SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

Accountancy Department

ACCT 1013 – Conceptual Framework and Accounting Standards

Second Semester, SY 2024-2025

EXERCISES
Accounting for Corporations
– Part 1 (Formation)
Make sure to solve the following problems before attending our meeting. Please write your
complete solutions in the space provided for each item. Volunteers for recitation are
encouraged during the discussion of the exercises.

Problem 1 – SHARE ISSUANCES FOR CASH AND NONCASH CONSIDERATIONS (Memorandum

Entry Method and Journal Entry Method) Required:
a. Prepare journal entries to record the transactions using the memorandum method and
journal entry method.
b. Present the shareholders' equity in the statement of financial position.
Ocean Company was organized at the beginning of the current year. The following transactions
occurred during the current year in connection with the share capital:
Memorandum Entry Journal Entry
Method Method
1. The company is
authorized to issue
share capital of
100,000 shares of P50
par value.
2. The incorporators
subscribed for 25%
of the authorized
share capital at par
value.
3. The incorporators paid
25% on their
subscription.

4. Full payment was

received on 15,000
shares originally
subscribed.
5. Land with fair value of
P600,000 was acquired
upon issuance of
10,000 shares. The
market value of the
share at this time is
P55.
6. Cash subscription to
5,000 shares at P60
per share was received.

7. Issued 2,000 shares to

the legal counsel in
payment for his P
100,000 bill for
organization services.

Pag

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

 Problem 2 - SHARE ISSUANCES FOR CASH AND NONCASH CONSIDERATIONS
(Memorandum and Journal Entry Method)

Required:
a. Prepare journal entries to record the transactions using the memorandum m
and journal entry method.
b. Present the shareholders' equity in the statement of financial position.
Lake Company was organized at the beginning of the current year and the following trans
year:
Memorandum Entry Journal Entr
Method
1. Authorized to issue
share capital of
50,000 shares with
par value of P100.

2. Received
subscriptions at par
value from
incorporators equal to
40% of the authorized
share capital.
3. Received a 25%
downpayment on the
subscriptions from the
incorporators.

4. Received full payment

on 10,000 shares
originally subscribed.

5. A patent was acquired

by issuing 5,000
shares. The patent
has no fair value.

6. Received cash
subscriptions to
15,000 shares at P
120 per share.
 Present the shareholders' equity in the statement of financial position.

Problem 3 - SHARE ISSUANCES FOR CASH AND NONCASH

CONSIDERATIONS (Memorandum Entry Method)

Required:
a. Prepare journal entries to record the transactions using the memorandum
method.
b. Present the shareholders' equity in the statement of financial

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, P 100 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 P 120 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 P 100,000 in connection with organizing
the corporation.

7. 20,000 ordinary 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.

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Problem 4 - SHARE ISSUANCES FOR CASH AND NONCASH CONSIDERATIONS
(Comprehensive)

Required:
a. Prepare journal entries to record the transactions.
b. Present the shareholders' equity on December 31, 2020.

Funhouse Company began operations on January 1, 2020. Authorized were 100,000 ordinary
shares of P 100 par value and 50,000 convertible preference shares of 10% P 100 par value.

The following transactions involving shareholders' equity occurred during the first year of
operations:

Jan. 1 - Issued 10,000 ordinary shares to the promoters in

exchange for land valued at P 2,500,000 and services
valued at P500,000.

The property had cost the promoters P1,800,000 three

years before and was carried on the promoters' books at
P 1,500,000.

Feb. 20 - Issued 15,000 preference shares for P120 per

share. Each share can be converted to five ordinary
shares. The entity paid P50,000 to an agent for selling the
shares.

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Mar. 10 - Sold 25,000 ordinary

shares for P260 per share. Issue
costs amounted to P200,000.
Apr. 1 - Sold 20,000 ordinary
shares under share subscriptions at
P350 per share. No share
certificates are issued until a
subscription contract is paid in full.
No cash was received.

July 15 - Exchanged 12,000

ordinary shares and 20,000
preference shares for a building
with a fair value of P7,000,000.

The building was originally

purchased for by the owner and has
a carrying amount of P4,800,000. In
addition, 10,000 ordinary shares
were sold for P3,000,000 cash on
same date.

Aug. 1 - Received payments in full

for half of the share subscriptions
and partial payments on the rest of
the subscriptions. Total cash
received was P4,500,000. Share
certificates were issued for the
subscriptions

Aug. 31 - Received notice from

holders of share subscriptions for
5,000 shares that they would not
pay further on the subscriptions
because the price of the share had
fallen to P190 per share. The
amount still due on those contracts
was P1,500,000. Amounts
previously paid on the contracts are
forfeited according to the
agreement.

December 31 - Net income for the

first year of operations was
P3,000,000.

Present the shareholders' equity on December 31, 2020.

Problem 5 - SHARE ISSUANCES FOR CASH AND NONCASH
CONSIDERATIONS (Comprehensive)
During the current year, PACIFIC Company issued 200,000
of its P15 par value ordinary shares for an equipment with
carrying amount of P4,500,000 in the books of the
contributor.

Required: Under each of the following independent scenarios, determine the journal entry
to record the issuance:

1. The equipment’s fair value is

P3,500,000, while the shares
have fair value of P18 per share.
2. The equipment’s fair value is
P3,500,000, while the shares’
fair value cannot be reliably
determined.
3. The equipment’s fair value
cannot be reliably determined,
while the shares have fair value
of P18 per share.
4. Both the equipment’s and shares’
fair value cannot be measured
reliably.

Problem 6 - ISSUANCES OF TWO CLASSES OF SHARES FOR A LUMPSUM PRICE

On February 1, 2024, SPEEDY Company issued 50,000 of its P50 par value ordinary
shares and 10,000 of its P200 par value preference shares for a total price of P6,500,000.
Required: Under each of the following independent scenarios, determine the journal
entry to record the basket issuance:
1. The ordinary shares have fair
value of P77 per share, while
the preference shares have
fair value of P315 per share.

2. The ordinary shares have fair

value of P77 per share, while
the preference shares’ fair
value cannot be determined
 reliably.

3. The ordinary shares’ fair value

cannot be determined
reliably, while the preference
shares have fair value of
P315 per share.

Problem 7 - COMPREHENSIVE
Required: Determine the following:
a. Journal entries to be recorded for the year 2024.
b. Shareholders’ equity balance as of December 31, 2024.

On January 1, 2024, FINLEY Company was authorized to issue 500,000 P6 par value
ordinary shares and 300,000 P20 par value preference shares.
During the year 2024, it had the following shareholders’ equity transactions:
1 On January 5, 2024, 50,000
. ordinary shares were issued
for P10 per share.

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2. On January 6, 2024, 60,000

preference shares were
issued for P29 per share.

3. A total of 100,000 ordinary

shares were subscribed on
January 30, 2024 for P12
per share. A 30% down
payment was required with
the balance required to be
paid after three yours,
though the subscribers can
pay much earlier.

4. 20,000 preference shares

were issued to acquire an
equipment with P650,000
fair value on March 1,
2024. The preference
shares’ fair value as of that
date amounted to P30 per
share.

5. On April 30, 2024, 80,000

 ordinary shares and
40,000 preference shares
were issued for a total
price of P1,600,000. The
ordinary shares and
preference shares had fair
values per share of P9 and
P27, respectively.

6. On June 30, 2024, the

subscriber of the 20,000
ordinary shares fully paid
the balance of its
subscription.

7. On July 15, 2024, the

subscriber of the 30,000
ordinary shares paid 50%
of the relevant subscription
balance.

8. On September 1, 2024,
5,000 ordinary shares
were issued as a payment
for consultants when fair
value per share amounted
to P8. Billed amount of
P35,000 is not considered
to be the fair value of the
services.

9. On October 31, 2024,

25,000 ordinary shares
were issued in exchange
for a vacant land. The
shares had P9 fair value
per share, while the fair
value of the land is not
reliably determinable.

10. Net income for the year,

before considering the
consultant fees last
September 1, 2024,
amounted to P700,000.
 Shareholders’ equity balance as of December 31, 2024:

Problem 8 – VARIOUS SHARES TRANSACTIONS INCLUDING DONATED CAPITAL

Required
a. Prepare journal entries to record the transactions.
b. Present the shareholders' equity.

Honda Company provided the following data during the first year of operations:
a. Sold 30,000 preference shares, 12%, P 100 par,
at P 140.

b. Sold 100,000 ordinary shares of P50 par at P55.

c. Purchased and retired 10,000 preference shares

at P 120.

d. Purchased 15,000 ordinary shares at P52 to be

held as treasury.
 e. Sold 10,000 treasury ordinary shares at P60.

f. Shareholders donated to the entity 20,000

ordinary shares when shares had a market
price of P60. One half of these shares were
sold for P65.

g. Net income lor the year was P3,000,000.

h. Appropriated retained earnings equal to the

remaining cost of treasury shares.

Present the shareholders' equity.

Problem 9 – STOCK ISSUANCE COSTS

During the current year, SASHIMI Company issued 50,000 of its P30 par value ordinary sh
addition, the Company also incurred a certain amount of transaction costs.

Required: Under each of the following independent scenarios, determine the journa
issuance of the shares:
1. Transaction costs amounted to P300,000.

2. Transaction costs amounted to P600,000.

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