CORPORATION

(Use the 21st Century Partnership and Corporation Accounting 20th Edition by Zenaida Vera Cruz Manuel as
a reference)

OBJECTIVES
At the end of the review, the students should be able to:

1. Define corporation and its attributes

2. Understand the corporate structure and be familiar with the different
kinds of corporation
3. Describe the different kinds of stocks as to values and rights
4. Record the stock transactions using two methods
5. Prepare entries incorporating a partnership
6. Analyze and record preference share transactions
7. Explain and record delinquent shares, treasury shares, retired shares and
donated shares
8. Enumerate and explain the components of retained earnings
9. Explain the different kinds of dividends
10. Discuss the accounting process for dividends
11. Prepare a statement of changes in shareholder's equity

OUTLINE
I. Corporate Formation and The Shareholder's Equity
a. Definition
b. Corporation Attributes
c. Advantages and Disadvantages of a Corporation
d. Corporate Structure
e. Kinds of Corporation
f. Kinds of Stock
g. Rights of Shareholders
h. Incorporation Requirement
i. Articles of Incorporation
j. Stock Transactions
i. Memorandum Entry Method (See page 155-158 for illustration 1)
ii. Journal Entry Method (See page 159-160 for illustration 2)
k. Accounting for Par Value Shares and No Par Value Shares (See page 161-167 for
illustrations 3&4)
l. Stock and Transfer Book (See page 171 for illustration)

II. Additional Equity Transactions

a. Incorporation of a Partnership
b. Accounting for Preference Shares and Ordinary Shares
i. Illustration 1: Two classes of stocks are issued
(See page 184 for example)
c. Legal Capital
d. Delinquent Shares (See page 189 for example)
 e. Treasury Shares
i. Cost Method
ii. Par Value Method

f. Retired Shares
g. Donated Shares

III. Retained Earnings

a. Net Profit and Net Loss
b. Dividends
i. Ordinary dividends
ii. Cash dividends
iii. Property dividends
iv. Liability dividends
v. Stock Dividends
c. Earnings Per Share (See page 212-213 for example)
d. Book Value Per Share (See page 214-216 for example)
e. Appropriation of Retained Earnings
f. Statement of Retained Earnings

Corporation
- is an artificial being created by operation of law having the rights of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence
( Section 2 of the Corporation Code of the Philippines )

Corporation Code of the Philippines

Requirements:
a) Incorporation (is the legal process used to form a corporate entity or company)
b) Issuance of shares
c) Limitations on dividends
d) Definition of legal capital (minimum assets which can't be distributed to
shareholders and will serve as a cushion of protection for the corporate creditors)
e) Procedures for retirement of stocks, among others

Corporation Attributes:
1. Artificial being
- A corporation is a separate and distinct personality
2. Legal Personality
- A juridical entity created by operation of law
3. Right of Succession
- It has a capacity of continuous existence and cannot be dissolved due to death or
incapacity of a member or shareholder
4. Corporate Ownership
- Interest and right over the corporation is divided into shares of stocks
5. Limited Liability
- A shareholder's liability is limited to their shares only, they are not either liable for
corporate acts or corporate debts
6. Transferability of Interest
- The shares of stock owned by a shareholder may be transferred without prior
consent to other stockholders
 Advantages of a Corporation
1. Capital
- large amount of resources can be acquired by selling shares through the
investment market such as PSE
2. Liability to corporate creditors
- a shareholder's liability is limited only to the extent of his/her investment
3. Transferability of Interest
-shares are easily transferable

4. Continued Existence
- it's legal life is 50 yrs and can be renewed
5. Skilled Management
- it is managed by a team of professionals with specific specialization in marketing,
finance, accounting, and production

Disadvantages of a Corporation
1) Tax Liability
- income tax is 30%
2) Legal Requirements
- Subjected to governments scrutiny due to the large amount of capital. They have to
file for approval of their Articles of Incorporation and Corporate By-Laws to SEC.
They are also required to file financial reports and report other activities to be
approved by the SEC.
3) Lack of Control
- Shareholders have no direct or active control over the affairs of the corporation

Corporate Structure

OWNERS SHAREHOLDERS

POLICY MAKERS BOARD OF DIRECTORS

MANAGERS PRESIDENT

Vice President Vice President Vice President Vice President for

for Marketing Production for Finance Human Resource

 Corporators/Owners - have the ultimate control over the corporation and have a
right to elect the Board of Directors or Board of Trustees ( if non-stock)
 Board of Directors - responsible for the overall supervision of the firm and have the
final authority on policy making and control of corporate activities
 President/ CEO- responsible for implementing the policies set up and the plans
drawn by the BOD
 Vice Presidents - they are given specific areas of responsibility as managers of
different departments
Kinds of Corporation
PRIVATE
- owned and organized for private purposes
a) Stock
-organized for profit
- ownership is sold in units called shares
- profits distributed as dividends
b) Non-Stock
-non-profit in nature
- owners are called members
-civic or social in nature
PUBLIC
- government organized for public functions
- ex. national gov't, provincial, city or municipal gov't
CLOSE/Privately-held
- family corporation
- not open to any person
OPEN/Publicly-held
- stock is listed in the stock market and is available for public

Kinds of Stocks
As to Value
 PAR VALUE STOCK
- fixed value is stated/ minimum basis
- stock can be issued at par and above par but not below par (allowed only on
second sale)
- basis for legal capital
 NO PAR VALUE STOCK
- without designated value stated
- cannot be sold at less than P5.00
- the law allowed to have fix value at some time later which is called no par
but with an issued value stock
As to Right
 COMMON STOCK/ORDINARY SHARE
- entitles the owner to a pro rata ( proportional rate as to owned stocks)
dividend without any priority or preference
 PREFERRED STOCK/PREFERENCE SHARES
- class of stock with preferential rights or claims over the common stock such
as priority claim over dividend distribution

Legal Capital
- Because of the limited liability of the shareholders, the law requires a minimum
permanent investment from the shareholders to protect the creditors
- This is called legal capital, which cannot be distributed to the shareholders in the
lifetime of the corporation.
* Trust Fund Doctrine - the corporate creditors have a right for satisfaction of their
claims
 Investments at par represent legal capital
a.) X Corporation issued 1,000 shares with a par value of P100 for P120,000 cash
Legal Capital is P100,000 ( 1,000x100)
 All proceeds from the issue of no par value are treated as legal capital
 b.) X Corporation issued 1,000 shares of no par value stock in exchange for
120,000. Legal Capital is 120,000

Rights of Shareholders
A. For the protection of shareholders and minority interests, the Board shall be committed to
respect the following rights of the stockholders:
(1) Voting Right
a. Shareholders shall have the right to elect, remove and replace directors and vote on
certain corporate acts, in accordance with the Corporation Code.
b. Cumulative voting shall be used in the election of directors.
c. A director shall not be removed without cause, if it will deny minority shareholders
of representation in the Board.
(2) Pre-Emptive Right
All stockholders shall have pre-emptive rights, unless the same is denied in the Articles of
Incorporation, or an amendment thereto, of the Company. (See page 146 for example)
(3) Power of Inspection
Subject to reasonable restrictions in accordance with the Corporation Code and jurisprudence,
all shareholders shall be allowed to inspect the corporate books and records of the Company,
including minutes of Board meetings and stock registries, and shall be furnished with annual
reports, including financial statements, without cost.
(4) Right to Information
a. The shareholders shall be provided, upon request, with periodic reports which
disclose personal and professional information about the directors and officers of
the Company, and certain other matters such as the directors’ and officers’ holdings
of the Company’s shares, dealings with the Company, relationships among directors
and key officers of the Company, and the aggregate compensation of the directors
and officers.
b. The minority shareholders shall have the right to propose the holding of a
stockholder’s meeting, and the right to propose items in the agenda of the meeting,
provided that the items in the agenda are for legitimate business purposes.
Legitimate business purposes shall include information on matters under the
immediately succeeding subsection.
c. The minority shareholders shall have access to any and all information relating to
matters for which the management is accountable for and should disclose to the
shareholders.
(5) Right to Dividends
a. All shareholders shall have the right to receive dividends, subject to the discretion of
the Board.
b. The Company shall be compelled to declare dividends when its retained earnings
shall be in excess of one hundred percent (100%) of its paid-in capital stock except
in the following cases:
(b.1) When justified by definite corporate expansion projects or programs
approved by the Board, or
(b.2) When the Company is prohibited under any loan agreement with any
financial institution or creditor, whether local or foreign, from declaring dividends
without its consent, and such consent has not been secured, or
(b.3) When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the Company, such as when there is a need for a special
reserve for probable contingencies.
(6) Appraisal Right
The shareholders shall have appraisal right or the right to dissent and demand payment of the fair
value of their shares in the manner provided for under Section 82 of the Corporation Code of the
Philippines, under any of the following circumstances:
a. In case an amendment to the Articles of Incorporation of the Company has the effect
of changing or restricting the rights of any stockholders or class of shares, or of
authorizing preferences in any respects superior to those of outstanding shares of
any class, or of extending or shortening the term of corporate existence;
b. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in the
Corporation Code; and
c. In case of merger or consolidation.
B. It shall be the duty of the Board to promote shareholder rights, remove impediments to
exercise of shareholders’ rights, and allow possibilities to seek redress for violation of their rights.
The Board shall encourage the exercise of shareholders’ voting rights and the solution of collective
action problems through appropriate mechanisms. The Board shall pave the way for the electronic
filing and distribution of shareholder information necessary to make informed decisions, subject to
legal constraints.

Incorporation Requirements
1) Incorporators must be not less than 5 and not more than 15, to form a private
corporation. They must be of legal age, majority of them residents of the Philippines
2) At least 25% of the authorized capital stock must be subscribed and at least 25% of
these subscription must be paid
ex. 2,000,000 authorized capital stock
2,000,000x25% = 500,000 ( must be subscribed)
500,000x25% = 125,000 (must have been paid)

Articles of Incorporation ( download file for illustration)

https://www.sec.gov.ph/wp-content/uploads/2015/10/Articles-of-
Incorporation-By-laws-and-Treasurers-Affidavit-for-stock-
corporation.docx

Authorized Share Capital

-maximum number of shares or amounts the corporation is allowed to issue as stated in
the Articles of Incorporation

Stock Subscription
- a subscription is an agreement to purchase shares of stock and states the number
shares being subscribed, the subscription price, and terms of payment and call dates.

Share Capital
- amount paid in by shareholders for which a certificate of stock is issued

Certificate of Stock (See Exhibit 2 on page 151 for example)

- written acknowledgement by the corporation of the shareholder's interest in the

corporation and its net assets
- no certificate must be issued unless a subscription is fully paid ( however, the board may
issue a certificate for the paid subscription)
Organization Expense
- these are pre-incorporation costs like professional fees, licenses, printing cost, and etc.
-these can be paid by issuing shares ( Organization Expense xx
Share Capital xx)
- stock issuance expenses may be debited to the additional paid in capital
Additional Paid in Capital xx
Cash xx
Shareholder's Equity (See Exhibit 3 on page 153 for illustration)
- residual interest of the shareholders in the net assets of the corporation
1. Contributed or Paid in Capital
- total contributions made by the shareholders
- shareholder's equity is called Share Capital
- capital is divided into units called shares of stocks
2. Retained Earnings
- represents accumulated profits earned or losses incurred in the operation of the
business
- distribution of profit or dividends are drawn against the retained earnings

Accounting for Shares of Stocks

1) Authorization
- recording of the maximum no. of shares a corporation is authorized to issue
2) Sale
- a shareholder buys and pays immediately in full, shares are called Share Capital
3) Subscription
- a subscriber enter into a contract to buy a number of shares
- a down payment is required
- shares are called Subscribed Share Capital
4) Collection of Subscription
- subscription may be paid in cash, property, or in the form of service
5) Issuance of Certificate
- once subscription is collected in full, a certificate is issued
6) Reacquisition of shares
- the issuing corporation may reacquire shares of stock either to resell or retire
them
- these are called Treasury Shares ( Treasury Shares xx
Cash xx)
Movement of Stock
(See Exhibit 4 on page 154 for illustration)
 Authorized Shares
 Issued Shares
 Subscribed Shares
 Treasury Shares

Stock Transactions
a. Memorandum Entry Method (See page 155-158 for illustration 1)
b. Journal Entry Method (See page 159-160 for illustration 2)
Accounting for Par Value Shares and No Par Value Shares (See page 161-167
for illustrations 3&4)

Stock Transfer
- Shares may be transferred by a shareholder to another person or entity without the
consent of the shareholders
- Stock certificate is surrendered to the corporate secretary who marks the stock
certificate "cancelled" on its face ( if only part is sold, 2 new certificates are issued )
- Requires recording in the stock and transfer book only, no formal entry is required
Stock and Transfer Book
a. Authorization ---- -----General Journal
b. Stock Subscription----General Journal
c. Collection of Subscription----Cash Receipts Journal ( cash payment)/ General Journal
(if non-cash)
d. Issuance of Shares-----General Journal

(See page 171-175 for illustrations)

ASSESSMENT
CHAPTER 6 (CORPORATION)
ASSESSMENT #1
The Alchemist Corporation was organized and authorized by the Securities and Exchange
Commission to issue 100,000 shares of common stock with a par value of P100.00 per share on
June 28, 2015.
The following transactions transpired during the month of July, 2015:
July
1 Subscriptions at par value were received as follows:
5,000 shares subscribed by Mr. A
5,000 shares subscribed by Mr. B
12,000 shares subscribed by Mr. C
8,000 shares subscribed by Mr. D
10,000 shares subscribed by Mr. E

5 Mr. A paid his subscription in full and the corresponding stock certificate was
issued to him.
7 Collected 50% of the subscription of Mr. B and Mr. C.
10 Additional subscriptions:
4,000 shares were subscribed by Mr. F at P105 per share, collectible in two equal installments.
July 15 and July 31, and 1,000 shares were subscribed by Mr. G at P110.00 per share, 1/5 of
which was paid upon subscription.

]his subscription balance. The stock certificate for Mr. C was issued.
15 Mr. F paid his first installment
21 Atty. K sent his statement of account for his legal services amounting to P 20,000.
The corporation paid him in the form of 180 shares of stock. A certificate of stock
for 180 shares was issued to him.
29 A factory machine with a fair value of P850,000 was purchased from Miss. H.
Payment was made by issuing a stock certificate for 8,000 shares.
31 Collected from Mr. F his second and last installment.

Required: Using the Memorandum Entry Method, prepare the journal entries to record
the above transactions. Prepare a Statement of Financial Position.
 ANSWER
Date Accounting Title Debit Credit
June 28 Authorized to issue 100,000 common
shares at P100 par value

July 1 Subscription Receivable 4,000,000

Subscribed share capital 4,000,000
To record subscription

5 Cash 500,000
Subscription Receivable 500,000
Received cash for 5,000 shares
issued

Subscribed Share Capital 500,000

Share Capital 500,000
Issued certificate to Mr. A

7 Cash 850,000
Subscription Receivable 850,000
To record 50% of Mr. B and Mr. C
balance

10 Subscription Receivable 530,000

Subscribed Share Capital 500,000
Share Premium 30,000
Received subscription for 5,000
shares

Cash 22,000
Subscription Receivable 22,000
Received 25% downpayment from
Mr. G

12 Land 1,500,000
Subscription Receivable 600,000
Share Premium 900,000
Received land in exchange for Mr.
C's subscription balance

Subscribed Share Capital 1,200,000

Share Capital 1,200,000
Received subscription for 12,000
shares

15 Cash 210,000
Subscription Receivable 210,000
Received cash for Mr. F's first
installment payment

21 Organization Expenses 20,000

Share Capital 18,000
Share Premium 2,000
Issued certificate for legal services
of Atty. K
29 Factory Machine 850,000
Share Capital 800,000
Share Premium 50,000
Received machine in exchange for
8,000 shares

31 Cash 210,000
Subscription Receivable 210,000
Received cash for Mr. F's second
installment payment

Subscribed Share Capital 400,000

Share Capital 400,000

ALCHEMIST CORPORATION
STATEMENT OF FINANCIAL POSITION
JULY 31, 2015
CURRENT ASSET
Cash 1,792,000
Subscription Receivable 2,138,000 3,930,000
NON-CURRENT ASSETS
Property, Plant & Equipment
Land 1,500,000
Factory Machine 850,000 2,350,000
TOTAL ASSETS 6,280,000

SHAREHOLDERS'
EQUITY
Paid in Capital
Authorized to issue 100,000
shares, P100 par value
Share Capital (29,180 2,918,000
shares)
Subscribed Share Capital 2,400,000
(24,000 shares)
TOTAL 5, 318,000
ADDITIONAL PAID IN
CAPITAL
Share Premium 982,000
TOTAL PAID IN 6,300,000
CAPITAL
Retained Earnings (20,000)
TOTAL
SHAREHOLDERS' 6,280,000
EQUITY
 ASSESSMENT #2

A. Prepare the journal entries to record the foregoing facts using the Memorandum Entry.
June 1 Fox Corporation was incorporated on June 1 and was authorized to issue 1,000 common shares.
P100 par value.
2 Arturo bought 100 shares at P110 per share and paid cash. Stock certificate was issued.

3 Boy subscribed 100 shares at P110 per share and paid 50% in cash and the balance to be paid on
June 23.
4 Kikay subscribed 100 shares at P105 to be paid in two equal installments; the first installment is
on June 24 and the second installment will be on July 4.

5 Dorong subscribed 200 shares. Dorong offered to pay using an equipment which is currently
worth P25,000. Dorong delivered the equipment this day and stock certificate was issued.

23 Boy paid the balance in full. The stock certificate was issued.
24 Kikay paid the first installment of her subscription
25 Atty. Nokes was collecting for his legal services worth P15,000. He consented to be paid with 120
shares of stocks. A stock certificate for 120 common shares was issued.

B. Prepare the journal entries to record the foregoing facts using the Journal Entry.
June 1 Sisid Corporation was authorized to issue 10,000 common shares at P100 par value.

2 Arturo bought 1,000 shares at par and paid cash. Stock certificate was issued on the same date.

2 Mayaman bought 1,000 shares at par and paid cash. Stock certificate was issued.

3 Benito subscribed 2,000 shares at par to be paid on June 23.

4 Kiko subscribed 1,000 shares at par. Paid P60,000 and the balance on June 24.
5 Dondon subscribed 1,000 shares at par. The balance will be paid in August.
23 Collected from Benito in full. Stock certificate was issued on the same date.
24 Collected from Kiko the balance and stock certificate was issued in full.

ANSWER
A)
Date Account Title Debit Credit
June 1 Authorized to issue 1000 common shares at
P100 par value
 2 Cash 11,000
Share Capital 10,000
Share Premium 1,000

3 Subscription Receivable 11,000

Subscribed Share Capital 10,000
Share Premium 1,000

Cash 5,500
Subscription Receivable 5,500

4 Subscription Receivable 10,500

Subscribed Share Capital 10,000
Share Premium 500

5 Equipment 25,000
Share Capital 20,000
Share Premium 5,000

23 Cash 5,500
Subscription Receivable 5,500

24 Cash 5,250
Subscription Receivable 5,250

25 Legal Expenses 15,000

Share Capital 12,000
Share Premium 3,000

B)
June 1 Unissued Capital 1,000,000
Authorized Capital 1,000,000

2 Cash 100,000
Unissued Share Capital 100,000

Cash 110,000
Unissued Share Capital 100,000
Share Premium 10,000

3 Subscription Receivable 200,000

Subscribed Share Capital 200,000

4 Subscription Receivable 100,000

Subscribed Share Capital 100,000

Cash 60,000
Subscription Receivable 60,000
CHAPTER 7

1. Rose de Lima Corporation was organized on May 1, 2015 with the following authorization:
100,000, 12% cumulative preference shares par P100 per share and 200,000 common shares par
P50. On this date, six incorporators subscribed at par to 30,000 preference shares and 60,000
ordinary shares. A down payment of 25% was required and the balance for both shares payable
in two equal installments, the first installment due on June 30 and the second installment on
July 30. The Securities and Exchange Commission approved its Articles of Incorporation.
Additional transactions follow:
June 05 Paid for organization expenses, P120, 000.
15 Received subscriptions from the various investors to 5,000 preference shares at
P110 per share, with a 25% down payment.
17 30,000 ordinary shares were subscribed at P52 with a 25% down payment.
30 Received the first installment due from the incorporators.
July 1 Received full payment from June 17 subscribers. Certificate were issued.
15 Received another 25% payment from the June 15 subscribers.
18 Received land worth P75,000 in exchange for 1,400 ordinary shares.
20 Two of the incorporators paid their subscription balance in full.
30 Received the balance due from the other incorporators.
Aug 31 Operation started August. Income Summary has a credit balance of P105,000.

Direction: Journal entries using the memorandum entry method. Prepare the shareholder’s
equity section.

Debit Credit
05 01 Authorized to issue 100,000, 12% cumulative
preference shares at P100 par and 200,000 common
shares at P50 par.

Subscription Receivable - preference P3,000,000

Subscription Receivable - ordinary 3,000,000
Subscribed Share Capital – preference P3,000,000
Subscribed Share Capital – ordinary P3,000,000

Cash 1,500,000
Subscription Receivable - preference 750,000
Subscription Receivable - ordinary 750,000

06 05 Organization Cost 120,000

Cash 120,000

06 15 Subscription Receivable - preference 550,000

Subscribed Share Capital – preference 500,000
Share Premium - preference 50, 000

Cash 137,500
Subscription Receivable - preference 137,500

06 17 Subscription Receivable - ordinary 1,560,000

Subscribed Share Capital – ordinary 1,500,000
Share Premium - preference 60,000

Cash 390,000
Subscription Receivable - ordinary 390,000

30 Cash 2,250,000
Subscription Receivable - preference 1,125,000
Subscription Receivable - ordinary 1,125,000
07 01 Cash 1,170,000
Subscription Receivable - ordinary 1,170,000

Subscribed Share Capital – ordinary 1,500,000

Share Capital - ordinary 1,500,000

15 Cash 137,500
Subscription Receivable - preference 137,500

18 Land 75,000
Share Capital – ordinary 70,000
Share Premium – ordinary 5,000

20 Cash 750,000
Subscription Receivable – preference 375,000
Subscription Receivable - ordinary 375,000

Subscribed Share Capital – preference 1,000,000

Subscribed Share Capital – ordinary 1,000,000
Share Capital – preference 1,000,000
Share Capital – ordinary 1,000,000

30 Cash 1,500,000
Subscription Receivable – preference 750,000
Subscription Receivable - ordinary 750,000

Subscribed Share Capital – preference 2,000,000

Subscribed Share Capital – ordinary 2,000,000
Share Capital – preference 2,000,000
Share Capital – ordinary 2,000,000

08 01 Income Summary 105,000

Retained Earnings 105,000
 ROSE DE LIMA CORPORATION
Statement of Financial Position
July 31, 2015

ASSETS

Current Assets

Cash P7,715,000
Subscription Receivable – preference 275,000

Property, Plant and Equipment

Land P 75,000

TOTAL ASSETS P8,065,000

SHAREHOLDER’S EQUITY

Paid In Capital

Share Capital – preference P3,000,000

Subscribed Share Capital – preference 500,000 P3,500,000

Share Capital – ordinary 4,570,000

Additional Paid in Capital

Share Premium – preference P50,000

Share Premium – ordinary 65,000 115,000

Retained Earnings 105,000

Less: Organization Cost (120,000)

TOTAL SHAREHOLDER’S EQUITY P8,065,000

2. On January 1, 2015 Rainbow Corporation received authorization to issue 50,000 ordinary shares
at a par value of P110 per share. The shares were offered at a subscription price of P125.
Subsequently a subscription for a total of 10,000 shares were received from investors requiring
a 25% down payment with the balance payable in two installments within six months. The
subscribers paid the first installment on March 31. Subsequently on June 30 all paid in full
except for Abel, a subscriber for 500 shares, who defaulted. The company spent P1,375 for
advertising and legal expenses for the delinquency sale. Three bidders responded in the
announcement: A with a bid for 400 shares, B for 350 shares and C for 300 shares. The highest
bidder paid on July 5 and stock certificates were issued.
Direction: Give the journal entries to record the above transactions.

2015 Debit Credit

01 01 Authorized to issue 50,000 ordinary shares at
P100 per share

Subscription Receivable P1,250,000

Subscribed Share Capital P1,000,000
Share Premium 250,000
(10000 x P125 = 1250000,
10000 x P25 = 250000)
 Cash 312,500
Subscription Receivable 312,500
(1250000 x P25% = 312,500)

03 31 Cash 468, 750

Subscription Receivable 468,750
(1250000 – 312500 = 937500)
(937,500 / 2 = 468, 750)

06 30 Cash 445,312.5
Subscription Receivable 445,312.5
(500 x P125 = 62500 x 25% = 15625)
(62500 – 15625 = 46875/ 2 = 23437.5)
(468750 – 23437.5 = 445, 312.5)

Subscribed Share Capital 950,000

Share Capital 950,000
(500 x P100 = 50000)
(1000000 – 50000 = 950000)

Due from the highest bidder 23,437.5

Subscription Receivable 23,437.5
(500x P125 = 62500 x 25% = 15625)
(62500 – 15625 = 46875 / 2 = 23,437.5)

Due from the highest bidder 1,375

Cash 1,375

Cash 24,812.5
Due from the highest bidder 24,812.5

Subscribed Share Capital 50,000

Share Capital 50,000
Issue certificate of stock to Abel for 200
shares and C for 300 shares.
 3. The following data pertain to CHACHA Corporation:
Ordinary Share Capital, with a par value of P100
10,000 shares issued and outstanding 1,000,000
Share Premium 50,000
Retained Earnings 1,200,000

The following transactions took place:

June 10 Reacquired 500 common shares for treasury at P80 per share

12 50 treasury shares were sold @P75 per share.

15 100 treasury shares were sold for P10,000

20 150 treasury shares were sold @P70 per share

25 100 treasury shares were retired.

30 An appropriation for treasury stock was recorded.

Direction: Prepare Journal entries.

06 10 Treasury Shares P40,000

Cash P40,000

12 Cash 3,750
Retained Earnings 250
Treasury Shares 4,000

15 Cash 10,000
Treasury Shares 8,000
Additional Paid in Capital - treasury 2,000

20 Cash 10,500
Additional Paid in Capital – treasury 1,500
Treasury Shares 12,000

25 Share Capital 10,000

Treasury Shares 8,000
Paid in Capital from Stock Retirement 2,000

30 Retained Earnings 10,000

Appropriation for Treasury Shares 10,000
Chapter 8

The following is the abstract of the shareholder’s equity of Shake Corporation before the declaration of
cash dividends:

12% Preference Share Capital, par P100,

30000 shares all issued and outstanding P3,000,000

Ordinary Share Capital, P50 par, 20,000

shares all issued and outstanding 1,000,000

Retained Earnings 5,500,000

The board declared dividends of 900,000. No dividends were distributed last year.

Direction: determine how much dividends the preference and ordinary shares will receive given the
following independent situations:

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

preference ordinary total
12% x 100 x 30,000 x 1 year 360000 360000
Remainder to ordinary 540,000 540,000
Total 360,000 540,000 900,000
Dividends per share P12 P47

b. The preference is participating

preference ordinary total
12% x 3,000,000 x 1 year 360000 360000
12% x 1,000,000 x 1 year 120,000 120,000
Remainder 420,000 (900,000 –
360,000 – 120,000)
Preference (3,000,000 / 4,000,000 315,000 315,000
x 420,000)
Ordinary (1,000,000 / 4,000,000 x 105,000 105,000
420,000)
Total 675,000 225,000 900,000
Dividends per share P22.50 P11.25

c. The preference share is cumulative

preference ordinary total
12% x 100 x 30,000 x 2 years 720000 720000
Remainder to ordinary 180,000 180,000
Total 720,000 180,000 900,000
Dividends per share P24 P9
d. The preference share is both cumulative and participating
preference ordinary total
12% x 3,000,000 x 2 years 720000 720000
12% x 1,000,000 x 1 year 120,000 120,000
Remainder 420,000 (900,000 –
720,000 – 120,000)
Preference (3,000,000 / 4,000,000 450,000 450,000
x 60,000)
Ordinary (1,000,000 / 4,000,000 x 15,000 15,000
60,000)
Total 765,000 135,000 900,000
Dividends per share P25.50 P6.75

e. The preference share is participating up to 15%

preference ordinary total
12% x 3,000,000 x 1 year 360000 360000
12% x 1,000,000 x 1 year 120,000 120,000
3% x 3,000,000 90,000 90,000
Remainder to ordinary 330,000 330,000
Total 450,000 450,000 900,000
Dividends per share P15 P22.50