1. Seven persons decided to organize a corporation.
Which of the following situation illustrates
best the minimum requirement of the law to capital formation?
Authorized Capital Subscribed Capital Paid-in Capital
A. PhP 175,000.00 PhP 35,000.00 PhP 7,000.00
B. 140,000.00 35,000.00 7,000.00
C. 140,000.00 28,000.00 7,000.00
D. 112,000.00 28,000.00 7,000.00
Solution:
The minimum paid-up capital of a corporation in the Philippines must not be less than Php
5,000.00. It is required to pay in full amount at least twenty-five percent (25%) of the subscribed
capital stock, an amount of which should not be less than Php 5,000.00. The law requires the
total capital stock to be subscribed at the time of incorporation to be at least twenty-five percent
(25%) of the authorized capital stock of the corporation being formed. Given the paid-in capital
of PhP 7,000.00, subscribed capital and authorized capital would be PhP 28,000.00 and PhP
112,000.00. It is computed as: a) PhP 7,000.00 / 25% = PhP 28,000.00 (subscribed capital); and
PhP 28,000.00 / 25% = PhP 112,000.00 (authorized capital).
2. Ayok O. Na, a subscriber of the corporation, failed to settle part of his subscriptions in the
amount of PhP 36,000.00. After complying with the legal procedures pertaining to delinquency
sale, a public auction was held. The offer price is PhP 55,000.00 including PhP 7,125.00 accrued
interest and PhP 11,875.00 expenses of sale. The corporation bid for the delinquent shares and
credited as paid in full in the books of the corporation. What amount would be reflected to
Treasury Stock account?
A. PhP 55,000.00
B. 36,000.00
B. 19,000.00
C. 17,000.00
Solution:
Journal entries would be the following:
To record accrued interest on delinquent shares...
- Debit: Receivable from Highest Bidder (PhP 7,125.00)
- Credit: Interest Revenues (PhP 7,875.00)
To record auction expenses...
- Debit: Receivable from Highest Bidder (PhP 11,875.00)
- Credit: Cash (PhP 11,875.00)
To record purchase of own shares...
- Debit: Treasury Stock (PhP 55,000.00)
- Credit: Receivable from Highest Bidder (PhP 19,000.00) and Subscription Receivable
(PhP 36,000.00)
3. Eat-igil Na Nat, Inc., an internationally popular Filipino fast food chain, declared a cash
dividend of PhP 27.00 per share of ordinary shares on January 7. The dividends are payable on
April 7 to shareholders of record on January 12. The entity has 125,000 ordinary shares issued of
which 9,000 shares are held in treasury. What amount should be recorded for Retained Earnings
account and Cash Dividends Payable account?
A. PhP 3,850,000.00
B. 3,132,000.00
C. 3,618,000.00
D. 3,375,000.00
Solution:
Journal entry would be...
Debit: Retained Earnings (PhP 3,132,000.00)
Credit: Cash Dividends Payable (PhP 3,132,000.00)
Computation: PhP 27.00 per share x (PhP 125,000.00 issued shares – PhP 9,000.00) = PhP
3,132,000.00
4. A corporation named Ikaw at ACCO, Inc. has the following information: January 1 Ordinary
Equity of PhP 609,000.00, Net Income for the year was PhP 143,000.00, Preference Equity of
PhP 700,000.00 at the payment rate of 7%, and Ordinary Equity on December 31 has a balance
of PhP 666,000.00. Compute for the return on ordinary equity.
A. 3.06%
B. 6.12%
C. 14.75%
D. 15.06%
Solution:
Return on Ordinary Equity = Profit – Preference Dividends
Average Ordinary Equity
Return on Ordinary Equity = PhP 143,000.00 – (PhP 700,000.00 x 7%)
(PhP 609,000.00 + PhP 666,000.00) / 2
Return on Ordinary Equity = P143,000.00 – PhP 49,000.00
PhP 1,275,000.00 / 2
Return on Ordinary Equity = PhP 94,000.00
PhP 637,500.00
Return on Ordinary Equity = Profit – Preference Dividends
Average Ordinary Equity
Return on Ordinary Equity = 0.1475 or 14.75%
5. Just Keep On Think, Inc., one of the leading firms making highly valuable reading materials in
Batangas and Laguna has the following shareholder’s equity section of the statement of financial
position:
6% Cumulative Non-participating Preference Shares,
PhP 1,000.00 par, 5,000 shares authorized, 400 shares issued
and outstanding PhP 400,000.00
Ordinary Shares, PhP 1,000.00 par, 20,000 shares authorized,
5,500 shares issued and outstanding 550,000.00
Share Premium – Preference 40,000.00
Share Premium – Ordinary 720,000.00
Retained Earnings 850,000.00
Total Shareholder’s Equity PhP 2,560,000.00
If the preference shares has a liquidation value of PhP 1,300.00 and dividends are in arrears for
three years, compute for the preference book value per share.
A. PhP 1,450.00
B. 1,540.00
C. 1,405.00
D. 1,504.00
Solution:
Preference Shares:
Liquidation Value, PhP 1,300.00 x 400 shares PhP 520,000.00
Dividends in Arrears, 6% x PhP 400,000.00 x 3 yrs. 72,000.00
Current Dividends, 6% x PhP 400,000 24,000.00
Preference Shareholder’s Equity PhP 616,000.00
Book Value per Share, PhP 616,000.00 / 400 shares PhP 1,540.00
