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PROVIDAL On December 31, year 1, Park Corp.’s board of directors canceled 50,000 shares of P2. par value common stock held in treasury at an average cost of P13 per share. Before recording the cancellation of the treasury stock, Park had the following balances in its stockholders’ equity accounts: C...

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PROVIDAL 1. On December 31, year 1, Park Corp.’s board of directors canceled 50,000 shares of P2.50 par value common stock held in treasury at an average cost of P13 per share. Before recording the cancellation of the treasury stock, Park had the following balances in its stockholders’ equity accounts: Common stock

P540,000

Additional paid-in capital

750,000

Retained earnings

900,000

Treasury stock, at cost

650,000

In its balance sheet at December 31, year 1, Pack should report a common stock balance of a. P0

b. P250,000

c. P415,000

d. P540,000

Solution: Common Stock (50, 000 shares x P2.50)

P125, 000

Common Stock, Dec. 31, 2016 (P540,000 – P125,000)

415, 000

2. On June 27, year 1, Blyth Co. distributed to its common stockholders 100,000 outstanding common shares of its investment in Quinn, Inc., an unrelated party. The carrying amount on Blythe’s books of Quinn’s P1 par common stock was P2 per share. Immediately after the distribution, the market price of Quinn’s stock was P2.50 per share. In its income statement for the year ended June 30, year 1, what amount should Blythe report as gain before income taxes on disposal of the stock? a. P250,000

b. P200,000

c. P50,000

Solution: FV – CA

P2.50 – P2.00

Outstanding common share Total gain

=

P.50

x 100,000 P50, 000

d. P0

3. Chris Company issued 6,000 shares of its P100 par ordinary share to Mark L. as compensation for 1,000 hours of legal services performed. Mark L. usually bills P500 per hour for legal services. On this date of issuance, the share was selling at a public trading at P150 per share. By what amount should the share premium account of Chris increase as a result of the issuance of those shares? a. P300,000

c. P990,000

b. P600,000

d. P3,000,000

Solution: Value of the service (6,000 shares x P150)

P900,000

Less: par value of the share (6,000 x P100)

600,000

Share premium

P300,000

4. Duncan Company has outstanding 40,000 shares of P5 par common stock which had been issued at P30 per share. Duncan then entered into the following transactions

Purchased 5,000 shares treasury stock at P45 per share. Resold 2,000 of the treasury shares at P49 per share. Resold 500 of the treasury shares at P40 per share. What is the total amount of Paid-in capital? a. P11,500 b. P10,500 c. P 5,500 d. P 4,500 b. 2,000 x P4 = P8,000 500 x P5 = P2,500 *P8,000 - P2,500 = P6,500

Pamela Corporation stockholders’ equity consisted of P1,000,000 of P10 par value Common Stock, P750,000 of Additional Paid-in Capital, and P3,000,000 of Retained Earnings on January 1, 2016. On this date, Pamela purchased 90% of the outstanding common stock of Sage Corporation for P1,500,000 with all excess purchase cost assigned to goodwill. The stockholders’ equity of Sage on this date consisted of P800,000 of P100 par value, 8% non-cumulative, preferred stock callable at P105, P900,000 of P10 par value common stock and P500,000 of Retained Earnings. Sage’s net income for 2005 was P100,000.

In a separate transaction on January 1, 2016, Pamela purchased 70% of Sage’s preferred stock for P600,000. At the end of 2005, the amount of Pamela’s income from Sage (excluding dividends from preferred stock) and the balance in its Additional Paid-in Capital account, respectively, are a. b. c. d.

P62,400 and P710,000. P62,400 and P750,000. P32,400 and P710,000. P32,400 and P750,000.

PUNZALAN 1. The following information pertains to Jerry Corp.’s outstanding stock for year 1: Common stock, P5 par value Shares outstanding, 1/1/Y1 20,000 2-for-1 stock split, 4/1/Y1 20,000 Shares issued, 7/1/Y1 10,000 Preferred stock, P10 par value, 5% cumulative Shares outstanding, 1/1/Y1 4,000 What are the number of shares Jet should use to calculate year 1 basic earnings per share? a. 40,000

b. 45,000

c. 50,000

d. 54,000

Solution: (b) Both the original 20,000 shares and the additional 20,000 issued in the 4/1 stock split are treated as outstanding for the entire year (20,000 × 2 = 40,000) The 7/1 issuance of 10,000 shares results in a weighted-average of 5,000 shares (10,000 × 6/12) Jerry should use 45,000 shares (40,000 + 5,000) to calculate EPS.

2. Timmy, Inc. had the following common stock balances and transactions during year 1 1/1/Y1 Common stock outstanding 30,000 2/1/Y1 Issued a 10% common stock dividend 3,000 7/1/Y1 Issued common stock for cash 8,000 12/31/Y1 Common stock outstanding 41,000 What were Timmy’s year 1 weighted-average shares outstanding? a. 30,000

b. 34,000

c. 36,750

d. 37,000

Solution: (d) The computation of weighted-average shares outstanding is Date

# of shares

Fraction

WA

1/1

30,000

×

12/12

=

30,000

2/1

3,000

×

12/12

=

3,000

7/1

8,000

×

6/12

=

4,000_ 37,000

3. Mane, Inc. had 300,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at P15 per share outstanding at the beginning and end of year 2. The average market price of Mane’s common stock was P20 during year 2. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, year 2? a. 325,000

b. 335,000

c. 360,000

d. 365,000

Solution: (b) Outstanding Shares the entire year Outstanding Shares for 6 mos. Weighted Average

300, 000 50, 000

[300,000 + (50,000 × 6/12)] = 325, 000

Assumed proceeds (40,000 × P15) Shares issued Shares reacquired (P600,000 ÷ P20) Shares issued, not reacquired

P600,000 40,000 (30,000) 10,000

The number of shares used for computing diluted earnings per share is 325,000 + 10,000 = 335,000

4-5.Sean Corporation had the following information in its financial statements for the years ended 2016 and 2017: Cash dividends for the year 2017

P 5,000

Net income for the year ended 2017

78,000

Market price of stock, 12/31/16

10

Market price of stock, 12/31/17

12

Common stockholders’ equity, 12/31/16

1,000,000

Common stockholders’ equity, 12/31/17

1,200,000

Outstanding shares, 12/31/17

100,000

Preferred dividends for the year ended 2017

10,000

What is the rate of return on common stock equity for Sean Corporation for the year ended 2017? a. 7.1%

b. 6.5%

c. 6.2%

d. 5.7%

Solution: (c) Rate of return (P78,000 – P10,000) ÷ [(P1,000,000 + P1,200,000 ÷ 2)]

6.2%.

What is the price-earnings ratio for Sean Corporation for the year ended 2017? a. 14.7

b. 15.4

c. 17.6

d. 19.0

Solution: (c) Price-earnings ratio [(P78,000 – P10,000) ÷ 100,000 = P.68] P12 ÷ .68

= 17.

ROLDAN 1. The Phoenix Corporation was incorporated on January 1, 2016, with the following authorized capitalization.

40,000 ordinary shares, no par value, stated value P40 per share 10,000 shares 5% cumulative preference share, par value P10 per share During 2016, Phoenix issued 24,000 ordinary shares for a total of P1,200,000 and 6,000 preference share at P16 per share. In addition, on December 19, 2016, subscriptions for 2,000 preference shares were taken at a purchase price of P17. These subscribed shares were taken at a purchase price of P17. These subscribed shares were paid for on January 2, 2017. What should Phoenix report as total contributed capital in its December 31, 2016 balance sheet? a. P1,040,000

c.P1,294,000

b. P1,262,000

d.P1,330,000

Solution Ordinary share outstanding

P1,200,000

Preference share outstanding (6,000 shares x P16)

96,000

Subscribed preference share (2,000 shares x P17)

34,000

Total contributed capital

P1,330,000

2. Presented below is information related to Orly, Inc.: December 31 2017

2016

P 75,000

P 60,000

350,000

350,000

Retained earnings (includes net income for current year)

90,000

75,000

Net income for year

40,000

32,000

Common stock 4% Preferred stock

What is Orly’s rate of return on common stock equity for 2017? a. 26.7%

b. 17.3%

c. 15.8%

d. 24.2%

Solution: (b) Rate of Return on Common stock equity P40,000 – (.04 x P350,000)_________ [(P60,000 + P75,000)] + (P75,000 + P90,000)] ÷ 2

=

17.3%

3. Selected information for Kyrie Company is as follows: December 31 Year 1

Year 2

P125,000

P125,000

300,000

400,000

75,000

185,000

for year ended

10,000

10,000

Net income for year ended

60,000

120,000

Preferred stock, 8%, par P100, nonconvertible, noncumulative Common stock Retained earnings Dividends paid on preferred stock

Kyrie’s return on common stockholders’ equity, rounded to the nearest percentage point, for year 2 is a. 17%

b. 19%

c. 23%

d. 25%

Solution: (c) It is computed by dividing net income available to common stockholders (net income less preferred dividends) by average common stockholders’ equity. P120, 000 – P10, 000

= 23%

(P375,000 + P585,000) / 2

4. Hoya Corp.’s current balance sheet reports the following stockholders’ equity: 5% cumulative preferred stock, par value P100 per share; 2,500 shares issued and outstanding P250,000 Common stock, par value P3.50 per share; 100,000 shares issued and outstanding 350,000 Additional paid-in capital in excess of par value of common stock 125,000 Retained earnings 300,000 Dividends in arrears on the preferred stock amount to P25,000.

If Hoya were to be liquidated, the preferred stockholders would receive par value plus a premium of P50,000. The book value per share of common stock is a. P7.75

b. P7.50

c. P7.25

d. P7.00

Solution: (d) Preferred Preferred stock, 5%

Common

P250,000

Common stock

P350,000

APIC in excess of par value of common stock

125,000

Retained earnings: Dividends in arrears

25,000

Liquidation premium

50,000

Remainder to common (Plug)

225,000

Totals

P325,000

Shares outstanding

P700,000 100,000

Book value per share

P 7.00

5. North Company issues 4,000 shares of its P5 par value common stock having a fair value of P25 per share and 6,000 shares of its P15 par value preferred stock having a fair value of P20 per share for a lump sum of P204,000. What amount of the proceeds should be allocated to the preferred stock? a. P182,750

b. P127,500

c. P111,273

Solution: (c) (4,000 shares × P25) + (6,000 shares × P20) = P220,000 (P120,000 ÷ P220,000) × P204,000 = P111,273

SANDAGON

d. P95,625

1-5. Shown below is information relating to the stockholders’ equity of Neptune Corporation at December 31, 20016:

8% cumulative preferred stock, P100 par, 100,000 shares authorized, 5,000 shares issued..................................

P 500,000

Common stock, P2 par, 1,000,000 shares authorized, 600,000 shares issued and outstanding...............................................

1,200,000

Additional paid-in capital: preferred stock.................................................

200,000

Additional paid-in capital: common stock..................................................

300,000

Retained earnings....................................................................................

500,000

From the above information, compute the following:

1.The total amount of legal capital: P__________ a. P500, 000

b. P1, 700, 000

c. P700, 000

d. P1, 400, 000

Solution: (b) Cumulative preferred stock Common Stock Total Legal Capital

P 500, 000 1,200,000 1,700,000

2.The total amount of paid-in capital: P__________ a. P1, 400, 000

b. P500, 000

c. P800, 000

d. P2, 200, 000

Solution: (d) Cumulative preferred stock

P 500,000

Common stock

1,200,000

Additional paid-in capital: preferred

200,000

Additional paid-in capital: common Total paid-in capital

300,000 P2, 200, 000

3. The average issue price per share of preferred stock: P_____ per share a. P140

b. P170

c. P160

d. P150

Solution: (a) Cumulative preferred stock + Additional paid-in capital: preferred / Shares issued (P500,000 + P200,000)/5,000 shares = P140 per-share issue price

4. The book value per share of common stock (assume current-year preferred dividends have been paid) P_____ per share a. P3.50 b. P6.00 c. P4.50 d. P5.25 Solution: (c) P500,000 + P12,000,000 + P200,000 + P300,000 + P500,000 = P2,700,000 Total stockholder’s equity P2,700,000 stockholders’ equity allocable to common stock/600,000 shares common stock outstanding = P4.50 book value per share of common stock

5. The balance in Retained Earnings at the beginning of the year was P450,000, and there were no dividends in arrears. Net income for 2016 was P300,000. What was the amount of dividend declared on each share of common stock during 2016? P_____ per share a. P1.35 b. P.35 c. P1.50 d. P2.00 Solution: (b) Retained earnings, beginning of year

P 450,000

Net income....................................................................................................

300,000

Subtotal................................................................................................

P 750,000

Less: Retained earnings, end of year.............................................................

(500,000)

Retained earnings declared as dividends....................................................... Less: Dividends on preferred stock

P 250,000 (40,000)

Amount of dividends to common stockholders................................................

P210,000

P210,000/600,000 shares common stock = P.35 dividend per share

STA.ANA 1. Celeron Inc. had 60, 000 shares of treasury share (P10, par value) at December 31, 2016, which it acquired at P11 per share. On June 1, 2016, Celeron issued 30,000 treasury shares to employee who exercised options under Celeron’s employee share option plan. The market value per share was P13 at December 31, 2016, P15 at June 1, 2017 and P18 at December 1, 2017, the share options had been granted for P12 per share. The cost method is used. What is the balance of the treasury share on Celeron’s statement of financial position at December 31, 2017? a.P210,000

c.P330,000

b.P270,000

d.P360,000

Solution Original cost (60,000 x 11) Less: Cost of treasury shares issued (30,000 x 11) Balance of treasury shares

P660,000 330,000 P330,000

2. The shareholder’s equity account balance of Gill Corporation as of December 31, 2016 are as follows: Ordinary share, P100 par; 50,000 shares authorized; 25,000 shares issued Share premium Accumulated profits Total

P2,500,000 500,000 1,000,000 P3,690,000

On January 2, 2017, Gill sold the treasury share on the open market at P200 per share. What is the effect on the shareholder’s equity as a result of the sale of treasury shares?

a. No effect.

c. Increased by P320,000

b. Increased by P80,000.

d. Increased by P400,000

Solution After Sale

Before Sale

Ordinary share

2,500,000

2,500,000

Share premium

580,000

500,000

Accumulated profits

1,000,000

1,000,000

Treasury share

________

(320,000)

Total

4,080,000

3,680,000

Increase

=

400,000

3-4. The following data are provided: December 31, 2017 10% Cumulative preferred stock, P50 par

P100,000

2016 P100,000

Common stock, P10 par

160,000

90,000

Additional paid-in capital

80,000

65,000

Retained earnings (includes current year net income) Net income

240,000

215,000

70,000

Additional information: On May 1, 2017, 7,000 shares of common stock were issued. The preferred dividends were not declared during 2017. The market price of the common stock was P50 at December 31, 2017. The rate of return on common stock equity for 2017 is a. 70 ÷ 420

b. 70 ÷ 480

c. 60 ÷ 420

d. 60 ÷ 480

Solution: (d) Rate of return P70,000 – (.10 x P100,000)_________

_________________________=60 ÷ 480

[(P160,000 + P80,000 + P240,000 – P10,000)] + (P65,000 + P90,000 + P215,000)] ÷ 2

The book value per share of common stock at 12/31/17 is a. 470 ÷ 16.

b. 240 ÷ 16

c. 370 ÷ 16

d. 480 ÷ 15

Solution: (a) P160,000 + P80,000 + (240,000 – P10,000) = P470 ÷ 16. 16, 000

5. The Pylon Company had 100,000 of P15 par value ordinary shares on January 1, 2016. During 2016, the following transactions pertaining to its ordinary shares occurred: Purchased 5,000 shares as treasury at P30 each. A 3-for-1 share split was affected. Reissued 3,000 treasury shares at P14 each. What is the total cost of the remaining treasury shares at the end of 2016? a. P120,000

b. P150,000

c. P130,000

d. P140,000

Cost of remaining treasury shares 5,000 x 3 = 15,000; 15, 000 – 3,000 = 12,000 x P10

P120,000

TABARA 1. Willy Company issued 5,000 shares of its P5 par value common stock having a fair value of P25 per share and 7,500 shares of its P15 par value preferred stock having a fair value of P20 per share for a lump sum of P260,000. The proceeds allocated to the preferred stock is a. P232,917

b. P162,500

c. P141,818

d. P118,182

Solution: (c) [(7,500 × P20) ÷ [(5,000 × P25) + (7,500 × P20)]] × P260,000 = P141,818.

2. Phoebe Corporation started business in 2010 by issuing...