CHAPTER 9 - SHAREHOLDERS’ EQUITY MULTIPLE CHOICE – THEORY 1. B
2. D
3. D
4. B
5. B
6. A
PROBLEMS Problem 1 Audit Adjusting Entries: Retained Earnings (950 – 90) – 50,000 Ordinary Shares Ordinary Share Dividend Distributable Paid in Capital in Excess of Stated Value 9,500 x 10% = 950
35,500 50,000
Retained Earnings (Income Tax Expense) Income Tax Payable
240,000
47,500 38,000
240,000
Problem 2 Total income since incorporation Cash dividends paid Total value of bonus issue distributed Correct balance of retained earnings
P630,000 ( 195,000) ( 45,000) P 390,000
Problem 3 Balance, January 1 Profit for the year Dividends Retained Earnings, December 31
P1,590,000 860,000 ( 750,000) P1,700,000
Appropriated for Plant Expansion Unappropriated Total Retained Earnings
P 150,000 1,550,000 P 1,700,000
Chapter 9 – Shareholders’ Equity Problem 4 Paid in Capital Preference Share, P100 par, 10,000 shares authorized, 4,000 shares issued Ordinary Share, P50 par, 15,000 shares authorized, 8,000 shares issued, 7,700 shares outstanding Additional paid in capital Total Paid in Capital Retained Earnings Appropriated For Treasury Shares P19,800 For Fixed Asset Replacement 75,000 Unappropriated 160,400 Total Less: Treasury Shares, at cost (300 shares) Total Shareholders’ Equity
P400,000 400,000 117,700 P917,700
235,400 P1,153,100 19,800 P 1,133,300
Additional paid in capital: 7,000 x P7 1,000 x 12 4,000 x 13 Reissue of treasury shares – preference Total additional paid in capital
P49,000 12,000 52,000 4,700 P117,700
Retained earnings: Accumulated profit Cash dividends paid Bonus issue ( 1,000 x 62) Total Retained Earnings
P610,000 ( 312,600) ( 62,000) P235,400
Problem 5 Date 1/1/12 1/15/12 2/1/12 3/15/12 4/15/12 4/30/12 5/1/12 5/31/12 9/15/12 12/31/12 12/31/12 balances
Preference Share Shares Amount 800
Ordinary Share Shares Amount 15,000 300,000
40,000 1,500
30,000
APIC 4,160,000 4,000 33,000
Retained Earnings 1,100,000
Treasury Shares Shares Amount 4,000 150,000
(18,750) 10,000 2,230
800
40,000
28,730
200,000 44,600
574,600
200,000 78,050 41,100
4,516,150
(122,650) (43,220) ( 39,995) 500,000 1,415,380
200
8,600
(2,150)
(81,450)
2,050
77,150
Chapter 9 – Shareholders’ Equity Supporting Computations and Entries March 15 dividends (16,500 – 4,000) x 1.50 = P18,750 Apr. 30 entry Share Options Outstanding (APIC 10,000 x 6) 60,000 Cash (10,000 x 40) 400,000 Ordinary Share (10,000 x 20) 200,000 Share Premium – Ordinary 260,000 Net increase in APIC = 260,000 – 60,000 = 200,000 May 1 bonus issue: Ordinary shares issued Treasury Outstanding shares
26,500 ( 4,200) 22,300
Charge to Retained Earnings 2,230 x P55= Par value of bonus issue 2,230 x 20 = Credit to additional paid in capital May 31 Sale of Treasury Shares Selling price 2,150 shares x P57 Cost of treasury shares sold: 150 @ P43 2,000 shares Additional paid in capital from this sale
P122,650 ( 44,600) P 78,050 P122,550 P6,450 75,000
September 15 dividends: On ordinary share : (28,730 - 2,050) x P1.50 = On preference share: 8% x 40,000 = Total
81,450 P 41,100 P40,020 3,200 P43,220
Problem 6 Entries for the quasi-reorganization: Retained Earnings 180,000 Inventory (215,000 – 190,000) 25,000 Property, Plant and Equipment (875,000 – 720,000) Cash
155,000
600,000 Additional Paid in Capital
Ordinary Share Capital, P25 par Ordinary Share Capital, P15 par Additional Paid in Capital
600,000 2,500,000 1,500,000 1,000,000
Chapter 9 – Shareholders’ Equity Additional Paid in Capital Retained Earnings (750,000 + 180,000)
930,000 930,000
Shareholders’ Equity Ordinary Share Capital, P15 par, 100,000 shares Additional Paid in Capital (1,750,000 + 600,000 + 1,000,000 - 930,000) Total Shareholders’ Equity
P1,500,000 2,420,000 P3,920,000
Problem 7 LTC Company Statement of Comprehensive Income For the Years Ended December 31, 2012 and 2011 Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Profit before income tax Income tax expense Profit
2012 P3,000,000 1,420,000 P1,580,000 (350,000) (260,000) P 970,000 291,000 P 679,000
2011 Cost of Goods Sold – weighted average Cost of goods sold under FIFO Difference in beginning inventory Difference in ending inventory Cost of goods sold as restated 2011 income tax expense Before restatement Adjustment due to change in inventory costing procedure (1,150,000 – 1,140,000) x 30% 2011 income tax expense as restated
2011 P2,540,000 1,150,000 P1,390,000 (210,000) (220,000) 960,000 336,500 P 623,500
P1,140,000 30,000 ( 20,000) P 1,150,000
P 339,500 ( 3,000) P 336,500
Chapter 9 – Shareholders’ Equity
LTC Company Statement of Changes in Equity For the Years Ended December 31, 2010 and 2009 Ordinary Share Balances, January 1, 2011 Cumulative effect of changing from FIFO costing to weighted average, net of applicable income tax of P9,000 (30,000 x 70%) Dividends Profit for the year Balance, December 31, 2011
P 1,000,000
Retained Earnings P600,000
P1,000,000
21,000 (400,000) 623,500 P 844,500
Profit for the year 2012 Balances, December 31, 2012
P1,000,000
679,000 P1,523,500
Problem 8 Reported profit Loss from fire Write off of goodwill Loss on sale of equipment Gain on early retirement of bonds Gain on insurance policy settlement Corrected profit
P120,000 ( 2,625) ( 26,250) ( 24,150) 7,525 5,250 P 79,750
Retained Earnings, January 1 Stock dividends Loss on retirement of preference shares Officers’ compensation in prior period Other correction of errors Corrected profit (see above) Corrected retained earnings, Dec. 31
P263,200 ( 70,000) ( 35,000) ( 162,750) 25,025 79,750 P100,225
Total P1,600,000
21,000 (400,000) 623,500 P 1,844,500 679,000 P2,523,500
Chapter 9 – Shareholders’ Equity MULTIPLE CHOICE - PROBLEMS Items 1 through 5 1. B
Balance, December 31, 2011 Mar. 31 4,500 x 3 June 30 ( 250,000 + 4,500 – 6,000) / 10 = 24,850 shares 24,850 shares x P3 Sept. 30 P2,000,000/P1,000 x 2 shares = 4,000 shares 4,000 shares x P3 Balance, Dec. 31
P 750,000 13,500
2. C
RE, January 1, 2012 Profit Understatement in depreciation 40,000 x 65% Balance, December 31, 2012
P 480,000 600,000 ( 26,000) P 1,054,000
3. B
Issue price Attributable to the debt PV of face = P2,000,000 x 0.32197 = P 643,940 PV of interest = P200,000 x 5.65022 1,130,044 Amount credited to equity
P2,000,000
4. B
Interest expense for 2012 = 1,773,984 x 12% x 9/12 =
P 159,659
5. C
Effective interest for 2012 Nominal interest 200,000 x 9/12 Amortization Carrying value, April 1 Carrying value, Dec. 31
6. A
Correct balance of Retained Earnings 485,000 – 200,000 + 324,000 – 300,000 + 451,000 =
P760,000
Additional paid in capital 150,000 + 100,000 =
P 250,000
7. C
74,550 12,000 P 850,050
1,773,984 P 226,016
P159,659 150,000 P 9,659 1,773,984 P1,783,645
8. D
Ordinary share Additional paid in capital Retained earnings Revaluation surplus (appraisal increase) Total shareholders’ equity
P2,000,000 250,000 760,000 300,000 P3,310,000
9. A
Preference share = P6,000,000 – (4,000 x P200) =
P5,200,000
10. C Ordinary share = 200,000 shares x P25 par =
P5,000,000
Chapter 9 – Shareholders’ Equity
11. B
APIC, January 1, 2012 Cancelled upon retirement of preference P1,800,000 / 30,000 x 4,000 From sale of treasury shares 6,000 x (45 – 37.50) Sale of donated shares 2,000 x 48 APIC, December 31, 2012
P3,300,000 ( 240,000) 45,000 96,000 P3,201,000
12. C Ordinary shares outstanding Issued = 100,000 x 2 Treasury (8,000 x 2) – 6,000 + 4,000 – 2,000 = Outstanding
200,000 12,000 188,000
13. C Retained Earnings January 1, 2012 Excess of retirement price over issue price 280 – (200 + 60 share premium per share) x 4,000 Profit Balance, December 31, 2012 14.
P2,200,000 ( 80,000) 1,850,000 P3,970,000
There is no number 14 (Sorry)
15. D Ordinary shares issued: January 1, 2012 Mar. 6 – 20 Nov. 3 55 x 10 shares Total shares issued Par value per share December 31, 2012 balance
90,000 1,400 550 91,950 P 2 P183,900
16. D Share premium January 1, 2012 balance Mar. 6 1,400 x 42 Nov. 3 (see entry below) Dec. 31 balance Issue price of bonds 90,000 x 103% Issue price of debt 90,000 x 97% = Value assigned to 90 share warrants
P1,820,00 58,800 24,200 P1,903,000 P 92,700 87,300 P 5,400
Entry upon exercise of 55 warrants Share warrants issued (5,400 x 55/90) Cash 550 x 40 Ordinary share (550 x 2) Share premium
3,300 22,000 1,100 24,200
Chapter 9 – Shareholders’ Equity
17. D Paid in capital from treasury shares Sales price 650 x P40 Cost = P72,600/1,210 x 650 Deduction from previous APIC from treasury shares Previous balance of APIC APIC from Treasury shares
P 26,000 39,000 P 13,000 22,500 P 9,500
18. C Ordinary Share Warrants Outstanding Issue Price of bonds and warrants P90,000 x 103% Fair value of bonds ex-warrants Value initially assigned to warrants Value of warrants exercised (5,400 x 55/90) Value of remaining warrants
P92,700 87,300 P 5,400 ( 3,300) P 2,100
19. A Cost of remaining treasury shares Cost of 1,210 treasury shares originally held Cost of treasury shares sold ( 72,600 x 650 / 1,210) Cost of remaining treasury shares 20 – 28 See worksheet 20. 21. 22. 23. 24. 25. 26. 27. 28.
D D B C A B C A D
P 72,600 ( 39,000) P 33,600
Chapter 9 – Shareholders’ Equity
Date 1/1/12 1/6/12 1/31 2/22 2/28 4/30 – 5/31 8/31 9/14 11/30 12/15 12/31 12/31 12/31 bal.
Preference Share Shares Amount 9,000
P900,000
Ordinary Share Shares Amount
Retained Earnings
APIC
600,000 22,500
P600,000 22,500
P1,200,000 348,750 40,500
21,000
21,000
525,000
Treasury Shares Shares Amount
P3,198,000 7,500
P180,000
(12,000)
(3,000)
(72,000)
(1,278,900) ( 54,000) (42,000) 1,800,000 P2,691,100
4,500
P108,000
(920,000) 450
9,000
P900,000
643,950
450
P643,950
(1,350) 5,400
P2,118,300
January 31: Value assigned to warrants 1,350,000 x (98% - 95%) = P40,500 (classified as APIC) Entry on Sept. 14 Cash (450 x 10) Share Warrants Outstanding (APIC) Ordinary Share Share Premium – Ordinary Share
4,500 1,350 450 5,400
SUMMATIVE EXERCISE – CONQUEST MOTORS CORPORATION Operating Expenses Petty Cash Fund
2,200
Materials Inventory Materials Acquisition Fund
9,000
Cash
12,000
2,200 9,000
Salaries Payable
12,000
Goods in Process Inventory Cash
900
Operating Expenses Cash
1,000
Notes Payable Interest Expense
900 1,000 300,000 18,000
Chapter 9 – Shareholders’ Equity Cash Other Financial Assets Cash
318,000 350,000 350,000
Other Income (Dividend Revenue) Trading Securities
6,600
Dividend Receivable Other Income
2,000
Trading Securities Unrealized Gain on Trading Securities
12,800
Installment Sales Cost of Installment Sales Deferred Gross Profit
610,000
Deferred Gross Profit Realized Gross Profit
108,500
Repossessed Inventory (Finished Goods Inventory) Deferred Gross Profit Loss on Default Materials Inventory Accounts Payable Goods in Process Inventory Applied Factory Overhead
6,600 2,000 12,800 396,500 213,500 108,500 70,000 52,000 122,000 18,000 18,000 69,600 69,600
Factory Overhead Control Operating Expenses Accumulated Depreciation – Building
30,000 20,000
Discount on Notes Payable Equipment Operating Expenses
12,000
Retained Earnings Other Assets
36,000
Interest Receivable Other Income
16,200
Interest Expense Operating Expenses
67,500
Interest Expense
22,500
50,000 10,800 1,200 36,000 16,200 67,500
Chapter 9 – Shareholders’ Equity Interest Payable Share Capital Retained Earnings Share Capital Share Premium
22,500 80,000 80,000 250,000 250,000
Retained Earnings Dividends Payable
348,000 348,000
Operating Expenses Accrued Operating Expenses
115,000 115,000
Applied Factory Overhead Overapplied Factory Overhead Factory Overhead Control
747,600
Overapplied Factory Overhead Cost of Goods Sold
11,600 736,000 11,600 11,600
Income Statement Correct Balances: Sales Cost of goods sold Gross profit Realized gross profit on installment sales Total gross profit Loss from Repossession Gross profit, net of loss on repossession Operating Expenses Other Income Unrealized Gains on Trading Securities Other Expenses and Losses Income before interest and taxes Interest expense Income before income tax Income tax expense Net income
P2,800,000 1,948,400 P 851,600 108,500 P 960,100 ( 8,000) P 952,100 ( 609,500) 71,600 12,800 ( 36,500) P 390,500 158,000 P 232,500 69,750 P 162,750
Balance sheet accounts Current Assets Cash Trading Securities Installment Accounts Receivable Interest Receivable Dividend receivable Receivable from officers
P1,015,900 214,800 340,000 16,200 2,000 45,000
Chapter 9 – Shareholders’ Equity Inventories Prepaid expenses Total current assets Non-current Assets Property, Plant and Equipment, at cost Accumulated Depreciation Net carrying value Other Financial Assets Total Non-current assets Total Assets Current Liabilities Accounts payable Salaries payable Notes payable Accrued expenses Dividends payable Interest payable Deferred gross profit Income tax payable Total current liabilities Non-current liabilities Notes payable Total liabilities Shareholders’ Equity Share Capital Share Premium Retained Earnings Total Liabilities and Shareholders’ Equity
486,500 40,000 P2,160,400 P5,409,200 186,000 P5,223,200 485,000 5,708,200 P7,868,600
P 508,000 12,000 538,000 115,000 348,000 22,500 119,000 69,750 P1,732,250 1,000,000 P2,732,250 P2,900,000 1,450,000 692,350
5,042,350 P7,774,600
