1. Total shareholders’ equity represents a.

shares held as an investment by the treasurer of the

corporation.
a. a claim to specific assets contributed by the b. shares held as an investment of the corporation.
owners. c. issued and outstanding shares.
b. the maximum amount that can be borrowed by the d. issued but not outstanding shares.
enterprise.
c. a claim against a portion of the total assets of an 7. At its date of incorporation, Solid, Inc. issued
enterprise. 100,000 shares of its P10 par ordinary shares at P11
d. only the amount of earnings that have been per share. During the current year, Solid acquired
retained in the business. 20,000 ordinary shares at a price of P16 per share and
accounted for them by the cost method. Subsequently,
2. A primary source of shareholders’ equity is these shares were reissued at a price of P12 per share.
a. income retained by the corporation. There have been no other issuances or acquisitions of
b. appropriated retained earnings. its own ordinary shares. What effect does the
c. contributions by shareholders. reissuance of the shares have on the following
d. both income retained by the corporation and accounts?
contributions by holders. Retained Earnings Share Premium
3. Which of the following represents the total number a. Decrease Decrease
of shares that a corporation may issue under the terms b. No effect Decrease
of its charter? c. Decrease No effect
a. authorized shares c. unissued shares d. No effect No effect

b. issued shares d. outstanding shares 8. Contributed capital consists of the following major
components?
4. When treasury shares are purchased for more than
the par value of the shares and the cost method is a. legal and stated capital
used to account for treasury shares, what account(s) b. legal capital and additional paid-in capital
should be debited? c. retained earnings and legal capital
d. additional paid-in capital and retained earnings.
a. Treasury shares for the par value and share prem.
for the excess of the purchase price over the par 10. Treasury share was acquired for cash at a price in
value. excess of its par value. The treasury share was
b. share premium for the purchase price. subsequently sold for cash at a price in excess of its
c. Treasury shares for the purchase price. acquisition price. Assuming that the cost method of
d. Treasury sh. for the par value and retained earnings accounting for treasury share transactions is used,
for the excess of the purchase price over the par what is the effect on total shareholders’ equity?
value. Purchase Sale
5. In January 2023, Foler Corporation, a newly a. Increase Decrease
formed company, issued 10,000 shares of its P10 par b. Decrease No effect
ordinary shares for P15 per share. On July 1, 2023, c. Decrease Increase
Foler Corporation reacquired 1,000 shares of its d. No effect No effect
outstanding shares for P12 per share. The acquisition
of these treasury shares 11. At the date of the financial statements, ordinary
shares issued would exceed ordinary shares
a. decreased total shareholders’ equity. outstanding as a result of the
b. did not change total shareholders’ equity.
c. increased total shareholders’ equity. a. declaration of a share split
d. decreased the number of shares issued b. declaration of share dividend
c. purchase of treasury share
6. Treasury shares are d. payment in full of subscribed share
Problem 1: House Corporation was organized on January 2, 2023, with authorized capital of 200,000 shares of P10
par value ordinary share. During 2023, House Corporation had the following transactions:

Jan. 2 Issued 80,000 shares for P12 per share

Apr 23 Issued 4,000 shares for legal services. The lawyers invoiced the services at P56,000 which is deemed the
services’ fair value at that time
June 3 Issued 10,000 share to employees for services rendered for the month of May. FMV of shares on this date
was at P14 per share.

1. How much is the total share premium as at December 31, 2023 in pesos?
2. How many outstanding shares as at December 31, 2023?

Problem 2: You were hired by America Corp as an accountant to present the shareholders’ equity of America Corp.
for the year ended December 31, 2023.

America Corp. was incorporated in early 2022 when it was authorized by SEC to issue 1,000,000 ordinary shares
(P20 par) and 500,000 preference shares (P100 par). The following schedule reflects the company’s capital balances
as of December 31, 2022:

A. Issued ordinary shares, 120,000 shares issued at inception of operations in lieu of a Land
and Building with a total fair market value of P3M (40% attributed to the Land.)

B. Issued preference shares, 40,000 shares issued in June 30, 2022 at P120 per share. One preference share can
be convertible to four ordinary shares
C. The operations resulted to a net income of P1,158

The following transactions occurred in 2023:

a. On January 5, the company reacquired 20,000 ordinary shares at P600,000 and held them as treasury share.
b. On March 1, the company issued 45,000 additional ordinary shares with P1M, 12% face value bonds for a lump
sum consideration amounting to P2,250,000. The bonds which pay interest every December 31 and shall mature on
December 31, 2028, were currently quoted in the market at 110 (excluding accrued interest) while each ordinary
share is selling currently in the market at P30.
c. On April 5, the company reissued 6,000 of the treasury shares reacquired on January 5 at P35 per share.
d. On July 20, the company reissued 9,000 of the treasury shares reacquired on January 5 in lieu of professional
services received from lawyers. The fair value of the services received was at P250,000 which is believed to be
reflective of the prevailing fair value of the shares on that date.
e. On August 1, the company retired and reverted to unissued basis 3,000 of the treasury shares reacquired on
January 5.
f. On October 31, 8,000 of the preference shares were converted to ordinary shares.
g. The company registered an adjusted net income in 2023 at P2,798,000.

Based on the information above, determine the balances of the following as at December 31, 2023:

3. Ordinary Shares 7. Share premium – Treasury shares

4. Preference Shares 8. Additional Paid-in Capital

5. Share premium – Ordinary shares 9. Contributed Capital

6. Share premium – Preference shares 10. Total Shareholders’ Equity

11. Cameron Company was organized on January 1, Ordinary shares, P10 par, 200,000 shares issued
2023, with an authorization of 500,000 shares of Ordinary shares, P10 par, 30,000 shares subscribed
ordinary share with a par value of P6 per share. 10% Preference shares, P5 par value, 120,00 shares
During 2023, the corporation had the following issued
capital transactions: Treasury shares (50,000 ordinary shares) - 600,000
Retained earnings - 2,500,000
January 5 Issued 300,000 shares at P10 per share Dividends were last declared and paid on preference
April 6 Issued 100,000 shares at P12 per share shares in 2020. How much in dividends should
June 8 Purchased 100,000 shares at P11 per share preference and ordinary shareholders, respectively,
July 28 Sold 40,000 shares held in the treasury at P15 will receive assuming that the company declared
per share P620,000 cash dividends under the following
August 31 Sold another 40,000 shares held in independent scenarios:
treasury at P9 per share. Gray used the cost method to
record the purchase and reissuance of the treasury 15. Preference shares are non-cumulative and non-
shares. What is the total amount of share premium as participating.
of December 31, 2023?
a. 60,000 & 560,000 b. 180,000 & 440,000
a. Nil b. 1,320,000. c. 120,000 & 500,000 d. 240,000 & 380,000
c. 1,800,000. d. 1,880,000.
16. Preference shares are cumulative but non-
On October 31, Ethiopia Inc. declared a building as participating.
property dividend distributable to stockholders on
January 31 of the following year. The building had a a. 60,000 & 560,000 b. 180,000 & 440,000
carrying value of P1.5M on October 31. The building c. 120,000 & 500,000 d. 240,000 & 380,000
had a fair market value of P1.4M on the same date. 17. Preference shares are non-cumulative but
On Dec. 31 the value of the building further participating.
deteriorated and latest estimates placed the fair value
of the building at P1.2M. Cost to dispose the property a. 60,000 & 560,000 b. 180,000 & 440,000
was consistently estimated at 10% of the estimated c. 155,000 & 465,000 d. 375,000 & 245,000
selling price/fair value.
18. Preference shares are cumulative and
The building was transferred to shareholders on Jan. participating.
31 when the fair value of the building was at P1.3M.
a. 60,000 & 560,000 b. 180,000 & 440,000
12. The entry to record the declaration of the property c. 155,000 & 465,000 d. 375,000 & 245,000
dividends would include a debit to retained earnings
19. Bastion Company has sustained heavy losses over
of:
a period time and conditions warrant that Bastion
a. Nil b. 1,320,000. undergo a quasi-reorganization at December 31,
c. 1,800,000. d. 1,880,000. 2023. Selected statement of financial position items
prior to the quasi-reorganization are as follows:
13. How much property dividends payable should be
reported in the SFP as of December 31? Shareholders’ equity on December 31, 2023 was as
follows:
a. Nil b. 1,320,000. Ordinary share, par value P10 per share authorized,
c. 1,800,000. d. 1,880,000. issued and outstanding 700,000 shares - P7,000,000
14. What is the gain or loss in the profit or losses as a Share premium - 1,600,000
result of the distribution of the dividends on January Retained earnings (deficit) - (1,900,000)
31? Total Shareholder’s equity - P6,700,000
Immediately after the quasi-reorganization has been
a. Nil b. 1,320,000. accomplished, the total shareholders’ equity should
c. 1,800,000. d. 1,880,000. be:

Sebastian Inc. had the following equity accounts as of a. 6,700,000. b. 5,400,000.

December 31, 2023: c. 7,000,000. d. 7,600,000.
You were assigned to audit the shareholders’ equity transactions and account balances of Mexico Corp. as of and for
the period ended December 31, 2023. The company reported the following amounts in the shareholders equity
section of its December 31, 2022, statement of financial position:

Preference shares, P50 par (100,000 shares authorized, 6,000 shares issued) P300,000
Ordinary shares, P10 par (50,000 shares authorized, 25,000 shares issued) 250,000
Share premium – Preference shares 120,000
Share premium – Preference shares 200,000
Share premium – Treasury shares 15,000
Accumulated profits 1,200,000
Treasury shares (ordinary shares), 5,000 shares 120,000
Your test of details of transactions for the current year (2023) revealed the following information:

a. On March 30, the company declared and issued a 20% stock dividend on outstanding ordinary shares. The fair
market value of ordinary shares on this date was at P12.
b. On April 15, the company received subscription for 2,000 shares of preference shares at P80 per share.
c. On June 31, P5 per share dividend on ordinary and P20 per share dividend on preference shares were declared.
These dividends shall be paid on July 15.
d. On July 30, the company declared and issued a 1:2 ordinary shares split-up.
e. On Aug. 1, the company reissued 6,000 treasury shares for an equipment with a fair value at P55,000.
f. On September 30, the company declared and issued a 10% stock dividend on the outstanding ordinary shares
when the stock is selling for P7.50 per share.
g. On October 1, the company collected in full the subscriptions receivable on preference shares.
h. December 1, the company declared P2.50 dividend on ordinary shares and the P20 per share dividend on
preference shares. These dividends are payable at the beginning of 2024.
i. The company registered a net income for 2023 at P776,000.

Required:

20. What is the amount debited to retained earnings as a result of the 20% stock dividends in item a?
21. What is the amount debited to retained earnings as a result of the cash dividends in item c?
22. What is the effect to total stockholders’ equity as a result of the share split in item d?
23. What is the amount debited to retained earnings as a result of the 10% stock dividends in item f?
24. What is the amount debited to retained earnings as a result of the cash dividends in item h?
25. What is the balance of the retained earnings-unappropriated as of December 31, 2023?

A B C D
1,240,460 11,756,658 640,000 3,880,000
94,000 3,200,000 3,940,000 308,500
40,000 40,500 280,000 2,796,198
1,305,000 216,000 1,227,500 0
8,960,460 1,257,000 1,880,460 105,000