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PROBLEM 2. ACCOUNTING FOR SHARE CAPITAL Far East Corporation, a newly registered corporation had the following transactions during the year: a) On January 2, Philippine SEC authorized the entity to issue 500,000 shares with par value of ten peso per share. b) The entity received subscription to 150,000 shares at par. c) The entity collected 30% on the above subscription. d) Received full payment for 90,000 shares originally subscribed. e) The entity then issued the share certificates for 90,000 shares which were fully paid. f) Received a cash subscription for 6,000 shares at par. Memorandum Entry Method – IF THE PROBLEM IS SILENT, USE MEMO METHOD a) The corporation was authorized to issue 500,000 shares with P10 par value. b) Subscription Receivable 1,500,000 Subscribed Share Capital 1,500,000 (150,000 x P10) c) Cash (1,500,000 x 30%) 450,000 initially paid Subscription Receivable 450,000 d) Cash 630,000 eto pa yung babayaran niya kasi 270,000 Subscription Receivable 630,000 (30% na yung nabayaran out of 900,000) e) Subscribed Share Capital 900,000 d) 90,000 shares + 60,000 shares = 150,000 Share Capital 900,000 x P10 x P10 f) Cash (6,000 x P10) 60,000 P900,000 + P600,000 = 1,500,000 Share Capital 60,000 x 30% x 30% 270,000 + 180,000 = 450,000 Journal Entry Method a) Unissued Share Capital Authorized Share Capital (500,000 X P10) b) Subscription Receivable Subscription Share Capital c) Cash Subscription Receivable d) Cash Subscription Receivable e) Subscribed Share Capital UNISSUED SHARE CAPITAL f) Cash UNISSUED SHARE CAPITAL

P5,000,000 P5,000,000 1,500,000 1,500,000 450,000 450,000 630,000 630,000 900,000 900,000 60,000 60,000

PROBLEM 3. ISSUANCE OF SHARE CAPITAL FOR CASH 1. With Par Value Avalanche Corporation sold 20,000 ordinary shares of P100 par value for P130 per share. Cash (20,000 x P130) 2,600,000 Ordinary Shares 2,000,000 Share Premium 600,000 2. Without Par Value Vague Company sold 40,000 ordinary shares with stated value of P80 for P120 each. Cash (40,000 x P120) Ordinary Shares Share Premium 3. No Par, No Stated Value Cash Ordinary Shares

4,800,000 3,200,000 1,600,000 -

walang share premium

4,800,000 4,800,000

PROBLEM 4. ISSUANCE OF SHARES FOR NONCASH CONSIDERATION – hindi pera, but, land and bldg. pinambayad. a. Algeria Corp. issued 15,000 ordinary shares of P100 par value in exchange of for land and building with total fair value of P2,000,000 of which 25% is attributable to the land. 2,000,000 x 25% 500,000 – Land Land Bldg

500,000 1,500,000 Ordinary Shares Share Premium

1,500,000 500,000

b. Nortek Corporation exchanged 25,000 shares of its P100 par value share for a land. A few months ago, the land was appraised by an independent appraiser at P4,000,000. Nortek is currently trading at the Philippine Stock Exchange (PSE) at P140 per share. Land (25,000 x P140) Ordinary Shares (25,000 X P100) Share Premium

3,500,000 2,500,000 1,000,000

c. Atty. Pao received 1,000 ordinary shares of P100 par value from Secador Cop. after rendering legal services in getting the corporation organized. The fair value of such services is reliably determined to be P125,000. Professional Fee/Organization Cost Ordinary Shares (1,000 x P100) Share Premium

125,000 100,000 25,000

d. Dientes Corp. issued 5,000 shares of its P100 par ordinary share to Atty. Harvey as compensation for 1,200 hours of legal services performed. Atty. Harvey usually bills P500 per hour for legal services. On this date of issuance, the share was selling at a public trading at P140 per share. Professional Fee Ordinary Shares Share Premium

700,000 500,000 200,000

PROBLEM 5A. INCORPORATON OF A PROPRIETORSHIP The December 31, 2013 condensed statement of financial position of Django Services, an individual proprietorship, follows: Current Assets Equipment (net)

P 150,000 140,000 P 290,000

Liabilities Djangco, Capital

P 90,000 200,000 P 290,000

Fair Values at December 31, 2013 are as follows: Current Assets Equipment Liabilities

P 170,000 200,000 90,000

If given yung FMV, ‘yun yung gagamitin

On January 2, 2014, Djangco Services was incorporated with 5,500, P10 par value, ordinary shares issued. To convert into corporation type: Current Assets Equipment Liability Share Capital Share Premium

P 170,000 200,000 P 90,000 55,000 225,000

PROBLEM 5B. ISSUANCE OF TWO CLASSES OF SHARES 2 FMV given Hologram Corporation issued 20,000 shares of its P10 par value ordinary shares and 40,000 shares of its P10 par value preference share for a total amount of P1,800,000. At this date, Hologram’s ordinary shares was selling P20 per share and the preference share was selling for P30 per share. OS (20,000 x P20) PS (40,000 x P30)

400,000 1,200,000 P 1,600,000

4/16

x

P1,800,000

=

450,000

12/16

x

P1,800,000

=

1,350,000 P 1,800,000

Cash Ordinary Shares (20,000 x P10) SP-OS (450,000 – 200,000) Preference Shares (40,000 x P10) SP-PS (1,350,000 – 400,000)

1,800,000 200,000 250,000 400,000 950,000

1 FMV given (OS only) Ordinary Shares (20,000 x P30) Preference Shares (40,000 x P30)

600,000 1,200,000 P1,800,000

Cash

1,800,000 200,000 400,000 400,000 800,000

Ordinary Shares (20,000 x P10) SP-OS (20,000 x P30 – 200,000) Preference Shares (40,000 x P10) SP-PS (40,000 x P30 – 400,000)

PROBLEM 6. ORGANIZATION COST – organizing a corporation Harlem Corporation issued 50,000 ordinary shares with par value of P100 for P150 per share. Costs incurred related to the issuance which were paid cash are as follows: Org Cost Org Cost Org Cost Share Issuance Share Issuance

Cost of drafting articles of incorporation and by laws Other legal costs Incorporation fees Cost of printing share certificate Other share issuance cost (cost of stock and transfer book, seal of corporation, underwriting fees and legal fees related to share issuance) REMEMBER: issued – fully paid received subscription

= =

P25,000 5,000 15,000 10,000 25,000

45,000

35,000

CASH Subscription Receivable Subscribed Share Capital

a) Issuance of shares Cash (50,000 x P150) Ordinary Shares (50,000 x P100) Share Premium

7,500,000 5,000,000 2,500,000

b) Incurrence of organization cost Organization Cash SP-OS Cash

45,000

Organization Cost – treated as Outright EXPENSE

45,000 35,000 35,000

c) IF Share Issuance = 35,000 IF SP-OS = 25,000 1) Cash Ordinary Shares SP-OS 2) Organization Cost Cash SP-OS Retained Earnings Cash

5,025,000 5,000,000 25,000

25,000 lang yung SP-OS mo, so need mong i-record sa RE yung remaining

45,000 45,000 25,000 10,000

RE = OTHER TERM = Accumulated P/L 35,000

d) IF Ordinary Shares ONLY IF Par ONLY NO Share Premium 1) Cash (50,000 x P100) Ordinary Shares

5,000,000 5,000,000

2) Organization Cost Cash Retained Earnings Cash

45,000 45,000 35,000 35,000

PROBLEM 7. COMPUTATION OF LEGAL CAPITAL

w/ Par Value Ordinary Share Preference Share Share Capital Subscribed – OS Subscribed – PS Subscribed – Share Capital

No Par Value, w/ Stated Value Ordinary Share Preference Share Share Capital Share Premium – OS Share Premium – PS Subscribed – OS Subscribed – PS Subscribed – Share Capital

CASE A – with Par Value The shareholder’s equity of Lovely Company revealed the ff. information on December 31, 2012: Preference share (P100 par), P2,500,000; share premium in excess of par-preference, P750,000; Ordinary share (P10 par), P5,000,000; share premium in excess of par-ordinary, P2,800,000; Subscribed ordinary share, P65,000; Accumulated P/L, P2,000,000; and Subscription receivable-ordinary, P350,000. Preference Share Ordinary Share Subscribed Ordinary Share

2,500,000 5,000,000 65,000 P 7,565,000

CASE B – No Par, with Stated Value The shareholder’s equity of Aranque Inc. revealed the ff. information on December 31, 2012: Preference share (P80 stated value), P1,200,000; share premium in excess of stated value-preference, P900,000; Ordinary share (P15 stated value), P3,000,000; share premium in excess of stated value-ordinary, P2,800,000; Subscribed ordinary share, P80,000; Accumulated profits and losses, P1,950,000; and Subscription receivable-ordinary, P200,000. Preference Share SP-PS Ordinary share SP-OS Subscribed Ordinary Share

1,200,000 900,000 3,000,000 2,800,000 80,000 7,980,000

PROBLEM 8. DELINQUENT SUBSCRIPTION AND HIGHES BIDDER -

Sa Subscription Contract nakalagay to what extent babayaran (eg. 1 year). If hindi nakabayad, idedeclare niya yung share sa delinquent; iooffer yung share sa auction (bidding)

Macchiato Corp. had the following transactions with one of its subscribers during the year: a) On January 2, Olive subscribes for 25,000 shares at par P50 to be paid within 60 days from the date of subscription. b) On February 28, Olive pays P750,000 of her subscription to the corporation. c) On March 5, the corporation called Olive’s subscription balance but she defaulted. Consequently, the subscription was declared to be delinquent. NO ENTRY if declared delinquent. d) Macchiato paid P38,000 for expenses incurred in connection with the auction of the delinquent shares. The offer price was P560,000 which includes the balance still due on the subscription, interest and costs of the sale. e) Three bidders offered to pay the offer price in exchange for the following shares: Rey 4,000 shares; Paul 5,500 shares; and Joven 6,000 shares. Accordingly, the auction was awarded to the highest bidder. The corporation then received cash representing the offer price on March 15. Offer price is still 560,000 f) Macchiato issued the shares to the subscribers on March 18. A. Journalize Jan 2 Subscribed Receivable (25,000 x P50) 1,250,000 Subscribed Share Capital 1,250,000 Feb 28 Cash 750,000 Subscription Receivable 750,000 Mar 5 No Entry d) Receivable from Highest Bidder/Due from Highest Bidder 38,000 Cash 38,000 e) Cash 560,000 Subscription Receivable (1,250,000 – 750,000) 500,000 Receivable from Highest Bidder 38,000 Interest Income 22,000 f) Subscribed Share Capital 1,250,000 Share Capital 1,250,000 B. Who was the highest bidder? Rey C. How many shares were actually issued to (a) Olive and to the (b) highest bidder? Olive 21,000 share Rey 4,000 25,000 – Olive originally subscribes

PROBLEM 9. TREASURY SHARES - nire-acquire yung sarili mong share of stocks - CONTRA-EQUITY ACCOUNT - DEBIT On August 10, Cultura Corporation reacquired 8,000 shares of its P100 par value ordinary shares at P134. The share was originally issued at P110. The shares were resold on November 21 at P145. Provide the entries required to record the reacquisition and the subsequent resale of the share using the: 1) Par Value method of accounting for treasury share. (NO. Kasi hindi na ito ginagamit.) 2) Cost Method of accounting for treasury share. (COST NOT PAR; sa OS lang kasi yung credit up to the extent of Par Value) August 10

Treasury share (8,000 x P134) Cash

1,072,000 1,072,000

Nov 21

Cash (8,000 x P145) Treasury share SP-TS

1,160,000 1,072,000 88,000

PROBLEM 10. TREASURY SHARES – COST METHOD Medley Inc. had the ff. information during the year: a) Medley issued 10,000 ordinary shares (P100 par) for P120 per share. b) Medley reacquired 3,000 ordinary shares at P150 per share. c) The corporation then reissued 1,000 of the treasury shares for P170 per share. d) Finally, the remaining treasury shares were issued at P100 per share. a) Cash (10,000 x P120) Ordinary Share SP-OS

1,200,000 1,000,000 200,000

b) Treasury Share (3,000 x P150) Cash

450,000 450,000

c) Cash (1,000 x P170) Treasury Share (1,000 x P150) SP-TS

170,000 150,000 20,000

d) Cash (2,000 x P100) SP-TS RE Treasury Share (2,000 x P150)

200,000 20,000 80,000 300,000

If no SP-TS, ilagay lahat sa RE

3,000 – reacquire -1,000 – reissued 2000

PROBLEM 11. TREASURY SHARE PRESENTATION Bucks Corp. have the ff. information as of December 31, 2012: Ordinary share capital, 60,000 shares, P100 par; Share premium, P60,000; Retained Earnings, 2,000,000; and Treasury shares, 5,000 at cost of P140 each. Present the shareholder’s equity portion to be shown on the entity’s statement of fin’l position. Shareholders’ Equity CONTRIBUTED CAPITAL (including Legal Capital) Ordinary Shares (60,000 x P100) Share Premium Retained Earnings Treasury Shares (5,000 x P140)

6,000,000 60,000 2,000,000 (700,000) 7,360,000

PROBLEM 12. DONATED CAPITAL - ginagamit lang kapag ang nag-donate ay shareholder - OTHER INCOME : not a shareholder ang nag-donate

Cash

Non-Cash Land

Cash Donated Capital

Donated Capital

Pashmina Inc. is a corporation incorporated in the Philippines, during the year, certain shareholder donated to the entity an aggregate of 10,000 ordinary shares with par value of P100. Subsequently, the 10,000 donated shares were sold for P130 per share. 1. Prepare the journal entries to record: a. The receipt of the donated shares The company received 10,000 ordinary shares with par value of P100 from its shareholders. (Memo entry : Statement only) b. The subsequent sale of the donated shares Cash (10,000 x P130) SP-Donated Capital (treated as EXCESS lang)

1,300,000 1,300,000

2. How would the donated capital be accounted for in the shareholder’s equity of Pashmina? Shareholders’ Equity CONTRIBUTED CAPITAL (including Legal Capital) Ordinary Shares (10,000 x P100) Share Premium Retained Earnings Treasury Shares (5,000 x P140) Donated Capital

PROBLEM 13. CONTRIBUTED CAPITAL Nathaniel Corporation is authorized to issue 100,000 ordinary shares, P17 par value. At the beginning of 2012, 18,000 ordinary shares were issued and outstanding. These shares had been issued at P24. During 2012, the company entered into the ff. transactions:

issued = fully paid Jan 16 – Issued 1,300 ordinary shares at P25 per share. Mar 21 – Exchanged 12,000 ordinary shares for a building. The ordinary shares were selling at P27 per share. May 7 – Reacquired 500 ordinary shares at P26 per share to be held in treasury. Jul 1 – Accepted subscriptions to 1,000 ordinary shares at P28 per share. The contract called for 10% down payment with the balance due on December 1. Sep 20 – Sold 500 treasury shares at P29 per share. Dec 1 – Collected the balance due on July 1 subscriptions and issued the shares. COMPOSITION OF CONTRIBUTED CAPITAL Share Capital OS PS Share Premium Treasury Shares (deducted from RE) Subscribed Share Capital Subscription Receivable w/in 1 year beyond 1 year do not present in the Contri Cap. - present at Subscription Receivable CURRENT ASSET - deducted in Contributed Capital Jan 16

Cash (1,300 x P25) Ordinary Shares (1,300 x P17) SP-OS

32,500

Mar 21

Building (12,000 x P27) Ordinary Shares (12,000 x P17) SP-OS

324,000 204,000 120,000

May 7

Treasury Shares (500 x P26) Cash

13,000

Cash (1,000 x 10%) Subscription Receivable Subscribed OS (1,000 x P17) SP-OS

2,800 25,200

Cash (500 x P29) Treasury Shares (500 x P26) SP-TS

14,500

Jul 1

Sep 20

22,100 10,400

13,000

17,000 11,000

13,000 1,500

1,000 x P28 = 28,000 X 10% Cash 2,800

SR = 25,200

Dec 1

Cash

25,200

Subscription Receivable Subscribed OS OS Ordinary Shares 306,000 (18,000 x P17) 22,100

25,200 17,000 17,000 SP-OS 126,000 (7 x 18,000) 10,400

204,000

120,000

17,000

11,000

549,100

267,400

IP = 24 PV = 17 SP = 7 x 18,000 = 126,000

w/ PAR w/out PAR

CONTRIBUTED CAPITAL Ordinary Shares P 549,000 SP-OS 267,400 SP-TS 1,500 818,000

SP-TS 1,500

PROBLEM 14. RETIREMENT OF TREASURY SHARES a) The corporation holds as treasury, 30,000 ordinary shares with P10 par value per share, at cost amounting P250,000. The shares were subsequently retired.

If you retire TS, you also retire OS kasi yung TS is part din naman ng OS TS – normal is DEBIT - to remove is CREDIT Ordinary Shares (30,000 x P10) Treasury Share SP-TS retirement

OS – normal is CREDIT - to remove is DEBIT 300,000 250,000 50,000

b) West Corporation has the ff. information: Retirement at a loss Ordinary share capital, 200,000 shares, P10 par, P2,000,000; Share premium – original issuance, P400,000; Share premium – Treasury, P80,000; Retained earnings P500,000; Treasury shares, 20,000 shares, at cost P350,000.

Kapag may SP-Orig Issuance, tanggalin OS SP-OS SP-TS RE

if kulang pa then proceed to if kulang pa rin then RE na

(amount to be retired)

Ordinary Share (20,000 x P10) SP-OS (20,000 x P400,000) 200,000 (total share issued) SP-TS RE (minus lahat then iminus to) Treasury Share

200,000 40,000

or; 80,000 30,000 350,000

OS SP

2,000,000 400,000 2,400,000 / 200,000 12 10 2

2 x 20,000 = 40,000

PROBLEM 15. SHARE PREMIUM Hello Corporation was organized on January 1, 2013, with an authorization of 1,000,000 ordinary shares with a par value of P5 per share. During 2013, the corporation had the ff. equity transactions: Jan 4 – Issued 200,000 shares @ P5 per share. (same as Par Value) Apr 8 – Issued 100,000 shares @ P7 per share. Jun 9 – Issued 30,000 shares @ P10 per share. Jul 29 – Purchased 50,000 shares @ P4 per share. (Treasury share kasi may subsequent issuance sa Dec 31)

Dec 31 – Sold 50,000 shares held in treasury @ P8 per share. What should be the total Share Premium as of Dec. 31, 2012? Jan 4 Apr 8 Jun 9 Jul 9 Dec 31

P5 – P5 = 0 (100,000 x P2) (30,000 x P5) P4-P5 = Null (50,000 x P4)

----200,000 150,000 ----200,000 550,000

Minus the current per share from the original per share

PROBLEM 16. COMPREHENSIVE The ff. transactions relate to the stockholders’ equity transactions of Monique Corporation for its first year of existence. Jan 7

Jan 28 Feb 3

Articles of incorporation are filed with the Philippine SEC. SEC authorized the issuance of 10,000 shares of P50 par value preferred stock and 200,000 shares of P10 par value common stock. 40,000 shares of common stock are issued for P14 per share. 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. (clearly determinable kasi may date)

Feb 24

Sep 12 Oct 1 Nov 5 Dec 10 Dec 31

2,000 shares of common stock are issued to Specter and Ross, 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. Received subscriptions for 10,000 shares of preferred stock at P53 per share. A 40% down payment accompanied the subscriptions. Reacquired 5,000 ordinary shares for a total cost of 80,000. Reissued 3,000 ordinary shares at P18 per share. Shareholders holding an aggregate of 5,000 shares donated their shares to Monique. The company was able to reissue t...