CORPORATION

artificial being created by

operation of law, having right of
succession and the powers,
attributes, and properties expressly
authorized by law or incident to its
existence.
(Sec. 2, Revised Corporation Code)

3
CHARACTERISTICS
OF CORPORATION
KINDS OF
CORPORATION

Stock Corporation Public Corporation

privately owned by individuals and by some non- government corporation organized for accomplishment
government units and is organized for profit of the public functions such as the national
which is distributed as dividends to the owners government, provincial, city or municipal government.

Non-Stock Corporation Close Corporation

religious sect or a religious school is nonprofit family corporation
in nature therefore no shares of stock are
distributed nor is there dividend distribution.
KINDS OF STOCKS
As to value
Par value stock No par value stock
▪ one in which a fixed value is stated in ▪ one without
Shares a designated
of capital value
stock issued statedpar
without in
the certificate of stock and in the thevalue
stockshall
certificate but itfully
be deemed cannot
paidbeand
sold
articles of incorporation. at less than P5.00
nonassessable as holder
and the provided of in theshares
such
▪ serves as a minimum basis for the shall not be
Revised liable to the
Corporation Codecorporation
of the or to its
amount of contribution of a creditors in respect thereto: Provided; That
Philippines.
shareholder. shares without par value may not be issued
The
▪ for law, however, allows the Board of
a consideration less than the value of five
▪ stock can be issued at par and above directors or shareholders to fix value at
par but not below the par value. (P5.00) pesos per share: Provided, further,
some
That thelater date.
entire consideration received by the
▪ corporation
The stock isfor its called
then no-parno value
par shares shall
value but
bean
with treated
issuedasvalue
capital
or and shall
stated not be
value.
available for distribution as dividends.
As to right
Ordinary share
▪ an ordinary stock issued by a
corporation which entitles the owner
to a pro rata dividend without any
priority or preference over any other
stockholders.
▪ If only one kind of stock is issued by
the corporation, it is presumed to be
a common stock or ordinary share.
Preference share
▪ class of stock with preferential rights
or claims over the common stock.
▪ The most common preferential right is
its priority claim over dividend
distribution.
▪ Preference share is usually issued at
par and the dividend rate is expressed
as percentage of the par value.
“
- To protect the creditors, the law requires a minimum permanent
investment from the shareholders. The minimum permanent
investment called LEGAL CAPITAL represents minimum assets of the
corporation which cannot be distributed to the shareholders in the
lifetime of the corporation.
- Investments at the par value represent legal Capital.
- On the other hand, all proceeds from the issue of no par value
shares are treated as legal Capital.
“
 ARTICLES OF INCORPORATION

ORGANIZATION
SHARE CAPITAL EXPENSES
▪ represents the amount
▪ certain costs have to be
paid in by the
incurred such professional
shareholders whether in fees of lawyers, accountants
cash, property and and promoters, licenses,
service and for which a printing costs, registration,
certificate of stock is and the like.
issued as evidence of
stock ownership
SHAREHOLERS' EQUITY
The shareholders' equity represents the residual interest of shareholders in the net assets of
the corporation. It is divided into two parts:

1. Contributed Capital or paid in Capital represents total

contributions made by the shareholders.
2. Retained Earnings represents accumulated profits
earned or losses incurred in the operation of the
business.
METHODS OF ACCOUNTING FOR
STOCKS
Memorandum entry method.
The authorized shares is recorded using a memorandum
entry only and when shares are issued.

Journal entry method.

The authorized Capital is recorded by debiting Unissued
Share Capital and crediting Authorized Share Capital. Every
time shares are issued, the Unissued Share Capital is
decreased by a credit entry.
CASE 1
CASE 1
CASE 1
CASE 2
ISSUANCE FOR SHARES AT SUBSCRIPTION
Stock/Share subscription is an agreement to purchase
shares of stock and states the number of shares being
subscribed, the subscription price, and the terms of
payment and call dates. In the absence of call dates,
the payment is made upon the call of the board of
directors.

The Subscription Receivable is to be presented in the

statement of financial position as Current Asset if
collectible within a year otherwise it is a deduction
from the Subscribed Capital Share of the shareholders’
equity section.
TREASURY STOCKS
Treasury Shares

Treasury shares are shares of stock which have been issued

and fully paid for, but subsequently reacquired by the issuing
corporation through purchase, redemption, donation or some
other lawful means. (Sec. 9, Revised Corporation Code)
REASONS WHY A CORPORATION REACQUIRES ITS OWN SHARES

• To invest excess cash temporarily

• To improve earnings per share,
• To support the market price for the share capital,
• To obtain shares for conversion of other securities, and
• To obtain shares for options granted to executives and key employees.
CASE 1
ACQUISITION BY PURCHASE
When treasure shares are reissued at more than
acquisition cost, the excess is credited to an
Additional Paid in Capital appropriately described,
which in this case, Share Premium - Treasury.
CASE 2
ACQUISITION BY PURCHASE
When treasure shares are reissued at more than
acquisition cost, the excess is credited to an
Additional Paid in Capital appropriately described,
which in this case, Share Premium - Treasury.
CASE 2
ACQUISITION BY PURCHASE
When treasure shares are reissued at more than
acquisition cost, the excess is credited to an
Additional Paid in Capital appropriately described,
which in this case, Share Premium - Treasury.
CASE 2
TREASURY SHARES ACQUIRED THROUGH DONATION
RETAINED EARNINGS
TYPES OF RESTRICTIONS
1. Appropriation for contingencies – it’s a voluntary
appropriations approved by the Board to be used in case
of deficit operation as well as for operation continuity like
plant & segment expansion.
2. Appropriation for Bonds and Stock Redemption – a
contractual appropriations set aside for provision of
redeeming stocks and bonds issued by the company.
CASE 1
3. Appropriation for Treasury shares – an appropriation
covered by law or legal appropriations to sustain amount SHARE CAPITAL TRANSACTIONS AND RESTRICTIONS
of shares in the treasury.
The pro-forma entry to restrict and unrestricted the retained
earnings would be:
Let’s Answer it!
The corporation was authorized to issue:
Preference shares, P100 par value, 10,000 shares
Ordinary Shares, P100 par value, 20,000 shares

What is the Journal entry to record such transaction?

No journal entry instead a memorandum entry
only when shares are issued
Preference shares, P100 par value, 10,000 shares
Ordinary Shares, P100 par value, 20,000 shares
Incorporators subscribed at par and fully paid which is
equivalent to 25% of ordinary shares.
What is the journal entry to record such transaction?

Cash 500,000
Ordinary Shares 500,000
The company’s Trial Balance show the following balances:
Common share 140,000
Share Premium 360,000
Treasury Share 32,000
Retained Earnings 320,000
How much is the company’s total shareholder’s Equity
788,000
At Dec. 31, 2015 and 2016, P Tulio Corp. had 3,000 shares of P100 par, 5% cumulative
preference shares outstanding. No dividend was in arrears as of December 31, 2014. P.
Tulio did not declare a dividend during 2015. During 2016, P. Tulio paid a cash dividend
of P10,000 on its preference shares. P. Tulio should report dividend in arrears in its 2016
financial statement

a. An accrued liability of P20,000

b. An accrued liability of P15,000

c. Those owning to partners for their capital contribution.

d. Those owning to partners for their share in profits.