Problem 4 - answek key PDF

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Chapter 10Shareholders’ Equity (Part 1)PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL1. AOrdinary shares, ₱5 par 800, Subscribed share capital 100, Share premium 1,120, Subscription receivable (80,000) Cumulative losses on translation of foreign operation (60,000) Retained earnings - appropriated 320, R...

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Chapter 10 Shareholders’ Equity (Part 1) PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL 1. A Ordinary shares, ₱5 par 800,000 Subscribed share capital 100,000 Share premium 1,120,000 Subscription receivable (80,000) Cumulative losses on translation of foreign operation (60,000) Retained earnings - appropriated 320,000 Retained earnings - unappropriated 700,000 Treasury shares, at cost (200,000) Total shareholders' equity 2,700,000 2. A Share capital (30K x 10) Subscribed shares (40K x 10) Subscriptions receivable (40K x 18 x 25%) Share premium (30K x 2) + (40K x 8) Total SHE

300,000 400,000 (180,000) 380,000 900,000

Short-cut for total equity: (30,000 x 12) + (40,000 x 18 x 75%) = 900,000

3. C 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

140,00 0

10,000 130,00 0

2,000 2,000 100,00 0 300,00 0

20,000 380,00 0

Dat e

Cash (15,000 x ₱20 x 75%) Subscriptions receivable

225,00 0

Dat e

Subscribed share capital (15,000 x ₱1) Share capital Share premium Cash

15,000

Dat e

225,00 0 15,000

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

3,000 900,000 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

4. C Jan. 3

No entry (memorandum method assumed)

Jan. 5

Cash (5K x ₱52) + (60K x ₱14) 1,100,000 Preference share capital (5K x ₱50) Share premium - PS [5K x (₱52 - ₱50)] Ordinary share capital (60K x ₱10) Share premium - OS [60K x (₱14 - ₱10)]

Jan. 24

Feb. 3

Sept. 12

250,000 10,000 600,000 240,000

Organization costs (2K x ₱16) 32,000 Ordinary share capital (2K x ₱10) Share premium - OS [2K x (₱16 - ₱10)]

20,000 12,000

Land 250,000 Building 1,000,000 Ordinary share capital (80K x ₱10) Share premium - OS

800,000 450,000

Cash (3K x ₱53 x 40%) 63,600 Subscription receivable (3K x ₱53 x 60%) 95,400 Subscribed share capital – PS (3K x ₱50) Share premium - PS [3K x (₱53 - ₱50)]

150,000 9,000

Oct. 1

Cash Subscription receivable

15,900 15,900

Preference share capital Subscribed sh. Capital - PS Share premium - PS (10K + 9K)

250,000 150,000 19,000

Subscription receivable (95.4K - 15.9K) Ordinary share capital (600K + 20K + 800K) Share premium - OS (240K + 12K + 450K Total contributed capital

(79,500) 1,420,000 702,000 2,461,500

5. D Ordinary share capital Subscribed share capital Share premium Legal capital

Par 1,600,000 200,000 1,800,000

No-par 1,600,000 200,000 600,000 2,400,000

6. B Jan. 2, 20x1

Jan. 28, 20x1

July 14, 20x1 Dec. 27, 20x1

Cash (25,000 x 15 x 50%) Subscription receivable (25,000 x 15 x 50%) Subscribed share capital (25,000 x 10) Share premium Cash (20,000 x 15 x 50%) Subscription receivable

187,500 187,500

Subscribed share capital (20,000 x 10) Ordinary share capital

200,000

250,000 125,000 150,000 150,000

200,000

Treasury shares (5,000 x 17) Cash

85,000

Cash (2,500 x 20) Treasury shares (2,500 x 17) Share premium – Treasury shares

50,000

85,000

Share premium, Dec. 31, 20x1: (125K + 7.5K) = 132,500

42,500 7,500

7. A Date

Cash (10,00 x ₱48) (a) Share premium – treasury shares (1) (b) Retained earnings Treasury shares (10,000 x ₱50)

480,000 20,000 500,00 0

(1)

There is no balance in this account because the problem states that the reacquisition was the first treasury share transaction of Entity A.

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

Date

Date

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 (5,000 x 50)

290,00 0

250,00 0 40,000

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

9. A Jan. 2, 20x 3

Share capital (150,000 x ₱2 par) Share premium (2.55M x 300K ÷ 1.7M) Retained earnings Cash

Ordinary shares (1,700,000 – 300,000) Share premium (2,550,000 – 450,000) Retained earnings (6,700,000 – 450,000) Total shareholders' equity

10. D Share capital (1,000 x ₱10)

Date

300,000 450,000 450,000 1,200,000

1,400,000 2,100,000 6,250,000 9,750,000

10,000

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

20,000 25,000 5,000

11. C ฀ Proportional method: No. of shares

Fair value per sh.

Total fair value

Fraction

Allocation

Preference shares

200

150

30,000

30/150

40,000

Ordinary shares

1,000

120

120,000

120/150

160,000

Totals

1,200

150,000

150/150

200,000

Date

Cash Preference share capital (200 x ₱130 par) Share premium – PS (40,000 – 26,000) Ordinary share capital (1,000 x ₱100 par) Share premium – OS (160,000 – 100,000)

200,000 26,000 14,000 100,000 60,000

฀ Incremental method: Lump sum price Allocation to ordinary shares, at fair value (1,000 x ₱120) Excess allocated to preference shares The entry to record the issuance is as follows: Cash Preference share capital (200 x ₱130 par) Share premium – PS (80,000 – 24,000) Ordinary share capital (1,000 x ₱100 par) Share premium – OS (120,000 – 100,000)

Date

200,000 (120,000) 80,000

200,000 26,000 54,000 100,000 20,000

12. C (120,000 rights x ₱0.10) = 12,000 debit to share premium

13. B (a)

Cash (3,000 x ₱18) Callable preference shares (3,000 x ₱10) Share premium – Callable PS

54,000 30,000 24,000

to record issuance of callable preference shares

(b)

Cash (2,000 x ₱25)

50,000

Convertible preference shares (2,000 x ₱20) Share premium – Convertible PS

40,000 10,000

to record issuance of convertible preference shares

(c)

(d)

Callable preference shares (2,000 x ₱10) Share premium – Callable PS (24K x 2K/3K) Cash (2,000 x ₱17) Share premium – redemption Convertible preference shares (1,000 x ₱20) Share premium – Convertible PS (10K x 1/2) Ordinary share (1,000 x ₱25 par)

Share premium, beg. (a) (b) (c) (c) (d) Share premium, end.

20,000 16,000 34,000 2,000 20,000 5,000 25,000

280,000 24,000 10,000 (16,000) 2,000 (5,000) 295,000

14. C Case (1): Equity instruments Preference sh. 4,000 Warrants 4,000

Date

Fair value per sh. 100 25

Total Fair value 400,000 100,000 500,000

Fraction 400/500 100/500 500/500

Cash (4,000 x 124) Preference share capital (4,000 x ₱80 par) Share premium – PS (396,800 – 320,000) Share premium – warrants outstanding

Allocation 396,800 99,200 496,000

496,000

Case (2): Fair value of ordinary share Subscription price Intrinsic value per share of warrant Number of ordinary shares purchasable under the warrants Assigned value of share warrants

320,000 76,800 99,200

58 (10) 48 2,000* 96,000

* 4,000 preference shares ÷ 2 warrants per ordinary sh. = 2,000 Issue price

496,000

Assigned value of share warrants

(96,000) 400,000

Excess allocated to preference shares Date

15. D

Cash (4,000 x 124) Preference share capital (4,000 x ₱80 par) Share premium – PS (400,000 – 320,000) Share premium – warrants outstanding

496,000 320,000 80,000 96,000...