Chapter 15: Accounting For Corporations PDF

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Chapter 15Accounting for CorporationsPROBLEM 1: TRUE OR FALSE1. FALSE – “Subscribed share capital” account2. FALSE3. TRUE4. FALSE – 40,5. FALSE6. FALSE7. TRUE8. TRUE9. FALSE – may be decreased but never increased10. TRUEPROBLEM 2: FOR CLASSROOM DISCUSSION1. Solutions:Requirement (a): Journal entries...

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Chapter 15 Accounting for Corporations PROBLEM 1: TRUE OR FALSE 1. FALSE – “Subscribed share capital” account 2. FALSE 3. TRUE 4. FALSE – 40,000 5. FALSE 6. FALSE 7. TRUE 8. TRUE 9. FALSE – may be decreased but never increased 10. TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION 1. Solutions: Requirement (a): Journal entries a. Memorandum method

Journal entry method

Memo entry – The authori authorized zed capitalization is ₱3,000,000 divided into 10,000 shares with par value per share of ₱30 30.

Unissued share capital 3M Authorized share capital 3M

b. Memorandum method

Journal entry method

Cash (3M x 25% x 25%) 187.5K Cash (3M x 25% x 25%) 187.5K Subscription receivable 562.5K Subscription receivable 562.5K Subscribed share capital 750K Subscribed share capital 750K (3M x 25%)

(3M x 25%)

c. Memorandum method

Journal entry method

Cash 225K* Subscription receivable 225K Subscribed share capital 300K Share capital 300K

Cash 225K* Subscription receivable 225K Subscribed share capital 300K Unissued share capital 300K

*Subscription price of 10,000 shares (10,000 x ₱30 par) Portion already paid (₱300,000 x 25%) Balance collected

300,000 (75,000) 225,000

d. Memorandum method Cash (15,000 x ₱40) Share capital

Journal entry method

600K 450K

(15,000 x ₱30)

Share premium

Cash (15,000 x ₱40) 600K Unissued share capital 450K (15,000 x ₱30)

150K

Share premium

150K

e. Memorandum method Subscription receivable

Journal entry method

500K

(10,000 x ₱50)

500K

(10,000 x ₱50)

Subscribed share capital 300K (10,000 x ₱30)

Share premium

Subscription receivable

Subscribed share capital 300K (10,000 x ₱30)

200K

Share premium

200K

f. Memorandum method Cash 500K Subscription receivable 500K Subscribed share capital 300K Share capital 300K

Journal entry method Cash 500K Subscription receivable 500K Subscribed share capital 300K Unissued share capital 300K

Requirement (b): Memorandum method Share capital Subscribed sh. capital Subs. receivable Share premium

1,050,000 450,000 (337,500) 350,000

Total Shareholders’ Equity1,512,500

Journal entry method Authorized share capital Unissued share capital Issued share capital Subscribed share capital Subscription receivable Share premium Total Shareholders’ Equity

3,000,000 (1,950,000) 1,050,000 450,000 (337,500) 350,000 1,512,500

2. Answers: Share premium = 100,000 – 8,000 = 92,000 Journal entries: Date

Date

Cash (2,000 x ₱60) Share capital (2,000 x ₱10) Share premium [2,000 x (₱60 – ₱10)] Share premium Cash

120,000 20,000 100,000 8,000 8,000

3. Answer: Date Date

Treasury shares (5,000 x ₱30) Cash Retained earnings – unrestricted Retained earnings – appropriated

150,000 150,000 150,000 150,000

4. Answer: Date

Date

Cash (1,000 x ₱45) Treasury shares (1,000 x ₱30) Share premium – treasury shares Retained earnings – appropriated Retained earnings – unrestricted

45,000 30,000 15,000 30,000 30,000

5. Answer: Date

Date

Cash (1,000 x ₱20) (a) Share premium – treasury shares (b) Retained earnings Treasury shares (1,000 x ₱30) Retained earnings – appropriated Retained earnings – unrestricted

20,000 10,000 30,000 30,000 30,000

6. Answer: Date

Share capital (5,000 x ₱20) 100,000 Share premium (₱250K SP x 100K par/1M par) 25,000 Cash (5,000 x ₱20) Share premium – retirement

100,000 25,000

7. Answer: Date

Share capital (5,000 x ₱20) Share premium – original issuance (see Case #1) (a) Share premium – treasury shares (b) Retained earnings (balancing figure) Cash (5,000 x ₱50)

100,000 25,000 125,000 250,000

8. Answer: Dec. 25, 20x1

Cash Equipment Share premium – donated capital

500,000 700,000 1,200,000

Dec. 25, 20x1: The donated shares are recorded through memo entry only. Jan. 5, 20x2

Cash (10,000 x 220) Share premium – donated capital

2,200,000 2,200,000

PROBLEM 3: JOURNAL ENTRIES 1. Solutions: Requirement (a): Journal entries a. Memorandum method Memo entry – The authori authorized zed capitalization is ₱10 10 10,000,000 ,000,000 divided into 1,000,0 1,000,000 00 shares with par value per share of ₱10.

Journal entry method

Unissued share capital 10M Authorized share capital 10M

b. Memorandum method

Journal entry method

Cash (10M x 50% x 75%) 3.75M Cash (10M x 50% x 75%) 3.75M Subscription receivable 1.25M Subscription receivable 1.25M Subscribed share capital 5M Subscribed share capital 5M (10M x 50%)

(10M x 50%)

c. Memorandum method Cash 625K* Subscription receivable 625K Subscribed share capital 2.5M Share capital 2.5M

Journal entry method Cash 625K* Subscription receivable 625K Subscribed share capital 2.5M Unissued share capital 2.5M

*Subscription price of 250,000 shares (250,000 x ₱10 par) 2,500,000 Portion already paid (₱2,500,000 x 75%) (1,875,000) 625,000 Balance collected d. Memorandum method Cash (50,000 x ₱15) Share capital

750K 500K

(50,000 x ₱10)

Share premium

Journal entry method Cash (50,000 x ₱15) 750K Unissued share capital 500K (50,000 x ₱10)

250K

Share premium

250K

e. Memorandum method Subscription receivable

Journal entry method

2M

Subscription receivable 2M

(100,000 x ₱20)

(100,000 x ₱20)

Subscribed share capital

1M

(100,000 x ₱10)

Subscribed share capital

1M

(100,000 x ₱10)

Share premium

1M

Share premium

1M

f. Memorandum method Cash 2M Subscription receivable 2M Subscribed share capital 1M Share capital 1M

Journal entry method Cash 2M Subscription receivable 2M Subscribed share capital 1M Unissued share capital 1M

Requirement (b): Memorandum method Share capital Subscribed sh. cap. Subs. receivable Share premium

4,000,000 2,500,000 (625,000) 1,250,000

Total SHE

7,125,000

Journal entry method Authorized sh. capital Unissued sh. capital Issued share capital Subscribed sh. capital Subscription receivable Share premium Total SHE

10,000,000 (6,000,000) 4,000,000 2,500,000 (625,000) 1,250,000 7,125,000

2. Answers: Share premium = 102,000 (see entries below) Journal entries: Date

Date

Cash (3,000 x ₱140) Share capital (3,000 x ₱100) Share premium [3,000 x (₱140 – ₱100)] Share premium (3,000 x ₱6) Cash

420,000 300,000 120,000 18,000 18,000

3. Answer: Date Date

Treasury shares (1,000 x ₱30) Cash Retained earnings – unrestricted Retained earnings – appropriated

30,000 30,000 30,000 30,000

4. Answer: Date

Date

Cash (500 x ₱40) Treasury shares (500 x ₱30) Share premium – treasury shares Retained earnings – appropriated Retained earnings – unrestricted

20,000 15,000 5,000 15,000 15,000

5. Answer: Date

Date

Cash (500 x ₱20) (a) Share premium – treasury shares (b) Retained earnings Treasury shares (500 x ₱30) Retained earnings – appropriated Retained earnings – unrestricted

10,000 5,000 15,000 15,000 15,000

6. Answer: Date

Share capital (1,000 x ₱10) Share premium (₱200K SP x 10K par/1M par) Cash (1,000 x ₱11) Share premium – retirement

10,000 2,000 11,000 1,000

7. Answers: Jan. 1, 20x1

Mar. 1, 20x1

Treasury shares (1,000 x ₱15) Cash

15,000 15,000

Share capital (1,000 x ₱10) Share premium – original issuance (see #6 above) (a) Share premium – treasury shares (b) Retained earnings (balancing figure) Cash (1,000 x ₱15)

10,000 2,000 3,000 15,000

8. Answers: Feb. 14, 20x1

Cash Building Share premium – donated capital

200,000 900,000 1,100,000

Feb. 14, 20x1: The donated shares are recorded through memo entry only. July 5, 20x2

Cash (20,000 x 32) Share premium – donated capital

640,000 640,000

PROBLEM 4: MULTIPLE CHOICE 1. B - 2,000 sh. x (18 – 5) = 26,000 share premium recorded at the subscription date, not collection date 2. C - [160,000 – (10,000 x 10)] + [20,000 x (22 – 10)] = 300,000 3. A Solution: Share capital (30K x 10)

300,000

Subscribed shares (40K x 10) Subscriptions receivable (40K x 18 x 25%)

400,000 (180,000)

Share premium (30K x 2) + (40K x 8)

380,000

Total SHE

900,000

Short-cut: (30,000 x 12) + (40,000 x 18 x 75%) = 900,000 4. C Solution: • Date

Date • Date

• Date Date Date

Cash (10,000 x ₱14) Share capital (10,000 x ₱1) Share premium Share premium Cash Cash (20,000 x ₱20 x 25%) Subscriptions receivable (20K x ₱20 x 75%) Subscribed share capital (20,000 x ₱1) Share premium Cash (15,000 x ₱20 x 75%) Subscriptions receivable Subscribed share capital (15,000 x ₱1) Share capital Share premium Cash

140,000 10,000 130,000 2,000 2,000 100,000 300,000 20,000 380,000 225,000 225,000 15,000 15,000 3,000 3,000

Total SHE before share transactions Share capital (10,000 + 15,000) Subscribed share capital (20,000 - 15,000) Subscription receivable (300,000 – 225,000) Share premium (130,000 – 2,000 + 380,000 – 3,000) Total SHE after share transactions

900,000 25,000 5,000 (75,000) 505,000 1,360,000

Short-cut: 900,000 + (10,000 x 14 – 2,000) + (20,000 x 20 x 25%) + (15,000 x 20 x 75% - 3,000) = 1,360,000

5. A - 10,000 x ₱3 cost = 30,000 6. D Solution: Date

Date

Cash (1,000 x ₱160) Treasury shares (240,000 x 1/2) Share premium – treasury shares Retained earnings – appropriated Retained earnings – unrestricted

160,000

Cash (10,00 x ₱48) (a) Share premium – treasury shares (b) Retained earnings Treasury shares (10,000 x ₱50)

480,000 20,000

120,000 40,000 120,000 120,000

7. A Solution: Date

500,000

8. D Solutions: Date

Date

Cash (10,000 x ½ x ₱58) Treasury shares (10,000 x ½ x ₱50) Share premium – treasury shares

Share capital (5,000 x ₱10) Share premium – original issuance (5K x ₱5) (a) Share premium – treasury shares (see above) (b) Retained earnings (balancing figure) Treasury shares (10,000 x ½ x ₱50)

290,000 250,000 40,000 50,000 25,000 40,000 135,000 250,000

9. D Solution: Date

Share capital (1,000 x ₱10) Share premium – original issuance (1K x ₱20) Cash (1,000 x 25) Share premium – retirement

10,000 20,000 25,000 5,000

10. D

PROBLEM 5: CLASSROOM ACTIVITY Answer: Make the following entry: Cash

45,678.60 Share capital

10,000.00

[(100 shares per certificate x ₱10 par*) x 10 certificates]

Share premium * See share certificate below.

35,678.60...