Betty Mae N.

Flores BSA – 1A

CORPORATION
Problem #18

The accounts below appeared in the Dec. 31, 2018 trial balance of the Ceradoy Corporation.

Ordinary Shares, P15 par, 20,000 shares P270,000

authorized, 18,000 shares issued

Subscriptions Receivable 17,000

Subscribed Ordinary Shares 27,000

Retained Earnings 200,000

Share Premium 95,000

Treasury Stock, 1,000 shares, at cost 25,000

Required:

1. Total authorized ordinary shares.

P15 x 20,000 = 300,000

2. Total unissued ordinary shares.

300,000 – 270,000 = 30,000

3. Total issued ordinary shares.

15 x 18,000 = 270,000

4. Ordinary shares subscribed.

= 27,000

5. Total shareholder’s equity.

Ordinary Shares 270,000

Share Premium 95,000

Subscribed Ordinary Shares 27,000

Less: Subscription Receivable 17,000 10,000

Retained Earnings 200,000

Total 575,000

Less: Treasury Stock 25,000

Total Shareholder’s Equity 550,000

6. Number of shares issued.

=18,000

7. Number of shares subscribed.

27,000 / 15 = 1,800

8. Number of shares in treasury.

=1,000

9. Number of outstanding shares.

18,000 – 1,000 = 17,000

Problem # 19

The shareholder’s equity section of Nazario Frieght Express, Inc. as at Dec. 31, 2017,

Appeared as follows:

6% Preference shares, P75 par, 200,000 shares authorized, ?

70,000 shares issued

Ordinary shares, P5 stated value, 500,000 shares authorized,

Share issued and shares outstanding 500,000

Share Premium-Ordinary 600,000

Retained Earnings 1,000,000

Total Share Capital and Retained Earnings

Less: Treasury Stock – Ordinary, 10,000 shares at cost 40,000

Total Shareholder’s Equity ?

Required:

1. What is the total issue price of the preference shares?

75 x 70,000 = P5,250,000

2. How many ordinary shares were issued?

500,000 / 5 = 100,000

3. How many ordinary shares are outstanding?

100,000 – 10,000 = 90,000

4. What was the total issue price of the ordinary shares?

100,000 x 5 = 500,000 + 600,000 = 1,100,000

5. What is the total legal capital of the corporation?

5,250,000 + 500,000 + 600,000 = P6,350,000

6. What is the total contributed capital of the corporation?

= 5,250,000 + 500,000 + 600,000 = P6,350,000

7. What is the total shareholder’s equity?

5,250,000 + 500,000 + 600,000 + 1,000,000 – 40,000 = 7,310,000

8. For how much per share was the treasury stock purchased?

40,000 / 10,000 = 4 par

9. What is the amount of the required preference dividends?

5,250,000 x .06 = 315,000

Problem # 20

Legal Capital

The shareholder’s equity section of De Guzman Corporation revealed the following information on Dec.
31, 2017:

Preference Shares, P100 par P2,300,000

Share Premium-Preference 805,000

Ordinary Shares, P15 par 5,250,000

Share Premium-Ordinary 2,750,000

Subscribed Ordinary Shares 50,000

Retained Earnings 1,900,000

Notes Payable 4,000,000

Subscription Receivable-Ordinary 400,000

Required: How much is the legal Capital?

Preference Shares, P100 par P2,300,000

Ordinary Shares, P15 par 5,250,000

Subscribed Ordinary Shares 50,000

2,300,000 + 5,250,000
= 7,550,000

Problem # 22

Missing Information for Shareholder’s Equity

Laurente Corp. had the following shareholder’s equity section on its statement of financial
position as at Dec. 31, 2018:

Preference Shares, P50 par, 100,000 shares authorized , P 5,000,000

issued, and outstanding
Ordinary Shares, P1 par, 5,000,000 shares authorized, 2,300,000
shares issued, 2,232,000 shares outstanding 2,300,000
Share Premium-Ordinary 17,000,000
Retained Earnings 18,600,000
Total Shareholder’s Equity and Retained Earnings P42,900,000
Treasury Stock, 68,000 shares , at cost (748,000)
Total Shareholder’s Equity P42,152,000

Required:
1. Fill in the missing information
2. How many additional shares of preference shares can the corporation issue? How many
additional shares of ordinary shares?
Preference: 100,000 authorized shares – 100,000 issued shares = 0 shares
Ordinary: 5,000,000 authorized shares – 2,300,000 issued shares = 2,700,000 shares maximum

3. See discussion on return in chapter 9. If profit was P6,000,000 what was the return on
shareholder’s equity? If 10% is average for Laurente’s industry, evaluate Laurente’s
performance. What effect would this have on Laurente’s stock price?
Return on Equity = Profit/Shareholder’ Equity
= 6,000,000/42,152,000 X 100
= 14.23% Increases
This is a good indicator for investment because the Return on Equity exceeds the average.

Problem #23
The shareholder’s equity section on Buenaflor Technologies as at Dec. 31, 2017
appeared as follows:

5% Cumulative Preference Shares, P100 par, 50,000

shares authorized, shares issued P2,000,000
Ordinary Shares, P5 par; 100,000 shares authorized;
25,000 shares issued ?
Share Premium-Ordinary 750,000
Retained Earnings 650,000

Required :
Provide the answers to each of the following questions:

1. How many preference shares were issued?

= 20,000
2. What was the total issue price of the preference shares?
= P2,000,000
3. What amount should be recorded in the ordinary shares account?
= P125,000
4. What was the total issue price per share of the ordinary shares?
= 125,000 + 750,000 = 875,000
5. What is the amount of required preference dividends?
= 2,000,000 x 5% = P100,000
6. What is the amount of total shareholder’s equity?
= P3,525,000
Problem #24
The shareholder’s equity section of Balocating Corporation’s statement of financial position at
the close of the current year follows:
8% Preference Shares, P100 par, 30,000 shares authorized, P1,000,000
10,000 shares issued
Ordinary Shares, no par, stated value of P5, 200,000 shares 750,000
authorized
Share Premium-Preference 130,000
Share Premium-Ordinary 3,300,000
Retained Earnings 1,400,000
Total Shareholder’s Equity P6,580,000

Required :
1. What is the amount of the annual dividend on the preference shares?
= P80,000
2. How many ordinary shares have been issued?
= 750,000/5 = 150,000
3. What was the average price paid by the shareholder’s for the preference shares?
= (10,000 x 100) + 130,000 / 10,000 = P113
4. What was the average price paid by the shareholder’s for the ordinary shares?
= (150,000 x 5) + 3,300,000 / 150,000 = P27
5. How many ordinary shares are currently outstanding?
= 150,000
6. If total dividends of P287,200 were paid to shareholder’s in the current year, how much was
paid to the shareholder’s assuming that no preference dividends are in arrears?
= 287,200 - 80,000 = P207,200

Problem #25
After formation on Aug. 1, 2017, the ledger accounts of the llano Corporation have the

following balances:

Accrued Expenses P50,000

Accrued Payable 400,000

Accounts Receivable 220,000

Allowance for Uncollectible Accounts 20,000

Building 1,000,000
 Cash 160,000

Ordinary Shares, P250 par, 50,000 shares authorized 1,513,000

Subscribed Ordinary Shares 80,000

Furniture and Fixtures 250,000

Merchandise Inventory 1,000,000

Notes Payable Short Term 250,000

Organization Expense 30,000

Share Premium-Ordinary 60,000

Share Premium-Preference 30,000

10% Noncumulative and Non-participating Preference Shares, 250,000

P500 par, 5,000 shares authorized

10% Preference Shares Subscribed, P500 par 100,000

Subscriptions Receivable-Ordinary 41,000

Subscriptions Receivable-Preference 52,000

Required:

1. Determine the following:

a. How many ordinary shares are outstanding?

= 1,513,000 (Ordinary Shares (at par) / 250 (Par Value per share) shares outstanding= 6,052

b. How many ordinary shares are subscribed?

= 80,000 (Subscribed Ordinary Shares) / 250 (Par Value per Share) 80,000 / 250 Subscribed share=320

c. How many preference shares are outstanding?

= 250,000 (Preference Shares) / 500 (Par Value per Share) Preference Share Outstanding= 500

d. How many preference shares are subscribed?

= 100,000 (Preference Shares Subscribed)/500 (Par Value) 100,000/500 Preference Share Subscribed=200

e. At what average price has ordinary shares been subscribed or issued?

Average Price= 260

f. Assume that no dividends are paid in the first year of the corporation's existence. What are the rights
of the preference shareholders? Rights to dividends in arrears if cumulative

g. Assuming that all of the Share Premium-Ordinary was applicable to the ordinary shares that have been
subscribed but not yet issued, what was the subscription price per share of the ordinary shares
subscribed? P437.50

h. Assuming that the board of directors declared no dividends in 2017, what amount would have to be
paid the preference shareholders in 2018 before any dividend could be paid to the ordinary shareholders?

2. Prepare a classified statement of financial position for the corporation immediately after formation.

ILLANO CORPORATION

Statement of Financial Position

August 1, 2017

Assets

Cash 160,000

Accounts Receivable 220,000

Less: Allowance for Doubtful Accounts (20,000) 200,000

Merchandise Inventory 1,000,000

Building 1,000,000

Furniture and Fixtures 250,000

Total Assets 2,610,000

Liabilities

Accounts Payable 400,000

Accrued Expense 50,000

Notes Payable - short term 250,000

Total Liabilities 700,000

Shareholder’s Equity

10% Noncumulative and Nonparticipating 250,000

Preference shares, P500 par value,

5000 shares authorized

10% preference shares subscribed 100,000

Less: subscribtion receivable- preference (52,000) 48,000

Share Premium- Preference 30,000 328,000

Ordinary shares, P250 par, 5000 shares authorized 1,513,000

Subscribed ordinary shares 80,000

Less: subscription receivable- Ordinary (41,000) 39,000

Share premium- ordinary 60,000 1,612,000

Less: organization expense (30,000)

Total Liabilities and Equity 2,610,000

Problem #22

Dividends on Preference and Ordinary Shares

Andam Corporation has outstanding 60,000 shares of 5% preference shares with a P50 par value
and 300,000 shares of P30 par ordinary shares. During the current year, the corporation
declared and paid a total cash dividend of P900,000.

Required:

For each of the following independent cases, compute the total dividends to be received by
each class of stock.
1. The preference share is non-cumulative and non-participating.

2. The preference share is cumulative and non-participating with one-year dividends in arrears.

3. The preference share is non-cumulative and participating.

4 The preference share is cumulative and participating with no dividends in arrears.

5. The preference share is cumulative and participating with three years dividends in arrears.
 Requirement

Case 1. Non Cumulative and Non Participating

Preference Ordinary Total

Outstanding Share Capital 3,000,000 9,000,000 12,000,000

Current Preference Dividends

(3,000,000 X 5%) 150,000 150,000

Remainder To Ordinary
(900,000 – 150,000) 750,000 750,000

TOTAL P150,000 P750,000 P900,000

Dividends per share P2.5 P2.5

Case 2. Cumulative and non participating

Preference Ordinary Total

Outstanding Share Capital 3,000,000 9,000,000 12,000,000

Preference Dividends in Arrears

(3,000,000 X 5% x 1 year) 150,000 150,000

Current Preference Dividends

(3,000,000 x 5%) 150,000 150,000

Remainder To Ordinary
(900,000 – 150,000 – 150,000) 600,000 750,000

TOTAL P300,000 P600,000 P900,000

Dividends per share P5 P2

Case 3. Non Cumulative and participating
Preference Ordinary Total
Outstanding Share Capital 3,000,000 9,000,000 12,000,000

Current Preference Dividends

(3,000,000 X 5%) 150,000 150,000

Current Ordinary Dividends

(3,000,000 X 5%) 450,000 450,000

Remainder to the Participation

(900,000 – 150,000- 450,000)

Preference = 3M/12M x 300K 75,000 75,000

ORDINARY = 9M/12M x 300K 225,000 225,000

TOTAL P225,000 P675,000 P900,000

Dividends per share P3.75 P2.25

Case 4. Cumulative and participating

Preference Ordinary Total

Outstanding Share Capital 3,000,000 9,000,000 12,000,000

Current Preference Dividends

(3,000,000 X 5%) 150,000 150,000

Remainder to Ordinary
(900,000 – 150,000- 450,000) 450,000 450,000

Remainder to the Participation

(900,000 -150,000-450,000)

Preference = 3M/12M x 300K 75,000 75,000

ORDINARY = 9M/12M x 300K 225,000 225,000

TOTAL P225,000 P675,000 P900,000

Dividends per share P3.75 P2.25

Case 5. Cumulative and participating

Preference Ordinary Total

Outstanding Share Capital 3,000,000 9,000,000 12,000,000

Preference Dividends in Arrears

(3,000,000 x 5% x 3 years ) 450,000 450,000

Current Preference Dividends

(3,000,000 X 5%) 150,000 150,000

Current Ordinary Dividends

(9,000,000 X 5%) 450,000 450,000

Remainder to the Participation

(900,000 – 450,000- 150,000- 450,000)

Preference = 3M/12M x (150K)} (37,500) (37,500)

ORDINARY = 9M/12M x 150K)} (112,500) (112,500)

TOTAL P562,500 P337,500 P900,000

Dividends per share P9.38 P1.13