eamings to appropriated retained earnings.
> The purpose of the appropriation, whether legal, contract
al, oF
voluntary, is to /imie the dividend dectaration,
riated retain
@ Legal appropriation
The legal capital cannot be returned to the shareholders ut
the entity is dissolved and liquidated, resulting in a!
ay ij
+ Asa result, company buys its own stock, i must ie
enough retained earnings to do so; otherwise
Purchase is ilega,
+ Asa result, a portion of the retained earings mst
._ Setaside to cover the cost of the treasury shares
“Retained earings appropriate for treasury shares
reversed If the conditions for which ft was
ed ~
et
Illustration 19.28:
Wario Company paid P600,000 for gure vay oe |
treasury shares. Ifthe treasury shares are
oreeSSued by the end of the year, this would necessitate legal appropriation
term for this type of appropriation. F retained earnings,
£8 Problem: What is the journal entry to effect the transaction?
1006
1007
as "efetaned eas promtted for easy Sars
$ ete 9: Ant om Statin
‘J The dMdends dectared
is no effect on total retained earnings of total
© Tntty as 2 vesuf of te entry. Any bolance that has bean
art of the retained earnings.
deciucted from retained exp SH the year shall be
Furthermar
1ce of a cash fund en ees ony
2° Ey nae tt en ee en ag
Particulary reflected en
ree eA AMEN tthe
ey a is pein
income to be understated, the worst Per period's net
beginning retained earnings, “"%* ' added to the
. ro longer required, i in accounting pot
> When the appropriated balance is it wy 9 alcy causes the net income
Teverted to fee retained earings. W of ni pet be os he ett Sa
> treasury shares are reissued afterwards, the Spproprated bly
will be canceled.
Retained earings appropriated for treasury shares 00,000.00
is deducted from the
ings balance,
‘¥_If an appropriation is canceled, itis reversed or added
back to the unappropriated balance.
relates the income statement tote
n by displaying changes that direct ates
an entity's retained earn
> The statement of retained eamings Is now part of the statement ¢
changes in equity and 's no longer @ required component of the fant ition of the term "reserves" in any accounting
statement.
ial Framework. Reserves make up a significant
ty.
‘Note:
fetermined by whether the reserve is part
of distributable equity or non-distributable equity under the.
Antecaational Accounting Standard,
‘Net income increases retaine
lossis deducted. Profit or loss is the IAS’
or loss.
istriouted to shareholders
legal capital is known as
, ae s
rected beginning balance, the prior pe . aes ma ‘distributable equity” refers to unallocated retained’
an adjustment to the beginning ba
> The part of non-distributable equity that cannot be distributed to
‘¥ The amount of error is added to retained earnings the ||
shareholders during the enttys ifeime is known as non=
distributable equity,
ee | % Non-distriby jity reserves are Items other than the
5s ert | ‘aggregate par or stated value of share capital and unappropriated
¥ The amount of the error is deducted from retained &™ retained earnings.
if the prior period's net income is overstated.
‘® The following are included in the list of non-distributable items:
: a
4009 4 The asset revaluation reserve IS technically ey,
i 7
how the elem
changed over a certain period of time.
@ Total comprehensive income for the period.
@ The effects of chan:
terrors on each component
ult.
Profit or loss
Other comprehensive income items
‘air value through other comprehensive income (FVOCI)-
1010
nates from oo
Paefers to the excess of fair value or
Tepacement cost ofthe revalued property ‘echange inthe f
amount :
ty is a formal statement thet usta,
jonents of the shareholders’ equty fag
“The statement of changes in equity usually shows the following:
‘accounting policies and correctons
7
components of reve
tted by PERS to be re!
6
Unrealized gain or loss on debt or equity investments desir
emeasurements of defined benett =
extrecogrized Inthe crent year, Da SX & acta gin or
ability irevocab ae CER of wfc
nated at fair value through proft or los.
qussi-Reorsanlzation.
eoruasi-reoraarization is defined as the process of restating assets,
1 es, and share capital balances in accordance vith faves nonce
tp eliminate a defc.
missible, but not necessary, practice in
ed entity restates its books and makes an
known as corporate readjustment and
When a large deficit exists.
\
© When approved by the shareholders and crcitors.
higher than their cost.
© When a fresh start” appears tobe desirable or advantageous
to all parties concemed.
1011 lang
FINANCIAL ACCOUNTING AND REPORTING Tieop,.
L
ether assets of a corporate entity is popularly known ag
A. Contributed capital.
B. Retained earnings.
C._ Shareholders’ equity
D. Legal capital
Total shareholders’ equity represents
2 oe Gaim ageinst specific assets of a corporate entity,
B. a claim against the total assets ofa corporate entity,
the manimum amount that can be borrowed from the ey
entity. ron
. only the total capital contributed by the shareholders,
3. Which ofthe following statement about shar
‘A. Repots financial poston at a
B. Reports financial performance
Reports sources and changes of equity.
D._ Reports changes in cash between accounting periods,
holder's equit
ime. MY ome
of time,
4. Organization cost shall
‘A. Be capitalized.
B. Be deferred.
C_ Be expensed outright.
D. Not be recognized.
‘5. The residual interest in 2 corporate entity belongs to
A. The creditors of the corporate entity.
B. The preferred shareholders.
C. The ordinary shareholders.
D. All the shareholders.
6. Which section of the Statement of Financial Position shows the nt
Of shares of common and preferred stock that have been issued ard #
still outstanding?
‘A. Fixes assets séction.
B. Stockholders’ equity section
C. Current assets,
Accounting for Share Capital
7. Terepresents moni 96
ee nel that shareholders invest in a corporate e”!
. Preferred stock,
‘Additional paid-in capital,
). Paid-in capital,
sop
Chapter 19, Aecaswet
snares that have a fixed per-share amount prot, Sateen” Eutty
8. Seed ited onthe share certincate
ae ar value shares
Bleed valve shares,
3 Norstated vole shares,
B. Fixed value sheres.
e lue.
D._ market price.
10, It refers to the portion of the paid-in capital
10. fhe ares nsed that containe common anette OF
A. Share Capital i
B._ Preference Shares.
Share Premium.
DL Retained Earnings.
11, Contributed capital does not include
A. Share capital account.
B. Share premium account.
C. Retained earnings,
hese are included in contributed capital,
12. When par value shares are issued, the excess of the proceeds
par valve Is credited to which of the folowing? oe
A. Shi
shares are issued, the excess proceeds over stated
fed to which of the following?
13. When no-par
value shall be
A. Share cay
B. Share premium.
Retained earnings.
D. Gain on issuance of shares.
leasured by reference to which of the fol.
‘A. Fair value of the noncash consideration.
B. Carrying amount of the noncash consideration.
e ie of the shares.
Par value of the shares,
1013 19.
20,
5. IF shares are ki
ee eee
When shares aré issued In exchange for Property, which one”
* ine best evidence ofthe fair value of the transaction? “iy
eee
iret te Sain
© The price of the shares quoted on the stock exchange,
D. Any of the foregoing:
issued to extinguish a financial liability,
the
1 sive measured by reference f0 which ofthe following Eig,
CC. Carrying value
._ Par value ofthe shares.
When shares are Issued in payment for services rendereg, he
* Rast appropriate basis for recording the said transaction?
‘A. Fair value of the services. é
lue ofthe shares.
c iue of the shares.
B. any of these provides an appropriate ass for recy
transaction
more than one dss of share celta s issued ata beset
Tee Gir seling pce Is not equal to the sum of the market, ma
lo ved & bested between the classes of share captal sen
thei z
Aa rlative market vlve
Bi elative ook value.
C parvaue.
D. Sted value,
‘The excess of the subscription price over the ordinary share substi
shall be recorded as share premium when the
‘A. subscription is recorded.
B._ subscription is
subscription is 75% collected.
D. ordinary share is issued.
Subscription receivable from sale of shares which are not cles
within 12 months from the balance sheet date shall be presented *
AL Cirrent asset
8. Non-current asset ce
. Deduction from the related subscribed share capi
shareholders’ equity section of the statement of fnancal Po
D. Trade receivable
1014
subscription recevable from cle oy Atti fs Stan Egy
Si am wba heh a tt
yn Cuinent asset
A Nonrcurrent asset
Deduction from the related. subserinag
shareholders’ equity section ofthe saare’g rate, cptal_under
p. Trade receivable, ‘he statement of financial positon,
ate shal be presented as @
-rne portion of capt which
for during the ifetime of
fh Paid-in capital,
5. Restricted capital,
C._ Legal capital
tal
returned to
rater ed 0 octolders in any
ing best describes the
are caper Stal fs corperaton
ed and subscribes,
outstanding
Value of shares enue end subscribed,
raion resved or recevabe,
ing best describes the legal capital of a "
that lsues no-par value share capt? 2 CA! of & corporation
‘A. Stated value of shares issued and subscribed,
B, Stated value of shares outstanding
Stated value of shares authorized,
. Entire consideration received or receivable.
. The trust fund doctrine states that a corporation's share capitals treated
asa trust fund for the
A. protection of creditors,
B., legal capital,
deposits on subscristions
D. deft
more than its cost.
+ Dividends in arrears may be possible with
Common stock
8. Preferred stock,
Par value shares.
D. Treasury shares,
1015 standing shares are hall.
28. Outstanding Saree been authorized bythe state frig,
B. shares held nthe treasury.
C_ shares inthe hands of shareholders
5, shores that are performing well on the stock market,
ance,
29. Authorized share capital refers tothe total number of shares
‘A. outstanding, NN
Bisel
C._ that can be issued.
Issued and outstanding.
20. The par ye of stares sued 1 MEI ECE In yg
following? R
‘A. Adéitonal paid in capital account.
B. Share capltal account,
€._ Retained earnings account.
D. Any of the foregoing.
21. Whi ofthe folowing correct concerning he combo og
al account?
Total number of shares isued multiplied by par value per sag,
By Total number of shares issued multiplied by average price prin
share,
Total number of shares outstanding multiplied by market vale pp
share. a
32, When there is no bidder for delinquent subscription, the subs
shares declared delinquent shall be.
‘A. Reverted back to shares available for subscription or issuance,
jed to the delinquent subscriber.
ed in the name of the corporation.
of the above, at the option of the corporation.
33. Which of the foliowing features of preferred stock makes the se)
more like debt than an equity instrument?
A. Cumulative,
B. Participating,
Voting.
D. Redeemable,
34, Redeemable preferred stock should be... spot
‘A. Included in the contributed capital section of the stad
equity. tt
B. Included as an item under liabilities section af the state™
financial position.
Presented in the samé manner as treasury shares.
1016 i
ov *anting for Starchalders' Sgt,
n back het
fe eldea sock ther Wn stock, whichis own as:
peau
& commen stock.
5. Treasury stock
36
Shares held as treasury stock a
® fquidation. Te not entited to assets upon
C._ Shares held as treasury stock
cancelled, Include shares that has been retired or
, - Shares held as treasury stock hes no voting ight
437, The purchase of treasury ordinary shares
‘A. Decreases authorized ordinary share capt
B, Decreases issued ordinary sh
Decreases outstanding ordinary shares.
1. Has no effect on ordinary shares outstanding,
shares are purchased for a
account or accounts shall be debited? Trere tin par Yoh, vi
‘A. Share premium forthe purchase price,
Treasury shares for the purchase price,
. Treasury shares forthe par value and share premium for the excess
of purchase price over the par value.
, Treasury shares for the par value and retained earnings for excess
of the purchase price over the par value,
. Treasury shares are...
Issued Qutstanding
A Yes Yes
Bo Yes No
a) Yes
D. No No
40. When treasury shares are sold ata price above cost
AA .
BA |.
G Arevenue account is credited,
D. Share premium is increased.
41, Loss from sale of treasury shares shall be charged to which of the
fellowing? ;
A Loss on sale of treasury
8.
Share premium from treasur
D._Retained earnings and then share premium from treasury shares,
1017 42. Gain on retirement of treasury shares shall credited ty “toy
A. Income.
B. Share capital
(C._Share premium.
D._ Retained earnings:
43, Loss on retirement of treasury shares shall be charged t ic,
: ,
%
mum from treasury shares and then retaneg |
lum from treasury shares, share premium 400
‘ _
ieduance and then retained earings. =
‘unce and ne orga SLANE, Share Perum faq
Shares ond then retained earnings. ey
ich of the following statements best describes the nap
44, which of Sings of the purchase and subsequent sale oes
7 :
shorwtained eamings may never be increased but
decreased. Sone
Resained enrings sometimes may be Increased but a
decreased.
._ Retained earings account is always affected UNeSS the sep,
D.
exactly equal to cost. i
Retained earings may never be increased or decreased,
45, Number of shares issued exceed number of shares outstanding becue
hase of treasury shares.
D. Payment in full of subscribed shares.
46, The total cost of treasury shares shall be reported as
A. Financial asset.
B. Deduction from share premium.
C_ Deduction from retained earnings.
. Deduction from shareholders' equity.
AL No limit. .
B. As long as the corporation has enough funds earmarked
acquisition of treasury shares, a
. Only to the extent of the average net income for the past f¥@
D. Only tothe extent ofthe unrestricted retained earnings bala
1018 b
le 9 rt mo
sists TEE pre-emplve ight of an ordinary
Je Exclude preference: sherehols rom ea he iota
fore distribution "to preference
cc. Share proportionately in corporate
5. Share proportionately in any new taco Po" lauidetion,
Issue of shares of the same cass.
How to account forthe rights issued by ane
oe Gai a memorandum en is made, “™Y 28#in sharehldrs?
2. Ajournal entry is made,
C._ The event s ignored,
._ None of the foregoing.
59, An entity issued rights to the existing sharehok a
5 Crainary shares at more than par vue Share protease
Mteorded wien the rights ‘woud be
Ik become exercisable
Bare nies.
C. are exercised.
ck split is recorded by a
‘A. Memorandum entry.
B. Journal entry.
c Aand,
D. Aor, at the option ofthe entity.
52. How would a share spit affect the following?
Retained Shareholders’
earnings saulty
A Increase Increase
B Increase Increase
c. Decrease No effect
D. Noeffect No effect
Dividends
53. Which shareholders’ equity account is used to pay dividends?
A. Common stock.
B. Treasury stock,
Accumulated deficit.
D._ Retained earnings.
54. Dividend (other than share dividend) is recognized as tabity onthe
A date of declaration,
B. date of record
reporting date.
D.date of payment
1019 : cee
=a
ef for 3 share dividend,
B. 1 for 8 share dividend,
C1 for 3 share spl
Capi 19: Aecotig for Shanty, *
in which of the following dat Chapter 9; te,
55, Ajoural entry i not ad iat se sue sal rect charge rence Shai’ Eat
AA Date of decaraton. oe. Tee ‘earings forthe par vai of
}
56. Dvidends are dsubuted based on the number of shares
eects
io
2 ee
Sere
roperty dividend Is deciared, the dividend payable is me
9 we ee Sept S
‘A. Date of declaration.
fete
bye
sties the property dividend payable, it shal ren
own cm tt re FO ars
the carrying amount of the dividend payable in
A. Profit or loss
D. Equity
59, Ifthe board wishes to capitalize part of the entity's earings it mayisse
a :
A. Cash dividend.
B. Property cvidend,
C._ Stock dividend,
D. Liquidating dividend.
60. Ifthe share dividends declared is less than 20%, retained earningsst
bbe debited equal to the
Je ofthe shares on the date of declaration,
1e of the shares on the date of record.
1¢ of the shares on the date of issuance.
D. par value of the shares.
64, IF the share dividends delared is 20% or more, retained eins
be debited equal to the
‘A. fair value ofthe shares on the date of declaration.
@ ofthe shares on the date of record.
1¢ of the shares on the date of issuance.
D. par value of the shares.
5. 2 for 4 share spit,
oo elon ames en ems
which had @ par value of P100, At what amount shee eteoen
‘earnings be italized for the additional shares | ‘essed an
11, D corporation ‘sued a 10% stock dco eh mon stock
earnings be capitalized forthe additional shares issued? e
caren aa mnt
P cao tinier
é sane ern es
64. How would the declaration and subsequent issuance of a 10% share
dividend affect share capital and share premium, respectively, when the
fair value of the shares exceeds par value?
‘A. No effect and No effect.
B, No effect and Increase.
Increase and No effect.
D. Increase and Increase.
65. How would the declaration and subsequent issuance of @ 30% share
dividend affect share capital and share premium, respectively, when the
falr value of the shares exceeds par value?
A. No effect and No effect.
B. No effect and Increase.
Increase and No effect.
D. Increase and Increase.
66. A transfer from retained earnings to share capital is @ characteristic of
‘A. Share dividend but not a share spit.
B, Share split but not a share dividend.
C. Either a share dividend or share spit.
D. Neither a share dividend nor share spit.
67. The balance in "Stock Dividend Distributable” account should be reported
as a(n)
A. Current liability.
8. Contra-retained earings account.
. _ Addition to contributed cepital.
D.” Contrarasset account.
1021 68. Undistrbuted share cvidends shall be reported as fom ae
iy.
ares outtand. .
Chapin 19
_an appropriation of retained earings Stelios’ Egy
for futur pant expansion wi out
A. Acurrent
b hamies
€._ Areduction in total shareholders’ equity. ‘The establishment of a fur
1. A ciselosure in the notes. sing ach oe
Sim 2 Resseprea oat tenet cen vv,
qual increase in the ir West f
Jement does not intend route nt
69, A dividend which Is.
a retin t shartolers of & portion of py
ied "tg
fend
Feed statements are cored
share aden ings, except..." “Tt Concerring the appropriation
on of rend. comings
PEE, Sch lat earn NY A fr
on of retained eamings do not reduce total retained
liquidating dividend
rc gen stn
m pepe an esa
B._ Sale of treasury shares at less than cost.
t seerorae
Conversion of bonds payable into share capital.
of ‘retained eamings a
Hest, ings can be made because of
retained eari ‘
the board of directors. ngs can be made atthe id
77. Arestrction of retained earnings is most li
A. Payment of the last periodic payment of & ser
8, Funding of past service cost. aces
71, Dividends are not paid on
‘A. Cumulative preference share.
B. Redeemable preference share.
C_Non-cumulative preference share.
D. Treasury shares.
Retained Earnings
72, What does it mean when a company has accumulated losses? :
ice uty as patente capt
ne equity as part of other comprehensive income.
etek S_Gomponent of equty es prof toll retained earings,
i “omponent of cash,
D._ Retained earings.
CC. Purchase of property,
D. Purchase of treasury
78. Appropriations of retained earnings, if reflected in a separate account,
imary purpose of quasi-reorganization is to give’ an entity the
73. Which of the following is not correct concerning retained earnings?
A opportu
.Appropriated retained earnings shall be clearly distinguished fan
tunappropriated retained earnings.
B. deficit is a debit balance in retained earnings.
C. Whenever the retained earnings resulted to a debit balance, rte
earnings shall not be reported. Ds Form a new entity.
D. When the deficit exceeds the total of the other capital acct
~ _aalances, the excess is a capital deficiency.
80. Immediately after quasi-reorganization, the retained earnings account
‘A. remains the same,
B. frozen and dated.
Chas a debit balance.
74. Appropriation of retained earings is used to
D. has a zero balance.
Restrict cash,
Provide for a contingent loss that is probable and measurable
‘Smooth periodic income, ,
Restrict earnings available for dividends,
too i 1023
poe Pipe 1: Aeretog be Shaggy,
poe SI yee cy
Oe eae
of Corr ui
at they ty,
oy
t
ny,
3, The denominator in computing Book value per share isthe
* 4. Number of shares issued.
there are two classes of preference share with ee
4, In cases where — dividend rate sa
C Average
D. Weighted average
85. Which is incorrect regarding bor
FS enjoy priorities over ordinary shares
nds and distribution of assets in the event of cama
1024 —
Chapter 19:
‘SUGGESTED KEY ANSWERS,
1025
ole) eo) Ger
Fare] ES ese
=a | Cate zo
fate c & ete
fos B 4 mie
sls A & are
po7pan | c . are
a D B a
5 € 84] 8
ei A e5| Cc
2 c ‘ s
5 . A 37
8 3 A 2
‘A . ;
rel 2 c 90
4 ce A oL
£ < c 92
a 8 8 93
A g e 8
ni € D 35
2 o 5 96
n 2 8 7
A D s 7
D a g %
. £ D 100 Ee ae
I. FINANCIAL ACCOUNTING AND REPORTING poss“ a :
= ees aes ee what amount shouldbe reporeg cep Silt’ Ep
PROBLEM 19-1 suance of Shares fer Services Rendered a. MAN" 5,400,000 4,520,090 "= PROF
ain reahet 600 stares of Ponce COMpSNYS PIOD par or A 3600;000 p. aszbaKe
eehange for 1000 hours of legal services. Elvin charges PS00 per py, Sa
services. On the day of issuance, the share was selling for P150 per shar 4, what amount shouldbe reported as share prem:
market. pA Zero oe ium?
210,000 00
should the share premium account of Ponce :
seat mewn nese Sy, |e eae tn
‘A. P300,000 ‘C. P950,000 PRD” ANSWER: A ae
8. P600,000 D. 3,000,000 svar 15 "900
ay t : me
tions Guide per 23 ——2,000
PROBLEM 19! Answers Seltiom a imber f shares issued 77,000"
ANSWER: A msi are Teale pe share 00
valve ofthe aay Co) capital 3,400,000
Less: par value of the share (6,000 x P100) _- ‘share
Shar Premium 3. ANSWER:
January 1! oe
i 200,000
pRosien 192 kavonce of Shares for None Cosderston eter) Ano)
Sen traded 20,000 shares ofits P200 par value equity shares for nd aay Sa prersiuna
£3020, An independent appraiser valued the land at P5,000,000 afew mong, Share P aaznocn
ago. Seokjn shares are now trading at P300 on the stock exchange. The ear PROBLEM 19-4 Share Subscript
pases acre {es Company was incorporated on January 1, 2019 with te flowing alorized
ato
How much should be debited to land account? -
‘A. P4,000,000 C. P6,000,000 Ordinary share capital, 500,000 shares, P10 par value 5,000,000
8, 5,000,000 Diz, PZ 000,000: Preference share capital, 100,000 shares, P100 par value 10,000,000
119, the company Issued 100,000 ordinary shares for 2 total of
PROBLEM 19-2 Answers & Solutions Guide &
‘and 20,000 preference shares at P1S0 per share.
ANSWER: C
6,000,000
Land (20,000 x P300)
In addition, on December 20, 2019, subscriptions for 10,000 preference shares
were taken at.a total purchase price of Pi,750,000. These subscribed shares were.
paid for on January 15, 2020.
PROBLEM suance of Shares seal
ath ‘of 2022, German Cor ed with authorized ‘ i
of 100,00) 200 pervauesterea Yess 2. Prepare the journal entries to record the foregoing transactions.
ai 2. What amount should be reported as total contributed capital on
December 31, 2019?
January 15 Issued 10,000 shares at P280 per share. i oo a ae
May 1 Issued 5,000 shares in exchange for land with a fat ane 4,200,000 D. 5,950,000
1,200,000. On this date, fair value of the shares was P250
share.
November 23 Issued 2,000 shares for legal services when the fait value wo
P260 per share.
1027
1026 si .— sama NY what is the share premium tr sete? Soutien’ 6
“Ordinary Share Cap ‘ ‘rom the issuance of
Chapin 19: Accounting ton 4 oe ad
PROBLEM 19-4 Answers & Solutions Guide 7 is
5 Chapter
Ma
shares? ordinary
a
Stare premum = Ordnary © 520000
smm 3 Hom 5 aes
ference Stare Catal inswers & Solitons Gu
een de
ren tity PED ANSWER: BO
ecvate- Preference 11750000 % .
‘Soran rele shares
Sto prenum: Prference Maa,
*ny
: 1750000 fate
syisae20 Cash - . tgcxst to)
‘Scion Reta Pte ‘my ‘gongro Saleen ee
‘suberbed Preference shares 1,000,000 #0 —_sagaeo _“cpac)Sanaeo
rterence Shore Copal see
Wty pOBLEM 19-6 Total Contributed Copitar
2. ANSWER: D permed t isue 500,00 ordre
ny Shares oF PIO par
Preference share Capital ‘existence, 2021, the following
Subscribed Preference shares
Orainary share capital
‘Share premium - Ordinary
‘Share premium - Preference 4,750,000
Total Contributed Capital ‘5,950,000 ‘ ‘50,000 ordinary shares were issued.
'e Tachyung's first year was
1. What amount of the proceeds should be allocated to tt
preference shares?
‘A. 880,000 1,080,000
3. 960,000 D. 1,200,000,
2. What amount of the proceeds should be allocated to the ors
shares?
720,000
D. 800,000
3. What is the share premium from the issuance of prefer
shares?
mare? ee tthe legal capital
B. 160,000 D. 360,000 . 00 D.
1029
1028 ee a a me ide wn? 6% Se
PROBLEM 19-7 Answers & Solutions Gui
ANSWER: A
Preference share
ordinary share
subscribed ordinary share
otal legal capital
5,500,009
40,009
19-8 Legal Capital
Fea eee provided the flowing information @t yearend:
Preference share capital, P100 par PAE AR
referer 161,000,
‘Share premium ~ Preference ¥
Sry seep P10 par 1280,000
Share premium ~ Ordinary 50,00
Subscribed ordinary share ine
Retained exis nary 9,000
le~ 5,
Subscription receivat on
‘Treasury shares ~ common
2, Assume the same information except that the ordinary shay
has a P10 stated value, what is the amount of legal capital
‘A. 1,520,000 c 1000
B. 2,070,000 D.
1. ANSWER:
Preference share ca 460,000
Ordinary share capi 41,050,000
Subscribed ordinary share 10,000
Legal capital 4,520,000
2, ANSWER: B
Preference share capital, P1O0 par 460,000
Ordinary share capital, P10 par 41,050,000
Share premium ~ Ordinary 550,000
Subscribed ordinary share ___10,000_
Legal capital 72,070,000
19-9 Delinquent Subserptng Shinty
A . LEM 1 "
2200, eon as authorized to issue 500,000 ordinany sharce yar e—t—_——
jing transactions rel inary shares with a: =
‘Ine folowing lative tothe share capital took plac” Ne
pfalacan in has
+ set aia
we
720.
0 shares at P25 receiving @ down
‘the subscriber failed to pay his obi
t
eine gation, so his subscription was
b
«Paid delinquency sale expenses totaling P50,000,
4, Received bids from the folowing:
person 1 ~ 75,000
Person 2 — 80,000
ferson 3 ~ 70,000
ce. Received payment from the highest bidder and shares were issued
accordingly.
4. Prepare the journal entries to record the for
2. Who is the highest bidder? meee
3. Assuming there were no bidders, prepare th
record the issuance ofthe sharesin the name tthe corpo Got
PROBLEM 19-9 Answers & Solutions Guide
Ae ANOWER See ak
a Cash (1257 shares x P25/share x 60%) 1,875,000
‘Subscription Receivable 1,250,000
‘Subscribed Ordinary Share Capital 2,500,000
‘Share premium 625,000
'b Receivable from the highest bidder 1,250,000
‘Subscription Receivable 1,250,000
¢ Receivable from the highest bidder 50,000 Z
Cash 50,000
9 Cash 1,300,000
Receivable from the highest bidder 1,300,000
Subscribed Ordinary Share Capital 2,500,000
rdinary Share Capital 2,500,000
The i ANSWER: Person 3
shares eS bidder is the one who is willing to accept the smallest number of 3. ANSWER
‘Treasury shares
Receivable from the highest bidder ‘ato
‘Subscribed Oruinary Shere Capital 2,500,000,
Ordinary Share Capital 25000
sM 19-10 Treasury Shares
Fee aL cp on putas TO EOD sar
an Nach 220 oy sae 9120000 WC Beda 0,
for P190,000 on December 19, 2020.
Under ne cost metod of accounting For tTERSUY Shares, they,
woud rsut nn cee tn,
tof eo
Acumulted Profs and Losses of #70000
C__ Gain on sale of investment of P70,000
. Share Premium of P70,000
PROBLEM 19-10 Answers & Solutions Guide
PED Se ee Le kee
ana
Teay shares are company's shares that have been issued and ful psig,
but subsequently reacquired by the issuing corporation by purchas ten,
‘and donation or through other lawful means, with the intention of
again.
PAS 32, paragraph 33 states: fen entity reacquires its own
instruments (treasury shares) shall be deducted from
be recognized in profit or loss on the purchase, sae, issu
entity own instruments Such treasury shares may be reacquired and bey te
entity or by other members of the consolidated group. Consideration pad
received shall be recognized directly in equity.
Journal entry to record the reissue of treasury:
Cash 190,000
‘Treasury shares 120,000
‘Share premium - treasury shares 70,000
PROBLEM I9-II Treasury Shares
‘The shareholders’ equity account balances of Cheddar Corporation as of De®
31, 2029, are as follows:
Ordinary share, 100 par; 50,000 sh i
25,000 shares issued Smmamere px songt
‘are Premium 50000
eaied earings 1,000
reasury share, 2,000 _—___ a
Trea shares at cost 0)
1032
Chapter 19: Aesounting jon sg pee
1,300,000 s hy ae Shaper 10,
(Resets fos Shanti Egatty
2, 2021, Cheddor sold the weacy
ove Y shares onthe open market at #200
e
tethe effect on the shareholders
wat shares? aul 8 result ofthe sale of
a No Choe by P8D,000
3B tpereased by P320,000
jprensed Dy PA00,000
OBLEM 19-1 l'Answers & Solutions Guide 4
PRE
ANSWER: D
ioe begining of 2018, Baker Company reared te loving shareholders!
eauty:
1,800,000,
4,380,000
|, P10 par, outstanding 450,000 shares _P4,500,000
following share transactions:
000 treasury shares for P540,000.
. reasury shares at P50 per share,
+ Sold the remaining treasury shares at P41 per share.
‘What is the total amount of share premium on December 31, 20187
A 1,740,000
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