Shareholders’ Equity

I.
PROBLEM 1: Prepare journal entries to record each of the following
transactions under the memorandum entry method and present the
shareholder’s equity section.
February 1 – Straw Hat Pirates Corporation was granted by the SEC to issue
1,000,000 shares of stocks at a par value of P10 after it submitted its
Articles of Incorporation providing among others compliance with the
minimum pre-incorporation stock requirement. The articles mentioned five
incorporators (Monkey D. Luffy, Ronoroa Zoro, God D. Usopp, Vinsmoke Sanji,
Con D. Oriano) who subscribed at par. Two were immediately given stock
certificates while the other three gave a 50% down payment.
February 14 – Straw Hat Corporation sold for cash 160,000 ordinary shares
at P12 per share to Jinbei, a shareholder.
March 14 – Alabasta Kingdom received 320,000 ordinary shares from Straw Hat
Pirates Corporation in exchange for land with a cost of P1,750,000 but with
an appraised value which was twice the cost.
April 28 – Nami, a lawyer , received 4,500 common shares from Straw Hat
Corporation for legal services rendered amounting to P50,000.

PROBLEM 2: The following data pertain to CHACHA corporation:

Ordinary share capital, P100 par value,
10,000 shares issued and outstanding P 1,000,000
Share Premium 50,000
Retained Earnings 1,200,000

The following transactions took place:

June 10 Reacquired 500 common shares for treasury at P80 per share
June 12 50 treasury shares were sold at P75 per share
June 15 100 treasury shares were sold for P10,000
June 20 150 treasury shares were sold at P70 per share
June 25 100 treasury shares were retired.
June 30 An appropriation for treasury stock was recorded

Required: Journal Entries

PROBLEM 3: Don Quixote Corporation was authorized to issue 500,000 shares
of stock with a par value of P50. The following initial transactions took
place during March of the current year:
March 1 - Pre-incorporation subscription at the par value by the following
incorporators:

Shares Total Payment

Doflamingo 20,000 500,000
Rosinante 20,000 200,000
Diamante 25,000 275,000
Pica 25,000 300,000
Trebol 20,000 300,000
Vergo 25,000 250,000

March 5 - Issued 30,000 shares to Senor Pink for land costing P1,500,000
but with a market value of P1,750,000.
March 10 – Sold for cash, 10,000 shares at P55 per share to Gladius.
March 15 – Doflamingo and Pica paid 50% of their subscription balance
March 25 – Pica paid for his subscription balance and was issued a stock
certificate.
March 28 – Lao G subscribed to 20,000 shares at 120% of the par value and
paid 25%.
March 29 – Lao G paid his subscription balance in the form of merchandise
and was issued a stock certificate.
March 30 – Net income for the year was 3,550,000. Dividends declared of
255,500.
Required: Journal entries and shareholders equity section.
II.
The shareholders’ equity section of MAGIGING CPA AKO Company revealed the
following information on December 31, 2019:

Share Premium - Preference Shares 150,000

Premium on Bonds Payable 100,000
Share Premium - Bond Conversion Option 40,000
Authorized Ordinary Shares, P10 stated value 1,200,000
Subscribed Preference Shares 60,000
Authorized Preference Shares, P50 par value 800,000
Gain on Sale of Treasury Shares 60,000
Unrealized gain - FVOCI 10,000
Ordinary Share Warrants Outstanding 35,000
Unissued Ordinary Shares 650,000
Unissued Preference Shares 150,000
Cash Dividends Payable - Preference 80,000
Donated Capital 40,000
Reserve for Bond Sinking Fund 320,000
Reserve for depreciation 100,000
Revaluation Surplus 130,000
Subscription Receivable - Preference 15,000
Subscription Receivable - Ordinary 20,000
Ordinary Share Options Outstanding 25,000
Accumulated profits - unappropriated 500,000
Bonds Payable 1,000,000
Subscribed Ordinary Shares 200,000
Long term investments in equity securities 400,000
Share Premium - Ordinary Share 300,000

Based on the above data, compute for the following:

1. Ordinary Shares Issued
a. P550,000 b. P650,000 c. P1,200,000 d. P1,400,000
2. Preference Shares Issued
a. P150,000 b. P650,000 c. P800,000 d. P860,000
3. Share Premium
a. P550,000 b. P585,000 c. P625,000 d. P650,000
4. Contributed Capital
a. P1,135,000 b. P1,200,000 c. P1,460,000 d. P2,075,000
5. Total legal capital
a. P1,425,000 b. P1,460,000 c. P1,760,000 d. P1,910,000
6. Total Shareholders’ Equity
a. P2,385,000 b. P2,420,000 c. P2,870,000 d. P3,035,000

7. PRICKLY PEAR Co. started its operations in the current year with the
following organization costs – Legal fees in connection with the
incorporation, P20,000, Incorporation Fees, P35,000, CPA Fees to sell share
capital, P40,000, Underwriting fees, P55,000, Filing fees with SEC, P5,750,
Cost of printing certificates, P4,555. How much should be expensed and how
much should be debited to share premium/retained earnings according to PAS
32 par 5?
a. P95,000; P85,305 c. P60,750; P99,555
b. P55,000; P105,305 d. P79,555; P80,750
8. On its first year of operations, SUMAKABILANG BAHAY Co. had the
following issuances of a P100 par value share of stock:
a. Issuance of 3,000 shares at par for cash.
b. Issuance of 5,000 shares at P110 per share for cash. Stock issue costs
that were paid by the corporation amounted to P30,000.
c. Issuance of 4,000 shares at P90 per share for cash.
How much is the total net effect in share premium in the second issuance?
a. P 0 b. P20,000 c. P60,000 d. P40,000
9. COKE Co. issued 2,500 shares of stock for machinery: The machinery has a
fair value of P280,000, selling price at P105 per share, and P100 par
value. How much should the machinery be debited?
10. The Company issued 2,000, P100 par ordinary shares for an outstanding
bank loan of P250,000. On this date, shares are quoted at P140 per share.
Prepare the journal entry to record the transaction.
MINISO Co. issued 20,000 shares of its P10 par value ordinary share and
40,000 shares of its P10 par preference share for a total amount of
P2,750,000. At this date, Hallway’s ordinary share was selling P19 per
share and the preference share was selling for P29 per share.
11. How much is the total proceeds for the ordinary share upon issuance?
a. P380,000 b. P1,160,000 c. P678,571 d. P2,071,429
12. How much is the total proceeds for the preference share upon issuance?
a. P380,000 b. P1,160,000 c. P678,571 d. P2,071,429
13. How much should be credited to share premium to a) Ordinary Share and
b) Preference Share
a. P200,000; P950,000 c. P380,000; P1,160,000
b. P478,571; P1,671,429 d. P250,000; P450,000
14. FLAWLESS Co. issued for P1,000,000 cash, 1,000 shares of P200 par value
Preference Share and 2,000 shares of P100 ordinary share. The preference
share has a fair value of P240 on the date of sale. No fair value available
for the ordinary share. How much should be allocated to the ordinary share
upon issuance?
The shareholders’ equity of RECCA Co. appears as follows:

Ordinary Share, 50,000 shares, P100 par 5,000,000

Share Premium 200,000
Retained Earnings 2,000,000

Subsequently, the following transactions, among others occurred:

a. Treasury Shares 5,000 were acquired at P160 per share
b. Reissued 2,000 treasury shares at P180 per share
c. Reissued 1,000 treasury shares at P150 per share
d. Retired the remaining treasury shares
e. Stockholder donated 5,000 shares when the market price is P150 per
share. Subsequently, the company sold 2,000 shares at P180 per share.
15. How much is the share premium on the sale of treasury shares in
transaction b)?
a. P20,000 b. P30,000 c. P40,000 d. P50,000
16. The share premium upon sale in transaction c) should be?
a. debit-P10,000 b. credit-P10,000 c. debit-P20,000 d. credit-P20,000
17. Retained Earnings would be debited by how much in transaction d)?
a. P112,000 b. P82,000 c. P90,000 d. P38,000
18. The 5,000 shares in transaction e) should be classified as part of:
a. Ordinary Share c. Retained Earnings
b. Treasury Shares d. Share Premium
19. Summary of Effect of Share Splits

Split Up Split Down

# of shares Decrease
Par value per share Decrease
Total SHE Same

20. VIVIY’s Co. reported the following shareholders’ equity on January 1,

2019:
 Preference share capital, 100,000 shares, P10 par 1,000,000
Ordinary share capital, 500,000 shares, P10 par 5,000,000
Share Premium - Preference 50,000
Share Premium - Ordinary 200,000
Retained Earnings 100,000

During the current year, the following transactions were completed:

Retirement of 5,000 preference shares at P11 per share.
Purchase of 5,000 ordinary shares of treasury at P12 per share.
Share split, ordinary share 2 for 1.
Reissue of 2,000 shares of treasury at P8 per share.
Net income for the year, P300,000.

What is the total shareholder’s equity on December 31, 2019?

a.P6,251,000 b.P6,350,000 c.P6,551,000 d.P6,556,000

21. The shareholders’ Equity section of LAURI Co. on December 31 is as

follows:

Preference share P100 par, 40,000 shares issued and

outstanding 4,000,000
Share Premium - Preference Shares 400,000
Ordinary Share P50 par, 100,000 shares issued and
outstanding 5,000,000
Share Premium - Ordinary Shares 1,000,000
Accumulated Profits 20,000,000

Provide the journal entry to be made on the corporation books assuming

4,000 shares of preferred are retired at:
a. P130 b. P90

22. EMMAN Co. issued 4,000 shares of P40 par preference shares with
detachable warrants. The package sells for P160. The warrants enable the
holder to purchase 2,000 ordinary shares of P25 par for P50 per share.
Requirements: Prepare the journal entry under the following cases
a. If immediately after the issuance of the share, the warrants are
selling at P10 per share and the market value of the preference share
without the warrants is P90. Subsequently, 70% of the warrants are
exercised.
b. Assume instead that only the market value of the preference without
the warrants amounting to P90 is available
23. On December 1 of the current year, SHIKI Corp. declared P2 per share
dividends on the outstanding ordinary shares to the shareholders of record
on December 15 payable on December 31. SHIKI has 10,000 issued ordinary
shares with par value of P100. These shares were issued on January 1 of the
current year. On February 1 of the current year, the company acquired 1,000
shares at cost of P110 per share which were held in treasury. How much
should be debited to the retained earnings as a result of the dividend
declaration?
a. P20,000 b. P16,000 c. P14,000 d. P18,000
Note: Outstanding Shares = Issued – Treasury Shares + Subscribed

On November 1, 2019, BIG MOM Co. declared a property dividend of equipment

payable on March 1, 2020. The carrying amount of the equipment is
P3,000,000 and the fair value is P2,500,000 on November 1, 2019. However,
the fair value less cost to sell the equipment is P2,200,000 on December
31, 2019 and P2,000,000 on March 1, 2020.
24. What is the dividend payable on December 31, 2019?
a. P2,500,000 b. P2,200,000 c. P3,000,000 d. Nil
25. What is the measurement of the equipment on December 31, 2019?
a. P2,500,000 b. P2,200,000 c. P3,000,000 d. P2,000,000
26. What amount of loss on distribution of property dividend is recognized
on March 1, 2020?
a. P300,000 b. P200,000 c. P500,000 d. Nil

27. KAIDO Co. had sufficient retained earnings in 2019 as a basis for
dividends but was temporarily short of cash. The entity declared a dividend
of P1,000,000 on April 1, 2016, and issued promissory notes to the
shareholders in lieu of cash. The notes, which were dated April 1, 2019,
had a maturity date of March 1, 2020 and a 10% interest rate. How should
the scrip dividend and related interest be accounted for?
a. Debit retained earnings P1,100,000 on April 1, 2019.
b. Debit retained earnings P1,100,000 on March 31, 2020.
c. Debit retained earnings P1,000,000 on April 1, 2019 and debit interest
expense P100,000 on March 31, 2020.
d. Debit retained earnings P1,000,000 on April 1, 2019 and debit interest
expense P75,000 on December 31, 2019.

28. Accounting for share dividend:

 Small Dividend Large Dividend
a. Percentage declared Less than 20% 20% or more
b. Amount to be charged FV or par value, Par value
to retained earnings higher
c. Amount credited to Excess of FV over None
share premium par value

The shareholders’ equity section of SHANKS Co. om December 31 is as

follows:

Ordinary Share P40 par, 210,000 shares issued 8,400,000

Share Premium - Ordinary Share 4,200,000
Treasury Shares (10,000 shares) 600,000
Retained Earnings 10,000,000

The company declared 10% share dividends on the ordinary share when the
market value per share is P90. How much is the share premium on the
declaration of the share dividend?
a. P400,000 b. P800,000 c. P1,000,000 d. Nil
29. Assuming, SHANKS Co. declared 20% share dividends on the ordinary share
with a market value of P90. How much is the share premium on the
declaration of the share dividend?
a. P400,000 b. P800,000 c. P1,000,000 d. Nil

On January 1, 2019, HARD Co. had ordinary and preference shares

outstanding., The incorporators or original shareholders own ten ordinary
shares but no preference shares. On December 31, 2019, the entity declared
dividends on the ordinary shares. The entity decided to give the ordinary
shareholders a choice between receiving a cash dividend of P500,000 per
share or a property dividend in the form of a noncash asset. The noncash
asset is a standard model from the entity’s car fleet. Each car has a fair
value of P600,000 and carrying amount of P450,000. The fair value of the
car is P700,000 on December 31, 2020. The entity estimated that 80% of the
ordinary shareholders will take the option of the cash dividend and 20%
will elect for the noncash asset.
30. What is the dividend payable that should be recognized on December 31,
2019?
a.P5,500,000 b. P5,200,000 c. P4,000,000 d. P6,000,000
31. What is the gain on distribution of property dividend in 2020 if the
shareholders elected to receive the noncash asset?
a. P2,000,000 b. P2,500,000 c. P1,500,000 d. P1,800,000
32. What is included in the journal entry on December 31, 2020 if the
shareholders elected to receive the cash?
a. Debit dividend payable P5,200,000.
b. Credit Cash P5,000,000.
c. Credit retained earnings P200,000.
d. All of these are included in the journal entry.
33. HOLDEM Co. provided the following information for the year ended
December 31, 2019:

Retained Earnings - unappropriated, January 1 200,000

Overdepreciation of 2018 due to prior period error 100,000
Net income for 2019 1,300,000
Retained Earnings appropriated for treasury shares
(original balance is P500,000. It is reduced by
P200,000 by reason of reissuance of the TS) 300,000
Retained earnings appropriated for contingencies
(beginning balance, P700,000. It is increased by
current appropriation of P100,000) 800,000
Cash dividends paid to shareholders 500,000
Change in accounting policy from FIFO to weighted
average method - credit adjustment 150,000

What amount should be reported as unappropriated retained earnings on

December 31, 2019?
a. P1,150,000 b. P1,350,000 c. P1,950,000 d. P1,750,000

34. BALL-DE-BOO Co. provided the following shareholders’ equity on December

31,2019:

Share Capital, P30 par, 100,000 shares authorized

and outstanding 3,000,000
Share Premium 1,500,000
Retained Earnings (deficit) (2,100,000)

On December 31, 2019, the entity put into effect a quasi-reorganization by

reducing the par value of the share to P5 and eliminating the deficit
against share premium. Immediately after the quasi-reorganization, what
amount should be reported as share premium?
a. P 1,500,000 b. P 1,900,000 c. P 4,000,000 d. P 600,000

35. YOKOZUNA Co. had sustained heavy losses over a period of time and
conditions warrant that the entity should undergo a quasi-reorganization on
December 31, 2019.
  Inventory with cost of P6,500,000 was recorded on December 31, 2019 at
the market value of P6,000,000.
 PPE were recorded on December 31, 2019 at P12,000,000, net of
accumulated depreciation. The sound value was P8,000,000.
 On December 31, 2019, the share capital is P7,000,000 consisting of
700,000 shares with par value of P10, the share premium is P1,600,000,
and the deficit in retained earnings is P900,000.
 The par value of the share is to be reduced from P10 to P5.
Immediately after the quasi-reorganization, what is the total shareholders’
equity?
a. P3,300,000 b. P3,500,000 c. P3,700,000 d. P4,200,000
36. Data relating to the shareholders’ equity of CHIKI Co. during December 31 are
as follows:

Ordinary Share Capital, P50 par, 200,000 shares issued 10,000,000

Subscribed ordinary share capital 1,000,000
5% Cumulative preference share, P100 par, 50,000 shares
issued and outstanding 5,000,000
Share Premium 2,500,000
Subscription Receivable (1,200,000)
Retained Earnings 4,900,000
Revaluation Surplus 620,000
Unrealized loss on FVOCI (400,000)
Treasury Shares, at cost, 20,000 shares (1,200,000)
Total SHE 21,220,000

The dividends were 2 years in arrears included the current year. If CHIKI is to
be liquidated, the preference shareholders would receive par value plus a premium
of P10 per share. How much is the book value per ordinary share?
a. P84.55 b. P117.89 c. P90.11 d. P76.10

Data relating to the shareholders’ equity of ODA Co. during December 31 are as
follows:

8% Preference Share, P400 par, 12,500 shares 5,000,000

Ordinary Share, P40 par, 75,000 shares issued 3,000,000
Retained Earnings 7,000,000
Total SHE 15,000,000
Dividends are in arrears for 4 years.
Assume that the preference shares are cumulative.
37. How much is the book value per preference share?
a. P528 b. P548 c. P432 d. P900
38. How much is the book value per ordinary share?
a. P112 b. P128 c. P50 d. P108.67
Assume that he preference shares are cumulative with liquidation value of P420
per share.
39. How much is the book value per preference share?
a. P528 b. P548 c. P432 d. P900
40. How much is the book value per ordinary share?
a. P112 b. P128 c. P50 d. P108.67
Assume that the preference shares are noncumulative.
41. How much is the book value per preference share?
a. P528 b. P548 c. P432 d. P900
42. How much is the book value per ordinary share?
a. P112 b. P128 c. P50 d. P108.67
Assume that the preference shares are cumulative and participating.
43. How much is the book value per preference share?
a. P528 b. P548 c. P432 d. P786
44. How much is the book value per ordinary share?
a. P112 b. P128 c. P69 d. P108.67

45. The shareholders’ equity of STRAWHAT Co. shows the following balances on
December 31, 2019:

10% Preference share,cumulative and participating,P100

par with a liquidation value of P110, 20,000 shares 2,000,000
Ordinary share, P100 par, 30,000 shares 3,000,000
Subscribed ordinary shares 1,000,000
Subscription Receivable 600,000
Treasury Share, 5,000 ordinary shares, at cost 400,000
Share Premium 660,000
Accumulated Profits and Losses 1,580,000
What is the book value per share of ordinary shares, assuming preference
dividends are in arrears since 2017?
a. P144 b. P149.70 c. P155.42 d. P161.14

46. On January 1 of the current year, AICA Co. had 200,000 issued and outstanding
ordinary shares. The entity had the following transactions during the year:
March 1: Issued 15,000 ordinary shares
April 1: Declared 20% bonus issue
July 1: Reacquired 10,000 ordinary shares to be held in treasury
October 1: Reissued 4,000 treasury shares
The weighted average ordinary shares in computing for the earnings per share
would be:
a. 251,000 b. 250,000 c. 230,000 d. 188,000

47. The following share capital transactions pertain to KUMA Co. for the year
2019:
January 1 Shares outstanding 144,000
February 1 Shares issued for cash 156,000
May 1 Shares reacquired 75,000
August 1 Receipt of 25% share dividends
September 1 Resold part of treasury share 10,000
November 1 Issued 2-for-1 share split
What is the weighted average ordinary share outstanding?
a. 842,500 b. 724,167 c. 852,500 d. 849,167

48. On December 31, 2019 and 2018, GOGO Co. had 100,000 ordinary shares and
10,000 cumulative preference shares of 5%, P100 par value. No dividends were
declared on either the preference or ordinary share in 2019 and 2018. Net income
for the current year was P900,000. What amount should be reported as earnings per
share?
a. P8.50 b. P9.50 c. P9.00 d. P5.00

On December 31, HANNAH Co. had 40,000 weighted average outstanding ordinary
shares. During the year, HANNAH Co. reported a net income of P3,000,000.
Determine the basic earnings per share under the following assumptions
49. There are no preference shares issued.
a. P76.50 b. P75.00 c. P73.75 d. P73.50
50. There are 10,000 shares of 10%, P50 par, cumulative, preference shares
a. P76.50 b. P75.00 c. P73.75 d. P73.50
51. There are 10,000 shares of 10% P50 par, cumulative, preference shares. Also,
HANNAH declared dividends on the preference shares amounting to P60,000 during
the year.
a. P76.50 b. P75.00 c. P73.75 d. P73.50

52. On December 31, XD Co. had 300,000 weighted average outstanding ordinary
shares. During the year 2016. XD Co. reported a net loss of P2,000,000. Determine
the basic loss per share.
a. (P65.00) b. (P66.67) c. (P68.33) d. (P68.67)
53. On January 1, 2019, ROCKS Co. had 2,000,000 ordinary shares outstanding. On
July 1, 2019, the entity issued 500,000 preference shares which were convertible
into 300,000 ordinary shares. During the year, the entity declared and paid
P1,000,000 cash dividend on the ordinary shares and P800,000 cash dividend for
the preference share. The net income for the current year was P6,500,000. What
amount should be reported as 1) basic earnings per share, 2) diluted earnings per
share?
a. P2.85; P3.02 b. P3.25; P2.85 c. P2.35; P2.83 d. P2.25; P1.75

54. BLACKBEARD Co. issued at par P3,000,000 5-year, 10% bonds convertible in
total into 200,000 shares of BLACKBEARD’s ordinary shares. Without the conversion
option, the bonds were selling at the prevailing rate of interest of 12%.
Interest is payable every December 31. No bonds were converted during the year.
Throughout the year, BLACKBEARD had 500,000 shares of ordinary shares
outstanding. BLACKBEARD’s current year net income was P5,500,000. The tax rate is
32%. No other potentially dilutive securities other than the convertible bonds.
How much is the diluted earnings per share? (PV factors should be in three
decimal places)
a. P7.86 b. P8.18 c. P8.28 d. 11.00

55. GOL D. ROGER Co. has the following data for the year:

Net income from continuing operations 2,360,000

Net income from discontinued operations 500,000
Other comprehensive income 600,000
Total Comprehensive income 3,460,000

Furthermore, below is the list of securities issued by GOL D. ROGER

Type of Security Par or Face Value Description Conversion terms
Ordinary Shares P100 200,000 shares None
6% Convertible preference 5 shares of ordinary
shares P100 60,000 shares for each preference share
12% convertible bonds P1,000 P2,000,0000 100 shares of ordinary for
each P1,000 bond

Additional information:

 All securities had been issued in the previous period.

 The bonds payable issued at face amount.
 GOL D. ROGER had 10,000 share options outstanding on January 1 current year.
The option has an exercise price and average market price of P50 and P100,
respectively.
 The tax rate for the year is 30%.
I. How much is the basic EPS from continuing operations?
a. P10.00 b. P9.76 C. P4.67 d. P3.58
II. How much is the diluted EPS from continuing operations?
a. P10.00 b. P9.52 C. P5.29 d. P3.56
III. How much is the basic EPS from discontinued operations?
a. P3.73 b. P2.50 c. P0.71 d. Nil

56. WHITEBEARD Co. reported the following capital structure on December 31, 2019:

Ordinary Share Capital 110,000 shares

Convertible noncumulative preference share capital 20,000 shares
10% convertible bonds payable 2,000,000
Share options to purchase 20,000 shares at P15 were outstanding. Market price of
WHITEBEARD share was P22 at December 31, 2019 and averaged P20 during the year.
No value was assigned to the share options. The entity paid the annual dividend
of P5 on the preference share. The preference shares are convertible into 40,000
ordinary shares. The 10% bonds are convertible into 30,000 ordinary shares. The
net income for the year is P650,000. The income tax rate is 30%.
I. What amount should be reported as basic earnings per share?
a. P5.00 b. P5.91 c. P5.65 d. P4.58
II. What is the total number of potentially dilutive ordinary shares?
a. 90,000 b. 75,000 c. 70,000 d. 85,000
III. What amount should be reported as diluted earnings per share?
a. P5.00 b. P4.78 c. P4.19 d. P4.27