College of Business Management and Accountancy

Aquinas University of Legazpi

S.Y. 2016 - 2017
Accounting 502: Applied Auditing
Quiz#2: Book Value per Share, Earnings per share and Audit of liability
Name: _________________________________ Date: __________________ Score: _______________
Instruction: Encircle the letter of the correct answer. Solution is required. Answers without solution will not earn a
point.
Problem # 1
Below is the shareholders equity section of Jon Snow Company on December 31, 2014:
Preference share, 7%, P100 par value, 30,000 shares issued, total
liquidation value, P3.2 Million
P3,000,000
Ordinary shares, no par, 50,000 shares, issued
1,500,000
Donated Capital
500,000
Accumulated Profits
4,500,000
All preference dividends have been fully paid.
1. How much is the book value per share of ordinary shares?
a. P125.80
b. P130.00
c. P126.00
d. P300.00
Problem 2
Cersei Corporations current statement of financial position reports the following shareholders equity:
5% cumulative preference shares, par value, P100 per share; 25,000
shares issued and outstanding
P2,500,000
Ordinary shares, par value P35 per share; 100,000 shares issued and
outstanding
3,500,000
Share premium in excess of par value of ordinary share
1,250,000
Accumulated profits and losses
3,000,000
Dividends in arrears on the preference share amount to P250,000. If Cersei were to be liquidated, the preference
shareholders would receive par value plus a premium of P500,000.
2. How much would be the book value per share of ordinary share?
a. P70.00
b. P75.00
c. P72.50
d. P77.50
Problem#3
The following information pertains to Daenerys Corporations outstanding shares for 2014:
Ordinary shares, P5 par value
Shares outstanding, January 1, 2014
20,000
2 for 1 share split, April 1, 2014
20,000
Shares issued, July 1, 2014
10,000
Preference shares, P10 par value, 5% cumulative:
Shares outstanding
4,000
3. How many shares should Daenerys use to calculate the 2014 basic earnings per share?
a. 40,000
b. 50,000
c. 45,000
d. 54,000
Problem#4
On January 2, 2014, Tyron Company issued at par P3,000,000, 5-year, 10% bonds convertible in total into 200,000
shares of Tyrons ordinary shares. Without the conversion option, the bonds were selling at the prevailing rate of
interest of 12%. Interest is payable every December 31. No bonds were converted during 2014. Throughout 2014,
Tyron had 500,000 shares of ordinary shares outstanding. Tyrons 2014 net income was P5,500,000. Tyrons tax rate
is 32%.
4.

No other potentially dilutive securities other than the convertible bonds were outstanding during 2014. For 2014,
how much is the diluted earnings per share?
a. P7.86
b. P8.28
c. P8.18
d. P11.00

Problem#5
Jamie Lannister Company had share capital of two million shares P1 each fully paid up. On January 2, 2014, Jamie
Lannister Company issued one million P1 ordinary shares. The full price of the new shares was P1.50 and they were
50% paid up on issue. The dividend participation is to be 50% until fully paid up. The shares remained 50% paid at
December 31, 2014. During the year to December 31, 2014, the average fair value of one ordinary share was P2.00.
Net income for the year was P8,000,000.
5. How much is the basic earnings per share?
a. P2.67
b. P3.20
c. P3.05
d. P4.00
6.

How much is the diluted earnings per share?

a. P2.67
b. P3.20
c. P3.05
d. P4.00

Problem#6
The following information relates to Aliabad Company as of December 31, 2014. Answer the following questions
relating to each of the independent situations as requested.
7. Beginning 2014, Aliabad Company began marketing a new beer called Red Colt. To help promote the product,
the management is offering a special beer mug to each customer for every 20 specially marked bottle caps of Red
Colt. Aliabad estimates that out of the 300,000 bottles of Red Colt sold during 2014, only 50% of the caps will be
redeemed. For the year 2014, 8,000 mugs were ordered by the company at a total cost of P360,000. A total of

College of Business Management and Accountancy

Aquinas University of Legazpi
S.Y. 2016 - 2017
4,500 mugs were already distributed to customers. What is the amount of the liability that Aliabad Company
should report on its December 31, 2014 statement of financial position?
a. P135,000
b. P337,500
c. P202,500
d. P360,000
8.

On January 2, 2012, Aliabad Company introduced a new line of products that carry a three-year warranty against
factory defects. Estimated warranty costs related to peso sales are as follows: 1% of sales in the year of sale, 2%
in the year after sale and 3% in the second year after sale.
Sales and actual warranty expenditures for the period 2012 to 2014 were as follows:
Yea
Sales
Actual Warranty Expenditures
r
200
P100,000
P750
8
200
250,000
3,750
9
201
350,000
11,250
0
What amount should Aliabad Company report as warranty expense in 2014?
a. P3,500
b. P11,500
c. P11,250
d. P21,000