GROUP 6

SHAREHOLDER’S EQUITY
PROBLEM 21-2 LAKE COMPANY
Lake Company was organized at the beginning of the current year and was authorized
to issue share capital of 50,000 shares with par value of P100.

The following transactions occurred during the year:

1. Received subscriptions at par value from incorporators equal to 40% of the

authorized share capital.

2. Received a 25% down payment on the subscriptions from the incorporators.

3. Received full payment on 10,000 shares originally subscribed.

4. A patent was acquired by issuing 5,000 shares. The patent has no fair value.

5. Received cash subscriptions to 15,000 shares at P120 per share.

Required:

a. Prepare journal entries to record the transactions following the journal entry method.

1 Unissued share capital (50k x 100) 5,000,000

Authorized share capital 5,000,000

Subscriptions receivable 2,000,000

Subscribed share capital 2,000,000

(50k x 40% x 100)
2 Cash (2M x 25%) 500,000

Subscriptions receivable 500,000

3 Cash 750,000

Subscription receivable 750,000

(10k x 100 x 75%)
Subscribed share capital 1,000,000

Unissued share capital 1,000,000

(10k shares x 100)
4 Patent (5k x 100) 500,000

Unissued share capital 500,000

5 Cash (15k x 120) 1,800,000

 Unissued share capital 1,500,000
(15k shares x 100)
Share premium 300,000

b. Present the shareholders' equity in the statement of financial position.

Shareholder’s Equity

Authorized share capital, 50k shares, 100@par 5,000,000

Unissued share capital (2,000,000)

Issued share capital, 30k shares 3,000,000

Subscribed share capital 1,000,000

Subscriptions receivable (750,000)

Share premium 300,000

Total 3,550,000

PROBLEM 21-4 BROOK COMPANY

Brook Company was organized at the beginning of current year. The entity provided
the following transactions affecting shareholders' equity:

1. 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

2. 40,000 ordinary shares of were issued for cash at P60 per share.

3. 10,000 preference shares were issued at P120 for cash.

4. 10,000 preference shares were subscribed at par value.

5. P400,000 was received on the above subscription to preference shares.

6. 1,000 preference shares were issued in payment of legal fees of P100,000 in

connection with organizing the corporation.

7. 20,000 ordinary shares were issued for property, plant and equipment which had a
fair value of P1,300,000.

8. 15,000 ordinary shares were subscribed for at par.

9. Forty percent of the ordinary share capital subscription was collected.

10. The balance owing on the subscription described in 4 and 5 was collected, and the
preference shares were issued.

11. The net income for the current year was P2,000,000.
Required:

a. Prepare journal entries to record the transactions using the memorandum method.

1 Memo- The company was authorized to issue share capital as follows:

Preference share capital, P100 par, 30k shares 3,000,000

Ordinary share capital, P50 par, 100k shares 5,000,000

Total authorized share capital 8,000,000

2 Cash 2,400,000

Ordinary share capital (40k x 60) 2,000,000

Share premium- ordinary share 400,000

3 Cash 1,200,000

Preference share capital 1,000,000

(10k x 120)
Share premium- ordinary share 200,000

4 Subscriptions receivable 1,000,000

Subscribed preference share capital 1,000,000

(10k x 100)
5 Cash 400,000

Subscriptions receivable 400,000

6 Legal expenses 100,000

Preference share capital 100,000

7 Property, plant and equipment 1,300,000

Ordinary share capital (20k x 50) 1,000,000

Share premium- ordinary share 300,000

8 Subscriptions receivable (15k x 50) 750,000

Subscribed ordinary share capital 750,000

9 Cash (15k x 50 x 40%) 300,000

Subscriptions receivable 300,000

 10 Cash 600,000

Subscriptions receivable 600,000

Subscribed preference share capital 1,000,000

Preference share capital 1,000,000

11 Profit and loss 2,000,000

Retained earnings 2,000,000

b. Present the shareholders' equity in the statement of financial position.

BROOK COMPANY

SHAREHOLDER’S EQUITY

DECEMBER 11, 2020

Preference share capital 2,100,000

Ordinary share capital (2M + 1M) 3,000,000

Subscribed ordinary share capital 750,000

Subscriptions receivable (450,000)

Share premium:

Preference share 200,000

Ordinary share (400k + 300k) 700,000 900,000

Retained earnings 2,000,000

Shareholder’s equity 8,300,000

PROBLEM 21-7 REMINGTON COMPANY

Remington Company issued 10,000 ordinary shares with P200 par value and 20,000
preference shares with P200 par value for a total consideration of P8,000,000.

At the date of issue, the ordinary share was selling for P360 and the preference share
was selling for P270.
1. What amount of the proceeds should be allocated to the preference shares?

a. 6,000,000

b. 5,400,000

C. 4,800,000

d. 4,400,000

Solution:

Ordinary shares (10k x 360) 3,600,000 3.6K/9M 3,200,000

Preference shares (20k x 270)5,400,000 5.4M/9M 4,800,000

9,000,000 8,000,000

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

a. 3,600,000

b. 2,000,000

c. 3,200,000

d. 4,000,000

Solution:

Ordinary shares (10k x 360) 3,600,000 3.6K/9M 3,200,000

Preference shares (20k x 270)5,400,000 5.4M/9M 4,800,000

9,000,000 8,000,000

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

a. 1,800,000

b. 1,000,000

C. 800,000

d. 0

Solution:

20k x 200 @Par = 4,000,000

@FV (4,800,000)

Share premium 800,000

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

a. 2,000,000

b. 1,600,000
c. 1,200,000

d. 0

Solution:

10k x 200 @Par = 2,000,000

@FV (3,200,000)

Share premium 1,200,000

TREASURY SHARES
PROBLEM 22-5 TOYOTA COMPANY
Toyota Company has two classes of share capital outstanding consisting of 12%, P100
par value preference share and P50 par value ordinary share. The entity reported the
following balances at the beginning of the current year:

Preference share capital – 5,000 shares 500,000

Ordinary share capital – 50,000 shares 2,500,000

Share premium – PS 200,000

Share premium – ordinary 500,000

Retained earnings 2,000,000

The following data summarize the transactions for the current year:

Shares Per share

1 Issue of ordinary share capital 20,000 50

2 Purchase of treasury share – ordinary 5,000 60

3 Share split-ordinary 2 for 1

4 Reissue of treasury share 3,000 40

5 Shareholders donated 15,000 ordinary shares to the corporation. Subsequently,

10,000 donated shares were reissued at P40 per share.

6 Net income for the year was P500,000.

7 Appropriated retained earnings equal to the cost of treasury shares.

Required:

a. Prepare journal entries to record the transactions.

1 Cash 1,000,000

Ordinary share capital 1,000,000

2 Treasury shares 300,000

Cash 300,000

3 Memo – issued 140,000 new ordinary shares with par of P25 as a result of a 2 for 1
split of 70,000 original shares with a par of P150.
4 Cash 120,000

Treasury shares (3,000 / 10,000 x 300,000) 90,000

Share premium – treasury shares 30,000

5 Memo – received 15,000 ordinary shares by way of donation.

Cash (10,000 x 40) 400,000

Donated capital 400,000

6 Profit and loss 500,000

Retained earnings 500,000

7 Retained earnings 210,000

Retained earnings appropriated for treasury 210,000

shares

b. Present the shareholder’s equity at year-end.

Preference share capital 500,000

Ordinary share capital 3,500,000

Share premium:

Preference share 200,000

Ordinary share 500,000

 Treasury share 30,000

Donated capital 400,000 1,130,000

Retained earnings:

Unappropriated 2,290,000

Appropriated for treasury shares 210,000 2,500,000

Treasury shares, at cost (210,000)

Shareholder’s equity 7,420,000

PROBLEM 22-7 MARIANNE COMPANY

Required:

Prepare journal entries to record the independent transactions.

Marianne Company provided the following independent transactions affecting

shareholders’ equity:

1. Issued 25,000 rights to shareholders, 1 right on each share, permitting holders to

acquire one ordinary share of P50 par value at P60 with every 5 rights submitted.
Shares are selling at P30 per share at this time. Subsequently, 20,000 rights are
exercised and 5,000 rights expired.
Cash (4,000 x 60) 240,000
Ordinary share capital 200,000
(20,000 rights / 5 = 4,000 shares)
Share premium 40,000

2. Issued 20,000 preference shares of P100 par value for P2,500,000, with 20,000
warrants to acquire 10,000 ordinary shares, P50 par, at P60.

On the date of the issuance, the warrants have a market value of P10, but the
preference share has no known market value ex-value.

Subsequently, 18,000 warrants were exercised and the remainder lapsed.

Sales price 2,500,000

Less: Market value of warrants (20,000 x 10) 200,000
Issue price of preference shares 2,300,000
Cash 2,500,000
Preference share capital 2,000,000
Share premium –PS 300,000
Share warrants outstanding 200,000

Cash (9,000 x 60) 540,000

Share warrants outstanding (18,000/ 20,000 x 180,000
200,000)
Ordinary share capital 450,000
Share premium- unexercised warrants 270,000

Share warrants outstanding 20,000

Share Premium – Unexercised warrants 20,000

3. Issued 50,000 preference shares of P100 par value for P6,000,000 with 50,000
warrants to acquire 25,000 ordinary shares, P50 par, at P60 per share.

On the date of issuance, the market values are:

Preference share ex-warrant None
Warrant None
Ordinary share 80

Subsequently, all the warrants were exercised.

Market value of ordinary shares 80
Less: Option price 60
Excess 20
Multiple by shares 25,000
Value of warrants 500,000

Cash 6,000,000
Preference share capital 5,000,000
Share premium- PS 500,000
Share warrants outstanding 500,000
 Cash (25,000 x 60) 1,500,000
Share warrants outstanding 500,000
Ordinary share capital (25,000 x 50) 1,250,000
Share premium – ordinary share 750,000

PROBLEM 22-26 GUESS COMPANY

At the beginning of current year, Guess Company was organized and authorized to
issue 100,000 shares with P50 par value.

During the current year, the entity had the following transactions relating to
shareholders' equity:

Issued 10,000 shares at P70 per share. Issued 20,000 shares at P80 per share.

Reported net income of P1,000,000. Paid cash dividends of P200,000.

Purchased 3,000 treasury shares at P100 per share.

1. What amount should be reported as share capital at year-end?

a. 1,500,000

b. 3,300,000

c. 1,200,000

d. 1,800,000

Solution:

Ordinary shares (10,000 x 50) 500,000

Preference shares (20,000 x 50) 1,000,000

Share capital 1,500,000

2. What amount should be reported as share premium at year-end?

a. 800,000

b. 200,000

C. 600,000

d. 0

Solution:

Ordinary shares @par (10,000 x 50) 500,000

@Fair value (10,000 x 70) 700,000

Share Premium – Ordinary shares 200,000

Preference shares @par (20,000 x 50) 1,000,000

@Fair value (20,000 x 80) 1,600,000

Share Premium – Preference shares 600,000

Share Premium – Ordinary shares 200,000

Share Premium Preference shares 600,000

Share premium 800,000

3. What is the total shareholders' equity at year-end?

a. 2,800,000

b. 3,000,000

c. 3,300,000

d. 2,000,000

Solution:

share capital 1,500,000

Share premium 800,000

Retained earnings 800,000

Less: Treasury shares at cost (300,000)

Shareholder’s equity 2,800,000

4. What is the contributed capital at year-end?

a. 2,300,000

b. 1,500,000

c. 2,000,000

d. 1,200,000

Solution:

Share capital at year end 1,500,000

Share premium at year end 800,000

Capital at year end 2,300,000

DIVIDENDS
PROBLEM 23-3 LEILANIE COMPANY
On January 1, 2020, Leilanie Company reported the following shareholders’ equity:

Share capital 1,500,000

Share Premium 3,000,000

Retained earnings 5,000,000

The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were
issued and outstanding.

On March 1, 2020, the entity acquired 50,000 shares for P10 per share to be held as
treasury.

The shares were originally issued at P8 per share. The entity used the cost method to
account for treasury shares.

On July 1, 2020, the entity declared a property dividend of inventory payable on March
1, 2021.

The inventory had a P1,200,000 carrying amount and a fair value of P1,500,000 on July 1,
2020, P1,800,000 on December 31, 2020 and P2,000,000 on March 1, 2021.

The net income for 2020 was P3,000,000.

Required:

Prepare journal entries for 2020 and 2021 in connection with treasury shares, property
dividend and net income.

2020

March 1 Treasury shares 500,000

Cash (50,000 x 10) 500,000

July 1 Retained earnings 1, 500,000

Dividend Payable 1, 500,000

Dec. 31 Retained earnings 300,000

Dividend Payable 300,000

31 Retained earnings 500,000

Retained earnings appropriated for 500,000
treasury shares

31 Income summary 3,000,000

 Retained earnings 3,000,000

2021

March 1 Retained earnings 200,000

Dividend payable 200,000

Dividend payable 2,000,000

Inventory 1,200,000
Gain on distribution of property 800,000
dividend

PROBLEM 23-13 RAY COMPANY

During 2020, Ray Company reported the following cash dividends on the P10 par value
share capital:

1st quarter 800,000

2nd quarter 900,000

3rd quarter 1,000,000

4th quarter 1,100,000

The 4th quarter cash dividend was declared on December 20,2020 to shareholders of
record December 31,2020 payable on January 31,2021.

In addition, the entity declared a 10% share dividend on December 1,2020 when there
were 300,000 shares issued and outstanding and the market value was P25 per share on
declaration date and P30 distribution date.

1. What total amount was charged against retained earnings for the dividends?

a. 3,800,000

b. 4,550,000

c. 4,700,000

d. 4,100,000

Solution:

Cash dividend paid for the year 2020 is 800,000 + 900,000 + 1,000,000 + 1,100,000 =
3,800,000

There is also a declared dividend on December 1,2020

300,000 x 10% = 30,000; 30,000 x 25(market value) = 750,000

3,800,000 + 750,000 = 4,550,000

 Therefore P4,550,000 was the total amount charged against retained earnings of
Jay Company for the dividends.

2. What amount was credited to share capital for the share dividend?

a. 300,000

b. 750,000

c. 450,000

d. 0

Solution:

Issue price per share (par value) 10

Multiply: Outstanding shares (300,000 x 30,000
10%)
Share in capital 300,000

3. What amount was credited to share premium for the share dividend?

a. 600,000

b. 450,000

c. 300,000

d. 0

Solution:

Amount per share (market value) 25

Less: Issue price per share (par value) 10
Share premium per share 15

Share premium per share 15

Multiply: Outstanding shares (300,000 x 30,000
10%)
Total share premium 450,000

GROUP MEMBERS
ARINGO, RONA MAE
DATA, TWINKLE
MELLA, JOVANRAY
MENESES, CAMILLE YEAR & BLOCK: BSA 3, BLOCK A
NIPA, NICA SCHEDULE: WTH (9:00 – 10:30 am)