SHAREHOLDERS EQUITY

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SHAREHOLDERS EQUITY
Problem 1
Audit Adjusting Entries:
Retained Earnings
Ordinary Shares
Ordinary Share Dividend Distributable
Paid in Capital in Excess of Stated Value

35,500
50,000

Retained Earnings (Income Tax Expense)

Income Tax Payable

540,000

Problem 2
Total income since incorporation
Cash dividends paid
Total value of bonus issue distributed
Correct balance of retained earnings

47,500
38,000
540,000

P630,000
( 195,000)
( 45,000)
P 390,000

Problem 3
Balance, January 1
Net income for the year
Dividends
Retained Earnings, December 31

P1,590,000
860,000
( 750,000)
P1,700,000

Problem 4
Paid in Capital
Preference Share, P100 par, 10,000 shares authorized,
4,000 shares issued
Ordinary Share, P50 par, 15,000 shares authorized,
8,000 shares issued, 7,700 shares outstanding
Additional paid in capital
Total Paid in Capital
Retained Earnings
Appropriated
For Treasury Shares
P19,800
For Fixed Asset Replacement
75,000
Unappropriated
160,400
Total
Less: Treasury Shares, at cost (300 shares)
Total Shareholders Equity

P400,000
400,000
117,700
P917,700

235,400
P1,153,100
19,800
P 1,133,300

Additional paid in capital:

7,000 x P7
1,000 x 12
4,000 x 13
Reissue of treasury shares preference
Total additional paid in capital

P49,000
12,000
52,000
4,700
P117,700

Retained earnings:
Accumulated profit
Cash dividends paid
Bonus issue ( 1,000 x 62)
Total Retained Earnings

P610,000
( 312,600)
( 62,000)
P235,400

Problem 5
Preference Share
Ordinary Share
Date
Shares
Amount Shares
Amount APIC
1/1/10
15,000 300,000 4,160,000
1/15/10
800
40,000
4,000
2/1/10
1,500
30,000
33,000
3/15/10
4/15/10
4/30/10
10,000 200,000
260,000
5/1/10
2,230
44,600
78,050
9/15/10
12/31/10
12/31/10
balances
800
40,000 28,730 574,600 4,535,050

Retained Treasury Shares

Earnings Shares
Amount
1,100,000
4,000 150,000
(18,750)
200

8,600

4,200

8,600

(122,650)
( 39,995)
500,000
1,418,605

March 15 dividends (16,500 4,000) x 1.50 = P18,750

Apr. 30 entry
Share Options Outstanding (APIC 10,000 x 6)
60,000
Cash (10,000 x 40)
400,000
Ordinary Share (10,000 x 20)
200,000
Share Premium Ordinary
260,000
Net increase in APIC = 260,000 60,000 = 200,000
May 1 bonus issue:
Ordinary shares issued
Treasury
Outstanding shares
Charge to Retained Earnings 2,230 x P55=
Par value of bonus issue 2,230 x 20 =

26,500
( 4,200)
22,300
122,650
( 44,600)

Credit to additional paid in capital

P 78,050

September 15 dividends:
On ordinary share : (28,730 - 4,200) x P1.50 =
On preference share: 8% x 40,000 =
Total

P 36,795
3,200
P39,995

Problem 6
Entries for the quasi-reorganization:
Retained Earnings
Inventory (215,000 190,000)
Property, Plant and Equipment (875,000 720,000)

180,000

Cash

600,000

25,000
155,000

Additional Paid in Capital

600,000

Ordinary Share Capital, P25 par

Ordinary Share Capital, P15 par
Additional Paid in Capital
Additional Paid in Capital
Retained Earnings

2,500,000
1,500,000
1,000,000
930,000
930,000

Shareholders Equity
Ordinary Share Capital, P15 par, 100,000 shares
Additional Paid in Capital (1,750,000 + 600,000 + 1,000,000
- 930,000)
Total Shareholders Equity

P1,500,000
2,420,000
P3,920,000

Problem 7
LTC Company
Statement of Comprehensive Income
For the Years Ended December 31, 2010 and 2009
Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Profit before income tax
Income tax expense
Profit
2009 Cost of Goods Sold weighted average
Cost of goods sold under FIFO
Difference in beginning inventory
Difference in ending inventory
Cost of goods sold as restated
2009 income tax expense
Before restatement
Adjustment due to change in inventory costing procedure
(1,150,000 1,140,000) x 30%
2009 income tax expense as restated

2010
P3,000,000
1,420,000
P1,580,000
(350,000)
(260,000)
P 970,000
291,000
P 679,000

2009
P2,540,000
1,150,000
P1,390,000
(210,000)
(220,000)
960,000
336,500
P 623,500

P1,140,000
30,000
( 20,000)
P 1,150,000

P 339,500
(

3,000)
P 336,500

LTC Company
Statement of Changes in Equity
For the Years Ended December 31, 2010 and 2009
Balances, January 1, 2010
Cumulative effect of changing from
FIFO costing to weighted average, net of
applicable income tax of P9,000
(30,000 x 70%)
Dividends
Profit for the year
Balance, December 31
Profit for the year
Balances, December 31

Ordinary Share Retained Earnings

P 1,000,000
P600,000

Total
P1,600,000

21,000
(400,000)
623,500
P 844,500
679,000
P1,523,500

21,000
(400,000)
623,500
P 1,844,500
679,000
P2,523,500

P1,000,000
P1,000,000

Multiple Choice
1.
B
2.
C
3.
B
4.
B
5.
C
6.
None
7.
A
8.
C
9.
D
10.
A
11.
C
12.
B
13.
C
14.
C
15.
D
16.
D
17.
D
18.
Not given 91,390 shares
19.
A
Items 1 through 5
1.

Balance, December 31, 2009

Mar. 31 4,500 x 3
June 30 ( 250,000 + 4,500 6,000) / 10 = 24,850 shares
24,850 shares x P3
Sept. 30 P2,000,000/P1,000 x 2 shares = 4,000 shares
4,000 shares x P3

P 750,000
13,500
74,550
12,000

Balance, Dec. 31

P 850,050

2.

RE, January 1, 2010

Profit
Understatement in depreciation 40,000 x 65%
Balance, December 31, 2010

P 480,000
600,000
( 26,000)
P 1,054,000

3.

Issue price
Attributable to the debt
PV of face = P2,000,000 x 0.32197 = P 643,940
PV of interest = P200,000 x 5.65022
1,130,044
Amount credited to equity

P2,000,000

4.

Interest expense for 2010 = 1,773,984 x 12% x 9/12 =

P 159,659

5.

Effective interest for 2010

Nominal interest 200,000 x 9/12
Amortization
Carrying value, April 1
Carrying value, Dec. 31

P159,659
150,000
P 9,659
1,773,984
P1,783,643

6.

There is no item 6

7.

Correct balance of Retained Earnings

485,000 200,000 + 324,000 300,000 + 451,000 =

P760,000

Additional paid in capital

150,000 + 100,000 =

P 250,000

9.

Ordinary share
Additional paid in capital
Retained earnings
Revaluation surplus (appraisal increase)
Total shareholders equity

P2,000,000
250,000
760,000
300,000
P3,310,000

10.

Preference share = P6,000,000 (4,000 x P200) =

P5,200,000

11.

Ordinary share = 200,000 shares x P25 par =

P5,000,000

12.

APIC, January 1, 2010

Cancelled upon retirement of preference
P1,800,000 / 30,000 x 4,000

P3,300,000

8.

1,773,984
P 226,016

( 240,000)

From sale of treasury shares 6,000 x (45 37.50)

Sale of donated shares 2,000 x 48
APIC, December 31, 2010
13.

14.

15.

16.

45,000
96,000
P3,201,000

Ordinary shares outstanding

Issued = 100,000 x 2
Treasury
(8,000 x 2) 6,000 + 4,000 2,000 =
Outstanding

200,000
12,000
188,000

Retained Earnings
January 1, 2010
Excess of retirement price over issue price
280 (200 + 60 share premium per share) x 4,000
Profit
Balance, December 31, 2010

Ordinary shares issued:

January 1, 2010
Mar. 6 20
Nov. 3 55 x 10 shares
Total shares issued
Par value per share
December 31, 2010 balance

P2,200,000
( 80,000)
1,850,000
P3,970,000

90,000
1,400
550
91,950
P 2
P183,900

Share premium
January 1, 2010 balance
Mar. 6 1,400 x 42
Nov. 3 (see entry below)
Dec. 31 balance

P 1,820,00
58,800
24,200
P1,903,000

Issue price of bonds 90,000 x 103%

Issue price of debt 90,000 x 97% =
Value assigned to 90 share warrants

P 92,700
87,300
P 5,400

Upon exercise of 55 warrants

Share warrants issued (5,400 x 55/90)
Cash 550 x 40
Ordinary share (550 x 2)
Share premium

3,300
22,000
1,100
24,200

17.

18.
19.

Paid in capital from treasury shares

Sales price
650 x P40
Cost = P72,600/1,210 x 650
Deduction from previous APIC from treasury shares
Previous balance of APIC
APIC from Treasury shares

P 26,000
39,000
P 13,000
22,500
P 9,500

Ordinary shares outstanding

issued of 91,950 treasury of 560 =

91,390 shares

Treasury shares = P72,600 39,000

P33,600

SUMMATIVE EXERCISE CONQUEST MOTORS CORPORATION

Operating Expenses
Petty Cash Fund

2,200

Materials Inventory
Materials Acquisition Fund

9,000

Cash

12,000

2,200
9,000

Salaries Payable

12,000

Goods in Process Inventory

Cash

900

Operating Expenses
Cash

1,000

900
1,000

Notes Payable
Interest Expense
Cash

300,000
18,000

Other Financial Assets

Cash

350,000

318,000
350,000

Other Income (Dividend Revenue)

Trading Securities

6,600

Dividend Receivable
Other Income

2,000

Trading Securities
Unrealized Gain on Trading Securities

12,800

6,600
2,000
12,800

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

610,000

Deferred Gross Profit

Realized Gross Profit

108,500

Repossessed Inventory (Finished Goods Inventory)

Deferred Gross Profit
Loss on Default
Materials Inventory
Accounts Payable
Goods in Process Inventory
Applied Factory Overhead

396,500
213,500
108,500
70,000
52,000
122,000
18,000
18,000
69,600
69,600

Factory Overhead Control

Operating Expenses
Accumulated Depreciation Building

30,000
20,000

Discount on Notes Payable

Equipment
Operating Expenses

12,000

Retained Earnings
Other Assets

36,000

Interest Receivable
Other Income

16,200

Interest Expense
Operating Expenses

67,500

Interest Expense
Interest Payable

22,500

Share Capital
Retained Earnings

80,000

Share Capital
Share Premium

250,000

Retained Earnings
Dividends Payable

348,000
348,000

50,000
10,800
1,200
36,000
16,200
67,500
22,500
80,000
250,000

Operating Expenses
Accrued Operating Expenses

115,000
115,000

Applied Factory Overhead

Overapplied Factory Overhead
Factory Overhead Control

747,600

Overapplied Factory Overhead

Cost of Goods Sold

11,600
736,000
11,600
11,600

Income Statement Correct Balances:

Sales
Cost of goods sold
Gross profit
Realized gross profit on installment sales
Total gross profit
Loss from Repossession
Gross profit, net of loss on repossession
Operating Expenses
Other Income
Unrealized Gains on Trading Securities
Other Expenses and Losses
Income before interest and taxes
Interest expense
Income before income tax
Income tax expense
Net income

P2,800,000
1,948,400
P 851,600
108,500
P 960,100
(
8,000)
P 952,100
( 609,500)
71,600
12,800
( 36,500)
P 390,500
158,000
P 232,500
69,750
P 162,750

Balance sheet accounts

Current Assets
Cash
Trading Securities
Installment Accounts Receivable
Interest Receivable
Dividend receivable
Receivable from officers
Inventories
Prepaid expenses
Total current assets
Non-current Assets
Property, Plant and Equipment, at cost

P1,015,900
214,800
340,000
16,200
2,000
45,000
486,500
40,000
P2,160,400
P5,409,200

Accumulated Depreciation
Net carrying value
Other Financial Assets
Total Non-current assets
Total Assets
Current Liabilities
Accounts payable
Salaries payable
Notes payable
Accrued expenses
Dividends payable
Interest payable
Deferred gross profit
Income tax payable
Total current liabilities
Non-current liabilities
Notes payable
Total liabilities
Shareholders Equity
Share Capital
Share Premium
Retained Earnings
Total Liabilities and Shareholders Equity

186,000
P5,223,200
485,000
5,708,200
P7,868,600

P 508,000
12,000
538,000
115,000
348,000
22,500
119,000
69,750
P1,732,250
1,000,000
P2,732,250
P2,900,000
1,450,000
692,350

5,042,350
P7,774,600