ST.

THOMAS MORE COLLEGE – CLARK

TMC Building, New York
St. Villa Sol Subdivision
Angeles City, Philippines
A Professional Business School Tel. No. (045) 321 - 0727

FINANCIAL ACCOUNTING AND REPORTING

Exercises on Shareholders’ Equity

1. SHAREHOLDERS’ EQUITY COMPOSITION

Authorized Ordinary Share 3,500,000
Unissued Ordinary Share 1,000,000
Subscribed Ordinary Share 500,000
Subscription Receivable 600,000
Share Premium- Ordinary Shares 200,000
Retained Earnings- Unappropriated 500,000
Retained Earnings- Appropriated 220,000
Revaluation Surplus 400,000
Treasury Shares, at cost 220,000
***Compute the amount of total Shareholders’ Equity

2. LEGAL CAPITAL
Preference Share, 100 par 1,150,000
Share Premium- Preference Share 402,500
Ordinary Share, 15 par 2,625,000
Share Premium- Ordinary Share 1,375,000
Subscribed Ordinary Share 250,000
Retained Earnings 950,000
Note Payable 2,000,000
Subscription Receivable, Ordinary Share 200,000
***Required:
a. How much is the legal capital?
b. Assume instead the Ordinary Share have no par value but with stated value, how much is the
legal capital?

3. ISSUANCE OF TWO OR MORE SHARES

The company issued for 1,000,000 cash, 1,000 shares of 200 par value Preference Share
and 2,000 shares of 100 Ordinary Share. The preference and ordinary shares have fair values of
240 and 180 per share, respectively on the date of sale. Prepare the necessary journal entry to
record the transaction

4. TREASURY SHARE - COST METHOD

The shareholders’ equity of a company appears as follows:
Ordinary Shares, 50,000 shares, 100 par 5,000,000
Share Premium 200,000
Retained Earnings 2,000,000

Subsequently, the following transactions, among others occurred:

a. Treasury Shares 5,000 were acquired at 160 per share
b. Reissued 2,000 Treasury Shares at 180 per share
c. Reissued 1,000 Treasury Shares at 150 per share
d. Retired the remaining treasury shares
e. Stockholder donated 5,000 shares when the market price is 150 per share. Subsequently, the
company sold 2,000 shares at 180 per share.
***Required: Prepare the necessary journal entries to record the transactions.

5. TREASURY SHARE - PAR VALUE METHOD

The shareholders’ equity of a company appears as follows:
Ordinary Shares, 50,000 shares, 100 par 5,000,000
Share Premium 200,000
Retained Earnings 2,000,000

Subsequently, the following transactions, among others occurred:

a. Treasury Shares 5,000 were acquired at 160 per share
b. Reissued 2,000 Treasury Shares at 180 per share
***Required: Prepare the necessary journal entries to record the transactions.

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 ST. THOMAS MORE COLLEGE – CLARK
TMC Building, New York
St. Villa Sol Subdivision
Angeles City, Philippines
A Professional Business School Tel. No. (045) 321 - 0727

6. RECAPITALIZATION
The shareholders’ equity of a company on December 31 appears as follows:
Ordinary Shares, 100,000 shares issued and outstanding, 50 par 5,000,000
Share Premium on Ordinary Shares 1,000,000
Accumulated Profits 20,000,000

***Required: Prepare the necessary journal entries to record the transactions under the following
independent scenarios:
a. All 100,000 ordinary shares are called in for cancellation. Instead, the company issued
100,000 no par ordinary shares with the following stated value
1. P 50.00 2. P 150.00

b. A recapitalization is effected whereby the par value of the ordinary shares is reduced to P
40.00 per share

c. The company effected a 5 for 1 stock split on the ordinary shares

RETAINED EARNINGS
 PROPERTY DIVIDENDS
1. Current Assets
On November 01, 2014, NAHULI Co. declared inventory as property dividend payable on
February 15, 2015. The carrying amount of the inventory is 700,000. Data relating to the fair
values of the inventory are as follows:
November 01, 2014 600,000
December 31, 2014 800,000
February 15, 2015 780,000

Assume the fair values are not materially different with the net realizable values.

***Required: Provide the journal entries to record these transactions

2. Property, Plant, and Equipment

On November 01, 2014, NAKAWALA Co. declared equipment as property dividend payable
on February 15, 2015. The carrying amount of the equipment is 700,000. Data relating to the
fair values of the inventory are as follows:
November 01, 2014 600,000
December 31, 2014 800,000
February 15, 2015 780,000

***Required: Provide the journal entries to record these transactions

 SHARE DIVIDENDS
The Shareholder’s Equity Section of NAIWANA Co. on December 31 is as follows:
Ordinary Share, P50 par, 105,000 shares issued 5,250,000
Share premium on Ordinary Shares 1,010,000
Treasury Shares (5,000 shares) 300,000
Accumulated Profits 10,000,000

***Required: Provide the journal entries under the following independent assumptions:
a. The company declared 10% share dividends on the ordinary share when the market value is
P130.
b. The company declared 20% share dividends on the ordinary share when the market value is
P130.
c. Assume instead that the 5,000 treasury shares were declared as share dividends.

SHARE-BASED COMPENSATION
1. SHARE OPTIONS
1.1. With Vesting Period (Employees Left). On January 01, 2017, an entity granted 100 share
options each to 500 employees, with the condition of remaining to be employed in the
company for three years. On grant date, each share option has a fair value of P30.00. By
December 31, 2017, 30 employees left and it is expected that a further 30 employees will
leave during the vesting period. By December 31, 2018, 28 employees have left and the entity

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 ST. THOMAS MORE COLLEGE – CLARK
TMC Building, New York
St. Villa Sol Subdivision
Angeles City, Philippines
A Professional Business School Tel. No. (045) 321 - 0727

expects that a further 25 employees will leave during 2019. By December 31, 2019, 22
employees have left.
***Compute the Compensation Expense for 2017, 2018 and 2019.

1.2. With Vesting Period (With Condition and Share Options Vary). On January 01, 2017, an
entity granted share options to each of the 300 employees working in the Accounting
Department. The share options vest at the end of three years provided that the employees
remain in the entity and provided that volume of sales will increase by an average of 10% per
year. The fair value of each share option on grant date is P20.00.

If the sales increase by an average of 10%, each employee will receive 200 share options. If
the sales increase by an annual average of 15%, each employee will receive 300 share
options. During 2017, the sales increased by 10%. On 2018, the sales increased by 20%. On
2019, the sales increased by an average of 16% over 3 years. By that time, 20 employees left
the entity.
***Compute the Compensation Expense for 2017, 2018 and 2019.

1.3. Intrinsic Value Method. On January 01, 2017, an entity granted 10,000 share options to
employees. The share options vest on December 31, 2018 provided the employees remain in
service. The fair value of the share option cannot be estimated reliably. The par value per
ordinary share is P100.00. The Option price is P125.00 and the market value is P125.00 at the
date of grant.

The share options can be exercised starting January 01, 2019 and expire two years after. All
share options are exercises on December 31, 2019. The share market prices are P150.00 on
12/31/17, P180.00 on 12/31/18, and P200.00 on 12/31/19.
***Compute the Compensation Expense for 2017, 2018 and 2019.

2. SHARE APPRECIATION RIGHTS

An entity granted a 200,000 share appreciation rights to the General Manager on January 01,
2017. After a four-year service period the employee is entitled to receive cash equal to the
appreciation in share price over the market value on January 01, 2017.

The quoted prices of the entity’s share are:

01/01/2017 200.00
12/31/2017 210.00
12/31/2018 220.00
12/31/2019 240.00
12/31/2020 250.00

***Compute the Compensation Expense for 2017, 2018, 2019 and 2020.

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