Corporations Problem Set PDF

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BA#99.2#A.#Y.#2016-2017# # # Problem#Set Problem#Set::#Corporations# # Part#1:#Theory.#Choose#the#letter#of#the#best#answer.# # 1.# A#corporation#has#the#following#account#balances:#Common#stock,#$1#par#value,#$60,000;#Paid-in#Capital#in#Excess# of#Par,#$1,300,000.#Based#on#this#information,#the# a.# legal#capital#is#$1,360,000.# b.# number#of#shares#issued#are#60,000.# c.# number#of#shares#outstanding#are#1,360,000.# d.# average#price#per#share#issued#is#$22.50.# # # 2.# The#term#residual)claim#refers#to#a#stockholders’#right#to# a.# receive#dividends.# b.# share#in#assets#upon#liquidation.# c.# acquire#additional#shares#when#offered.# d.# exercise#a#proxy#vote.# # # 3.# If#Vickers#Company#issues#4,000#shares#of#$5#par#value#common#stock#for#$140,000,# a.# Common#Stock#will#be#credited#for#$140,000.# b.# Paid-In#Capital#in#Excess#of#Par#will#be#credited#for#$20,000.# c.# Paid-In#Capital#in#Excess#of#Par#will#be#credited#for#$120,000.# d.# Cash#will#be#debited#for#$120,000.# # # 4.# Barton#Company#is#a#publicly#held#corporation#whose#$1#par#value#stock#is#actively#traded#at#$32#per#share.#The# company# issued# 3,000# shares# of# stock# to# acquire# land# recently# advertised# at# $100,000.# When# recording# this# transaction,#Barton#Company#will# a.# debit#Land#for#$100,000.# b.# credit#Common#Stock#for#$96,000.# c.# debit#Land#for#$96,000.# d.# credit#Paid-In#Capital#in#Excess#of#Par#for#$98,000.# # # 5.# Crain#Company#issued#2,000#shares#of#its#$5#par#value#common#stock#in#payment#of#its#attorney's#bill#of#$40,000.# The#bill#was#for#services#performed#in#helping#the#company#incorporate.#Crain#should#record#this#transaction#by# debiting# a.# Legal#Expense#for#$10,000.# b.# Legal#Expense#for#$40,000.# c.# Organization#Expense#for#$10,000.# d.# Organization#Expense#for#$40,000.# # # 6.# Carson#Packaging#Corporation#began#business#in#2012#by#issuing#25,000#shares#of#$3#par#common#stock#for#$8#per# share#and#10,000#shares#of#6%,#$10#par#preferred#stock#for#par.#At#year#end,#the#common#stock#had#a#market#value# of#$12.#On#its#December#31,#2012#balance#sheet,#Carson#Packaging#would#report# a.# Common#Stock#of#$300,000.# b.# Common#Stock#of#$75,000.# c.# Common#Stock#of#$200,000.# d.# Paid-In#Capital#of#$75,000.# Page 1 of 8

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Hsu,#Inc.#issued#7,500#shares#of#stock#at#a#stated#value#of#$8/share.#The#total#issue#of#stock#sold#for#$15#per#share.# The#journal#entry#to#record#this#transaction#would#include#a# a.# debit#to#Cash#for#$60,000.# b.# credit#to#Common#Stock#for#$60,000.# c.# credit#to#Paid-in#Capital#in#Excess#of#Par#for#$112,500.# d.# credit#to#Common#Stock#for#$112,500.# The#acquisition#of#treasury#stock#by#a#corporation# a.# increases#its#total#assets#and#total#stockholders'#equity.# b.# decreases#its#total#assets#and#total#stockholders'#equity.# c.# has#no#effect#on#total#assets#and#total#stockholders'#equity.# d.# requires#that#a#gain#or#loss#be#recognized#on#the#income#statement.# A#company#would#not#acquire#treasury#stock# a.# in#order#to#reissue#shares#to#officers.# b.# as#an#asset#investment.# c.# in#order#to#increase#trading#of#the#company's#stock.# d.# to#have#additional#shares#available#to#use#in#acquisitions#of#other#companies.# Which#of#the#following#is#not#a#right#or#preference#associated#with#preferred#stock?# a.# The#right#to#vote# b.# First#claim#to#dividends# c.# Preference#to#corporate#assets#in#case#of#liquidation# d.# To#receive#dividends#in#arrears#before#common#stockholders#receive#dividends#

# 11. The#cumulative#feature#of#preferred#stock# a.# limits#the#amount#of#cumulative#dividends#to#the#par#value#of#the#preferred#stock.# b.# requires#that#dividends#not#paid#in#any#year#must#be#made#up#in#a#later#year#before#dividends#are#distributed#to# common#shareholders.# c.# means#that#the#shareholder#can#accumulate#preferred#stock#until#it#is#equal#to#the#par#value#of#common#stock#at# which#time#it#can#be#converted#into#common#stock.# d.# enables#a#preferred#stockholder#to#accumulate#dividends#until#they#equal#the#par#value#of#the#stock#and#receive#the# stock#in#place#of#the#cash#dividends.# # 12. If#management#wishes#to#"capitalize"#part#of#the#earnings,#it#may#issue#a# a. cash#dividend.# b. stock#dividend.# c. property#dividend.# d. liquidating#dividend.# # 13. The#declaration#and#issuance#of#a#stock#dividend#larger#than#25%#of#the#shares#previously#outstanding# a. increases#common#stock#outstanding#and#increases#total#stockholders'#equity.# b. decreases#retained#earnings#but#does#not#change#total#stockholders'#equity.# c. may#increase#or#decrease#paid-in#capital#in#excess#of#par#but#does#not#change#total#stockholders'#equity.# d. increases#retained#earnings#and#increases#total#stockholders'#equity.# # Page 2 of 8

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14. Pryor#Corporation#issued#a#2-for-1#stock#split#of#its#common#stock#which#had#a#par#value#of#P10#before#and#after#the# split.##At#what#amount#should#retained#earnings#be#capitalized#for#the#additional#shares#issued?# a. There#should#be#no#capitalization#of#retained#earnings# b. Par#value# c. Market#value#on#the#declaration#date# d. Market#value#on#the#payment#date# # 15. The#issuer#of#a#5%#common#stock#dividend#to#common#stockholders#preferably#should#transfer#from#retained#earnings# to#contributed#capital#an#amount#equal#to#the# a. market#value#of#the#shares#issued.# b. book#value#of#the#shares#issued.# c. minimum#legal#requirements.# d. par#or#stated#value#of#the#shares#issued.# # 16. The#balance#in#Common#Stock#Dividend#Distributable#should#be#reported#as#a(n)# a. deduction#from#common#stock#issued.# b. addition#to#capital#stock.# c. current#liability.# d. contra#current#asset.# # 17. A#feature#common#to#both#stock#splits#and#stock#dividends#is# a. a#transfer#to#earned#capital#of#a#corporation.# b. that#there#is#no#effect#on#total#stockholders'#equity.# c. an#increase#in#total#liabilities#of#a#corporation.# d. a#reduction#in#the#contributed#capital#of#a#corporation.# # 18. What#effect#does#the#issuance#of#a#2-for-1#stock#split#have#on#each#of#the#following?# # # # Par#Value#per#Share# Retained#Earnings# # # a.# No#effect# # # No#effect# # # b.# Increase# # # No#effect# # # c.## Decrease# # # No#effect# # # d.# Decrease# # # Decrease# # 19. The#rate#of#return#on#common#stock#equity#is#calculated#by#dividing## # # a.# net#income#less#preferred#dividends#by#average#common#stockholders’#equity.# # # b.# net#income#by#average#common#stockholders’#equity.# # # c.# net#income#less#preferred#dividends#by#ending#common#stockholders’#equity.# d.# net#income#by#ending#common#stockholders’#equity.# # 20. Dividends#are#not#paid#on# # # a.# noncumulative#preferred#stock.# # # b.# nonparticipating#preferred#stock.# # # c.# treasury#common#stock.# # # d.# Dividends#are#paid#on#all#of#these.# # # # # Page 3 of 8

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Part#2:#Short#Problems.#Provide#the#correct#answer.# # 1. The#accounts#below#appear#in#the#December#31,#2015#trial#balance#of#Gabay#Company:# Authorized#share#capital# 5,000,000# Unissued#share#capital# 2,000,000# Subscribed#share#capital# 1,000,000# Subscription#receivable# 400,000# Share#premium# 500,000# Retained#earnings#unappropriated# 600,000# Retained#earnings#appropriated# 300,000# Revaluation#surplus# 200,000# Treasury#shares,#at#cost# 1,00,000# In#the#December#31,#2015#statement#of#financial#position,#what#amount#should#be#reported#as#shareholder’s# equity?# # 2. The#accounts#shown#below#appear#in#the#December#31,#2015#trial#balance#of#Halo-halo#Corporation:# Preference#share#authorized,#P50#par# P10,000,000# Unissued#preference#share# 3,600,000# Ordinary#share#authorized,#P20#par# 4,000,000# Unissued#ordinary#share# 2,000,000# Subscription#receivable,#preference#share# 380,000# Subscription#receivable,#ordinary#share# 360,000# Subscribed#preference#share# 600,000# Subscribed#ordinary#share# 440,000# Treasury#share,#preference,#at#cost# 1,360,000# Share#premium# 1,700,000# Accumulated#profits#and#losses# 2,000,000# How#much#is#the#total#shareholder’s#equity#of#Halo-halo#Corp?# # 3. The#shareholders’#equity#section#of#Maria#Rosa#Company#revealed#the#following#information#on#December#31,# 2015.# Preference#share#capital,#P100#par# 2,300,000# Share#premium,#preference#share# 805,000# Ordinary#share#capital,#P10#par# 5,250,000# Share#premium,#ordinary#share# 2,750,000# Subscribed#ordinary#share#capital# 50,000# Retained#earnings# 1,900,000# Note#payable# 4,000,000# Subscription#receivable-#ordinary#share# 400,000# # What#is#the#amount#of#legal#capital?# # 4. Joy#Company#issued#20,000#shares#of#its#P10#par#value#ordinary#share#and#40,000#shares#of#its#P10#par#value# convertible#preference#share#for#a#total#of#P1,800,000.#At#this#date,#Joy’s#ordinary#share#was#selling#P20#per#share# and#the#convertible#preference#share#was#selling#for#P30#per#share.#What#amount#of#the#proceeds#should#be# allocated#to#the#ordinary#share?# # 5. Samantha#Company#issued#6,000#shares#of#its#P100#par#ordinary#share#to#Jake#V.#as#compensation#for#1,000#hours# of#legal#services#performed.#Jake#V.#usually#bills#P500#per#hour#for#legal#services.#On#this#date#of#issuance,#the# Page 4 of 8

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share#was#selling#at#a#public#trading#at#P150#per#share.#By#what#amount#should#the#share#premium#account#of# Corridor#Company#increase#as#a#result#of#the#issuance#of#those#shares?# # 6. The#Max#Corporation#is#authorized#to#issue#100,000#shares#at#P20#par#ordinary#share.#At#the#beginning#of#2014,# 18,000#ordinary#shares#were#issued#and#outstanding.#These#shares#had#been#issued#at#P27#per#share.#During# 2014,#the#company#entered#into#the#ff#transactions:# January#2# Issued#1,300#ordinary#shares#at#P28#per#share# Mar#19# # Exchanged#12,000#ordinary#shares#for#a#machine# # # # #

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The#ordinary#share#was#selling#at#P30#per#share.# # #

May#8# # July#19#

Reacquired#500#ordinary#shares#at#P29#per#share# Accepted#subscriptions#for#1,000#ordinary#shares#at#P31#per#share.#The#contract#called#for# 10%#down#payment#with#the#balance#due#on#December#1.# September#1# Sold#500#of#treasury#share#at#P32#per#share# December#1# Collected#the#balance#due#on#July#1#subscriptions#and#issued#the#stock#certificate.# How#much#is#the#total#contributed#capital#for#December#31,#2014?# 7. Royce#Corporation#purchased#10,000#shares#of#its#P10#par#value#ordinary#shares#as#treasury#share#for#P120,000# on#March#2,#2014.#On#December#19,#2014,#Royce#issued#all#10,000#treasury#shares#for#P190,000.#Under#the#cost# method#of#accounting#for#treasury#share,#the#reissuance#would#result#in#a#credit#to:# a. Share#Capital#of#P100,000# b. Accumulated#Profits#and#Losses#of#P70,000# c. Gain#on#sale#of#investment#of#P70,000# d. Share#premium#of#P70,000#

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8. The#following#capital#accounts#are#shown#in#the#balance#sheet#of#Tappa#Corp.# Ordinary#share,#10,000#shares,#par#value#P100# # # # # P1,000,000# Premium#on#ordinary#share# # # # # # # 20,000# Share#premium#–#treasury#share## # # # # # 30,000# Accumulated#profits#and#losses# # # # # # # 750,000# Treasury#share,#2000#shares#at#cost# # # # # # 250,000# The#entire#2,000#treasury#shares#were#sold#for#P200,000.# What#would#be#the#balance#of#the#Accumulated#Profits#and#Losses#account#after#this#sale?# # 9. Avis#Company#was#organized#on#January#2,#2009#at#which#date#it#issued#200,000#shares#of#P10#par#ordinary#shares# at#P15#per#share.#During#the#period#January#2,#2012#to#December#31,#2014,#Avis#reported#cumulative#net#income# of#P900,000#and#paid#cash#dividends#of#P460,000.#On#January#2,#2014,#Avis#purchased#12,000#of#its#ordinary#share# at#P12#per#share.#On#December#31,#2014,#Avis#sold#8,000#treasury#shares#at#P8#per#share.#What#is#the#total#of# shareholders’#equity#at#December#31,#2014?#

# 10. Lovelyn#Company#issued#200,000#ordinary#shares#when#it#began#operations#in#2010#and#issued#an#additional# 100,000#shares#in#2011.#Lovelyn#also#issued#100,000#preference#shares.#In#2011,#Lovelyn#purchased#75,000# ordinary#shares#to#be#held#in#treasury.#On#December#31,#2011,#how#many#ordinary#shares#were#outstanding?# # 11. Effective#December#31,#2011,#the#shareholders#of#Rap#Company#approved#a#two-for-one#split#of#the#entity’s#share# capital,#and#an#increase#in#entity’s#share#capital#and#an#increase#in#authorized#shares#from#100,000#shares#(par# value#P20)#to#200,000#shares#(par#value#P10).#Rap’s#shareholders’#accounts#immediately#before#issuance#of#the# split#shares#were#as#follows:# Share#capital,#par#value#P20;#100,000#shares#authorized;#50,000#shares#outstanding# P1,000,000# Page 5 of 8

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# Share#premium# # P150,000# # Retained#Earnings# P1,350,000# What#should#be#the#balances#in#the#share#premium#and#retained#earnings#immediately#after#the#share#spit#is# effected?# # 12. Iana#Company#had#10,000#shares#issued#and#outstanding#on#January#1,#2015.#During#2015,#Iana#took#the#following# actions:# March#15# Declared#a#2-for-a#share#split,#when#the#fair#value#of#the#share#was#P80#per#share.# December#15# Declared#a#P5#per#share#cash#dividend.# In#the#statement#of#changes#in#equity#for#2011,#what#amount#should#be#reported#as#dividends?# # 13. Ken,#Inc.#had#net#income#for#2004#of#P6,360,000#and#earnings#per#share#on#common#stock#of#P5.#Included#in#the# net#income#was#P900,000#of#bond#interest#expense#related#to#its#long-term#debt.#The#income#tax#rate#for#2004# was#30%.#Dividends#on#preferred#stock#were#P1,200,000.#25%#of#net#income#is#to#be#paid#out#as#dividends.#What# were#the#dividends#on#common#stock#in#2004?# # 14. Ninabea,#Inc.#has#outstanding#200,000#shares#of#P2#par#common#stock#and#40,000#shares#of#no-par#8%#preferred# stock#with#a#stated#value#of#P5.#The#preferred#stock#is#cumulative.#Dividends#have#been#paid#in#every#year#except# the#past#two#years#and#the#current#year.# # a. Assuming#that#P100,000#will#be#distributed#as#a#dividend#in#the#current#year,#how#much#will#the#common# stockholders#receive?# b. Assuming#that#P42,000#will#be#distributed#as#a#dividend#in#the#current#year,#how#much#will#the#preferred# stockholders#receive?# # 15. At#December#31,#2004#and#2005,#Louisa#Corp.#had#outstanding#9,000#shares#of#P100#par#value#8%#cumulative# preferred#stock#and#30,000#shares#of#P10#par#value#common#stock.#At#December#31,#2004,#dividends#in#arrears#on# the#preferred#stock#were#P36,000.#Cash#dividends#declared#in#2005#totalled#P135,000.#What#amounts#were# payable#on#each#class#of#stock?# # 16. The#stockholders'#equity#section#of#Irish#Corporation#as#of#December#31,#2003,#was#as#follows:# On#March#1,#2004,#the#board#of#directors#declared#a#10%#stock#dividend.##On#March#1,#2004,#the#fair#market#value# of#the#stock#was#P6#per#share.##For#the#two#months#ended#February#28,#2004,#Irish#sustained#a#net#loss#of# P10,000.#What#amount#should#Irish#report#as#retained#earnings#as#of#March#1,#2004?# # # # 17. On#January#1,#2004,#Shyrr#Corporation#had#110,000#shares#of#its#P5#par#value#common#stock#outstanding.##On# June#1,#the#corporation#acquired#10,000#shares#of#stock#to#be#held#in#the#treasury.#On#December#1,#when#the# market#price#of#the#stock#was#P8,#the#corporation#declared#a#15%#stock#dividend#to#be#issued#to#stockholders#of# record#on#December#16,#2004.#What#was#the#impact#of#the#15%#stock#dividend#on#the#balance#of#the#retained# earnings#account?# # 18. Presented#below#is#information#related#to#Paolo,#Inc.:#

Common stock 6% Preferred stock Retained earnings (includes net income for current year) Net income for year

December 31, 2004 2003 P 75,000 P 60,000 350,000 350,000 90,000 75,000 45,000 32,000 # Page 6 of 8

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What#is#Paolo’s#rate#of#return#on#common#stock#equity#for#2004?# # 19. On#November#1,#2015,###Jude#Company#declared#a#property#dividend#of#equipment#payable#on#March#1,#2016.# The#carrying#amount#of#the#equipment#is#P3,000,000#and#the#fair#value#is#P2,500,000#on#November#1,#2015.## However,#the#fair#value#less#cost#to#distribute#the#equipment#is#P2,200,000#on#December#31,#2011#and# P2,000,000#on#March#1,#2012.# a. What#is#the#dividend#payable#on#December#31,#2015?#2,200,000# b. What#is#the#measurement#of#equipment#on#December#31,#2015?#2,200,000# # 20. Below#is#the#shareholders’’#equity#section#of#Nelson#Company#on#December#31,#2014:# Preference#share,#7%,#P100#par#value,#30,000#shares#issued;# # total#liquidation#value,#P3.2#M# # # # # P3,000,000# Ordinary#share,#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.# How#much#is#the#book#value#per#share#of#ordinary#share?# # 21. The#shareholders’#equity#of#Aira#Company#shows#the#following#balances#on#December#31,#2014:# 10%#Preference#share,#cumulative#and# P2,000,000# nonparticipating,#P100#par#with#a#liquidation#value#of# P110,#20,000#shares# Ordinary#share,#P100#par,#30,000#shares# 3,000,000# Subscribed#ordinary#shares# 1,000,000# Subscription#receivable# 600,000# Treasury#shares,#5,000#ordinary#shares#at#cost# 400,000# Share#premium# 660,000# Accumulated#profits#and#losses# 1,580,000# What#is#the#book#value#per#share#of#ordinary#shares,#assuming#preference#dividends#are#in#arrears#since#2012?# # 22. The#following#share#capital#transactions#pertain#to#Gino#Corporation#for#the#year#2014:# January#1# Shares#outstanding# 44,000# February#1# Shares#issued#for#cash# 56,000# May#1# Shares#reacquired# 25,000# August#1# Receipt#of#25%#share#dividends# # September#1# Resold#part#of#treasury#share# 10,000# November#1# Issued#2#for#1#share#split# # # What#is#the#weighted#average#ordinary#shares#outstanding?# # 23. On#January#1,#2014,#Tiny#Corporation#whose#shares#are#publicly#traded,#had#100,000#shares#of#ordinary#shares# issued#and#outstanding.#On#April#1,#2014,#the#company#issued#10%#share#dividends.#On#September#1,#2014,# additional#9,000#shares#were#issued#for#cash#and#on#November#1,#2014,#the#shares#were#split#for#a#2#for#1#basis.# What#is#the#number#of#shares#to#be#used#in#computing#earnings#per#share#on#December#31,#2014?# # 24. Angel#Company’s#capital#structure#at#December#31,#2014,#is#shown#below:# Shares#issued#and#outstanding:# # Ordinary#shares# # # 200,000# # Preference#shares# # # 50,000# Page 7 of 8

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On#October#1,#2015,#Angel#issued#a#10%#share#dividend#on#its#ordinary#shares,#and#paid#200,000#cash#dividends# on#the#preference#shares.#Net#income#for#the#year#ended#December#31,#2015#was#P1,#920,000.#How#much#should# be#the#2014#earnings#per#share#of#Angel#Company?# # 25. Edrada#Company#had#500,000#ordinary#shares#issued#and#outstanding#at#December#31,#2013.#During#2014,#no# additional#ordinary#share#was#issued.#On#January#1,#2014,#Edrada#issued#400,000#preference#shares.#During#2014,# Edrada#declared#and#paid#P180,000#cash#dividends#on#the#ordinary#shares#and#P150,000#on#the#preference# shares.#Net#income#for#the#year#ended#December#31,#2014#was#P960,000.#What#should#be#the#earnings#per# ordinary#share#of#Edrada#Company?# #

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