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Problem At

December 31, 2006, the Core Corporation had the following liability and equity account balances:

11% Bonds payable, at face value P2,500,000


Premium on bonds payable 176,190 Common
stock 4,000,000 Additional paid in capital
1,147,500 Retained earnings 1,232,500
Treasury stock, at cost 162,500

Transactions during 2007 and other information relating to the Corporation’s liability and equity
accounts were as follows:

* The bonds were issued on December 31, 2005, for P2,689,000 to yield 10%. The bonds mature on
December 31, 2012. Interest is payable annually on December 31. The Corporation uses the effective
interest method to amortize bond premium.

* At December 31, 2006, the corporation had 1,000,000 authorized shares of P10 par common stock.

* On November 2, 2007, the Corporation borrowed P2,000,000 at 9%, evidenced by a note payable to
Premium Bank. The note is payable in five equal annual principal installments of P400,000. The first
principal and interest payment is due on November 2, 2008.

Questions 5. How
much is the bond premium amortization for 2007?

a. P 7,381 b. P 6,710 c. P 6,500 d. P 6,100

6. What is the carrying value of the bonds payable on December 31, 2007?

a. P 2,689,000 b. P 2,682,900 c. P 2,676,190 d. P 2,668,809

7. How much is the 2007 interest expense on bonds payable?

a. P 275,000 b. P 268,900. c. P 268,290 d. P 267,619

8. What is the treasury stock balance on December 31, 2007?

a. P 165,200. b. P 163,500. c. P 162,500. d. P 162,000

9. What is the long-term portion of the note payable to bank as of December 31, 2007?

a. P 2,000,000 b. P 1,600,000. c. P 1,400,000. d. P 1,000,000

10. What is the 2007 total interest expense?

a. P 305,000 b. P 298,900 c. P 298,290. d. P 297,619

Audit of Shareholders' Equity


Problem

On January 1, 2003, the shareholders’ equity of Bantaya Company’s balance sheet revealed the following
information:

P5 Convertible Preference Share (P40 par value; 50,000 shares authorized,


20,000 shares issued and outstanding) 800,000 Ordinary share (P5 stated
value; 200,000 shares authorized, 120,000 shares issued and
outstanding) 600,000 Paid-in capital in excess of par
3,000,000 Retained earnings 4,500,000
Total shareholders’ equity 8,900,000 In
addition, the following information is known:

a. On February 2, 2003, 15,000 ordinary shares were acquired by the company for P33 per share.

b. On September 30, 2003, 5,000 preference shares were converted to ordinary shares. One share of
preference share is convertible into one share of ordinary share. At the time of conversion, the ordinary
share had a market value of P42 per share.

c. On December 21, 2003, the company received a share subscription of 10,000 ordinary shares at a
subscription price of P33 per share. The subscription contract required a cash down payment equal to
60% of the subscription price, with the balance due on February 1, 2004.

d. On February 1, 2004, 8,500 ordinary shares were issued according to the subscription contract.
Because of default by a subscriber, 1,500 shares were not issued. The subscription contract requires the
subscriber to forfeit all cash advance.

e. On April 15, 2004, 10,000 shares held in treasury were reissued at P50 per shares.

f. On May 16, 2004, a special dividend of preference share was distributed to ordinary shareholders. One
hundred shares of ordinary share entitled a shareholder to one share of preference share. The market
price of preference share was P40 per share at that time.

g. Net income for 2003 was P660,000 and for 2004, P890,000.

Questions

11. The total preference share at December 31, 2003 is:

a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500

12. The total ordinary share at December 31, 2003 is:

a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500

13. The total additional-paid in capital at December 31, 2003 is:


a. P 3,637,300 b. P 3,625,000 c. P 3,612,700 d. P 3,455,000

14. The total retained earnings at December 31, 2003 is:

a. P 4,706,887.50 b. P 5,160,000.00 c. P 5,491,925.00 d. P 5,596,887.50

15. The Treasury share at December 31, 2003 is:

a. P 495,000 b. P 330,000 c. P 165,000 d. P 0

16. The total preference share at December 31, 2004 is:

a. P 548,600 b. P 600,000 c. P 625,000 d. P 651,400

17. The total ordinary share at December 31, 2004 is:

a. P 600,000 b. P 625,000 c. P 651,400 d. P 667,500

18. The total additional paid-in capital at December 31, 2004 is:

a. P 3,637,300 b. P 3,625,000 c. P 3,612,700 d. P 3,455,000

19. The total retained earnings at December 31, 2004 is:

a. P 5,998,900.00 b. P 5,491,925.00 c. P 4,965,000.00 d. P 4,706,887.50

20. The Treasury share at December 31, 2004 is:

a. P 495,000 b. P 330,000 c. P 165,000 d. P 0