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BATCH 2019

BALIWAG POLYTECHNIC COLLEGE


2ND FLOOR STAR MALL BLDG, POBLACION, BALIWAG, BULACAN FAR 1

FINANCIAL ACCOUNTING AND REPORTING A. Almine

THEORIES

1. A redeemable preference share shall be classified in the statement of financial position as


a. Current liability
b. Noncurrent liability
c. Part of shareholders’ equity
d. Either current liability or noncurrent liability depending on redemption date

2. Dividend paid on redeemable preference share shall be accounted for as


a. Deduction from reserves
b. Direct deduction from retained earnings
c. Component of other comprehensive income
d. Interest expense as component of finance cost

PROBLEMS

Problem 1: (Equity components) The following data were compiled prior to preparing the statement of financial position of Conviction
Corporation.

Authorized share capital, P100 par value P 4,000,000


Unissued share capital 800,000
Subscribe share capital 480,000
Subscription receivable 120,000
Premium on share capital 320,000
Premium on bonds payable 240,000
Gain on sale of treasury shares 80,000
Donated capital 800,000
Share warrants outstanding 200,000
Reserve for bond sinking fund 400,000
Reserve for depreciation 600,000
Treasury shares, at cost 144,000
Retained earnings, unappropriated 720,000
Cash dividends payable 160,000
Revaluation increment on property 800,000
Net unrealized loss on available for sale securities 96,000

REQUIRED : Compute for the following:

1. Total share premium 3. Appropriated retained earnings 5. Legal capital


2. Contributed capital 4. Total equity

Problem 2: (Lump sum issuance of shares) Parker Corporation has issued 2,000 ordinary shares and 400 preference shares for a lumpsum of
P72,000 cash.

Instructions

(a) Give the entry for the issuance assuming the par value of the ordinary shares was P5 and the fair value P30, and the par value of the
preference shares was P40 and the fair value P50. (Each valuation is on a per share basis and there are ready markets for each class of
shares.)
(b) Give the entry for the issuance assuming the same facts as (a) above except the preference shares have no ready market and the ordinary
shares have a fair value of P25 per share.

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BATCH 2019
BALIWAG POLYTECHNIC COLLEGE
2ND FLOOR STAR MALL BLDG, POBLACION, BALIWAG, BULACAN FAR 1

FINANCIAL ACCOUNTING AND REPORTING A. Almine

Problem 3: (Equity transactions) The following transactions relate to the stockholders’ equity transactions of Lindsay Corporation for its initial year
of existence.

a. Jan. 7 Articles of incorporation are filed with the state. The state authorized the issuance of 10,000 shares of P50 par value
preferred stock and 200,000 shares of P10 par value common stock.
b. Jan. 28 40,000 shares of common stock are issued for P14 per share.
c. Feb. 3 80,000 shares of common stock are issued in exchange for land and buildings that have an appraised value of P250,000
and P1,000,000, respectively. The stock traded at P15 per share on that date on the over-the-counter market.
d. Feb. 24 2,000 shares of common stock are issued to Shane and Winston, Attorneys-at-Law, in payment for legal services
rendered in connection with incorporation. The company charged the amount to organization costs. The market value of
the stock was P16 per share.
e. Sept. 12 Received subscriptions for 10,000 shares of preferred stock at P53 per share. A 40% down payment accompanied the
subscriptions. The balance is due on October 1.
f. Oct. 1 Received the final payment for 10,000 shares of preferred stock.

Required: Prepare journal entries to record the foregoing transactions. Identify the entries by letter (a-f).

Problem 4: (Conversion from preference share to ordinary share) The Policarpio Enterprises, Inc. had the following shareholders equity balances
at December 31, 2017:

Preference Share, P20 par, 100,000 shares authorized P2,000,000

Ordinary Share, P30 par, 100,000 shares authorized 1,800,000

Share Premium-Preference Share 160,000

Share Premium- Ordinary Share 250,000

Retained Earnings 800,000

The preference share is convertible into ordinary share.

REQUIRED: Journalize the conversion of 3,000 preference shares under each of the following independent assumptions:

1) Preference share is convertible into ordinary share on a share for share basis.
2) 2 shares of preference are convertible into one ordinary share.

Problem 5: (Watered Stocks) An entity issues 1,000 shares with par value per share of P100 for land with fair value of P80,000.

Required: Prepare journal entries to record the foregoing transaction.

Problem 6: (Treasury share transactions): The original sale of the P50 par value ordinary shares of Gray Company was recorded as follows:

Cash------------------------------------------------------------------------------------------- 290,000

Share Capital – Ordinary------------------------------------------------------ 250,000

Share Premium – Ordinary--------------------------------------------------- 40,000

Instructions Record the treasury share transactions (given below) under the cost method:

Transactions:

a. Bought 300 ordinary shares as treasury shares at P62


b. Sold 40 treasury shares at P65
c. Sold 80 shares of treasury shares at P60

Problem 7: The data below are from the December 31, 2008, balance sheet of the Handi Corner Corporation:

Common stock, P50 par, 3,000 shares issued and outstanding-------------------------------P150,000

Paid-in capital in excess of par---------------------------------------------------------------------------45,000

Retained earnings-------------------------------------------------------------------------------------------75,000

During 2009, the following transactions affecting corporate capital were recorded:

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BATCH 2019
BALIWAG POLYTECHNIC COLLEGE
2ND FLOOR STAR MALL BLDG, POBLACION, BALIWAG, BULACAN FAR 1

FINANCIAL ACCOUNTING AND REPORTING A. Almine

Aug. 16 Purchased 400 shares of treasury stock at P78 per share


Oct. 23 Purchased 225 shares of stock at P71 per share and immediately retired the stock.
Nov. 3 Sold 150 shares of the treasury stock purchased on Aug. 16 at P81 per share.

Required : Assuming the cost method is used for treasury stock and that retained earnings are to be reduced minimally in stock reacquisition
transactions, provide the entries required to record the above transactions.

Problem 8: (PIC Q and A 2011-4): ABC Company undertakes an IPO for the listing and issuance of 700,000 new shares and 300,000 existing shares.
In relation to this, the company incurred the following costs:

Listing fee P300,000


Documentary stamp tax 25,000
Newspaper publication 200,000
Fairness opinion and valuation report 125,000
Tax opinion 75,000
Other joint costs 275,000

Required: Prepare journal entries to record the foregoing transactions.

Problem 9: (Delinquent Subscription) You subscribed 1,000 shares of ABC Co. with par value of P100 per share for a total subscription price of
P120,000. After paying only P50,000, you defaulted on the remaining balance of the subscription on call date. Consequently, ABC declared your
subscription as delinquent.

After due consideration for cost, the board of directors of ABC declared by resolution an “offer price” of P80,000 comprising the unpaid balance of
P70,000, accrued interest of P2,000, and estimated selling costs of P8,000. The following are the bidders in the public auction with respective bids:

A 700 shares
B 650 shares
C 600 shares

Required: Prepare journal entries to record the foregoing transactions.

Question 1: What if there are no bidders at the public auction?

Question 2: What if there are no bidders and ABC Co. is precluded under the Corporation Code from purchasing the shares due insufficiency of
retained earnings?

Problem 10 : Donated Capital and Assessments on Shareholders

Case 1 : ABC Company received from a shareholder cash of P100,000 and land with fair value of P500,000 and historical cost of P300,000. No
conditions attached to the donation.

Case 2: ABC Company received 1,000 shares with par value of P100 and fair value of P120 per share from a shareholder as donation. Subsequently,
ABC Company reissues the 1,000 donated shares at P130 per share.

Case 3: ABC Company has 1,000 shares outstanding. The shareholders vote to provide P130 additional capital per share held.

Required: Prepare journal entries to record the foregoing transactions.

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