FL NFL SHE SBP L IT EB

PROBLEM SET NO. 8

Basic Equity Transactions
BAFACR4X
Intermediate Accounting III

Problem 8.1 ISSUANCE

The following are independent transactions relating to share capital:
• Issued 10,000 ordinary shares of P150 par value at P200 per share. The company incurred and paid
documentary stamp tax and other SEC registration fees for new shares P60,000 and public relations
consultants’ fees of P25,000.
• Issued 3,500 ordinary shares of P200 par in exchange for a parcel of land to be used as a plant site. The
ordinary share capital is actively traded on the Philippine Stock Exchange at an average price of P560
per share.
• Subscriptions to 5,000 ordinary shares with P100 par value are received from various subscribers along
with checks amounting to 25% of the subscription price as down payment. The share capital was
subscribed at P120 per share. The balance of the subscription price is to be paid in 3 equal monthly
installments.
• Received a parcel of land from a wealthy shareholder to be used for the construction of a new factory
building. Legal fees of P40,000 were paid. The fair market value of the land was P5,000,000. Its cost to
the shareholder was P 800,000 ten years ago.
Journal entries to record the foregoing transactions.

Problem 8.2 DELINQUENCY

The Blazing Red Corporation is authorized to issue 100,000 P10 par value ordinary shares and 30,000 10%
cumulative and non-participating P100 par preference shares. The corporation engaged in the following share
capital transactions through December 31, 2020:
• 30,000 ordinary shares were issued for P380,000 and 12,000 preference shares for an equipment valued
at P1,500,000.
• Subscriptions for 10,000 ordinary shares have been taken and 40% of the subscription price of P16 per
share has been collected. The shares will be issued upon collection of the subscription price in full.
• Collected the balance on the subscription of 8,000 shares above and share certificates were accordingly
issued. Subscribers on 2,000 shares defaulted and the shares were declared delinquent. Blazing Red
paid P2,000 cost for advertising the delinquent shares.
• Received the following bids on the delinquent shares. The amount due from the highest bidder was
collected and the shares were issued.
Johnny Moon 1,000 shares
Joseph Marckett 800 shares
Andrew Bonnie Fazzio 1,100 shares
Journal entries to record the foregoing transactions.

Problem 8.3 ACCOUNT BALANCES

Bogo Corporation began operations on January 1, 2020. The company was authorized to issue 60,000, P10 per
value, ordinary shares and 120,000 shares of 10%, P100 par value convertible preference shares. It reported the
following transactions involving shareholders' equity during 2020:
Jan 1 Issued 1,500 ordinary shares to the corporation promoters in exchange for equipment valued at
P510,000 and services valued at P210,000. The property costs P270,000 3 years ago and was carried
on the promoter’s books at P150,000.
Jan 31 Issued 30,000 convertible preference shares at P150 per share. Each share can be converted to five
ordinary shares. The corporation paid P225,000 to an agent for selling the shares.

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 8

Basic Equity Transactions
BAFACR4X
Intermediate Accounting III

Feb 15 Sold 9,000 ordinary shares at P390 per share. The corporation paid issue costs of P75,000.
May 20 Received subscriptions for 12,000 ordinary shares at P450 per share.
Aug 30 Issued 2,100 ordinary shares and 4,200 preference shares in exchanged for a building with a fair
value of P1,530,000. The building was originally purchased for P1,140,000 by the investors and has
a carrying amount of P660,000. In addition, 1,800 ordinary shares were sold for P720,000 cash.
Nov 15 Payments in full for half of the subscriptions and partial payments for the rest of the subscriptions
were received. Total cash received was P4,200,000. Shares stock were issued for the fully paid
subscriptions. The balance is collectible next year.
Dec 1 Declared a cash dividend of P10 per share on preference shares, payable on December 31 to
shareholders of record on December 15 and P20 per share cash dividend on ordinary shares,
payable on January 15, 2021 to shareholder of record on December 15.
Dec 31 Paid the preference share dividend.
Profit for the first year of operations was P1,800,000.
Compute the balance of the following accounts as of yearend:
1. Ordinary Share Capital
2. Share Premium – Ordinary
3. Share Premium – Preference
4. Retained Earnings
5. Total Equity

Problem 8.4 INCORPORATION

Ocean Company was organized at the beginning of the current year and was authorized to issue share capital
of 100,000 shares of P50 par value. The following transactions occurred during the year in connection with the
share capital:
1. The incorporators subscribed for 25% of the authorized share capital at par value.
2. The incorporators paid 25% on their subscription.
3. Full payment was received on 15,000 shares originally subscribed.
4. Land with fair value of P600,000 was acquired upon issuance of 10,000 shares. The market value of the
share at this time is P55.
5. Cash subscription to 5,000 shares at P60 per share was received.
6. Issued 2,000 shares to the legal counsel in payment for his P100,000 bill for organization services.
Journalize the foregoing transactions.

Problem 8.5 SUBSCRIPTIONS

Lake Company was organized at the beginning of the current year and was authorized to issue share capital
of 50,000 shares with par value of P100. The following transactions occurred during the year:
1. Received subscriptions at par value from incorporators equal to 40% of the authorized share capital.
2. Received a 25% downpayment on the subscriptions from the incorporators.
3. Received full payment on 10,000 shares originally subscribed.
4. A patent was acquired by issuing 5,000 shares. The patent has no fair value.
5. Received cash subscriptions to 15,000 shares at P120 per share.
Journalize the foregoing transactions.

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 8

Basic Equity Transactions
BAFACR4X
Intermediate Accounting III

Problem 8.6 COMPREHENSIVE

Brook Company was organized at the beginning of current year. The entity provided the following'
transactions affecting shareholders' equity:
1. The entity was authorized to issue share capital as follows:
Preference share capital, P100 par, 30,000 shares
Ordinary share capital, P50 par value, 100,000 shares
2. 40,000 ordinary shares of were issued for cash at P60 per share.
3. 10,000 preference shares were issued at P120 for cash.
4. 10,000 preference shares were subscribed at par value.
5. P400,000 was received on the above subscription to preference shares.
6. 1,000 preference shares were issued in payment of legal fees of P100,000 in connection with organizing
the corporation.
7. 20,000 ordinary shares were issued for property, plant and equipment which had a fair value of
P1,300,000.
8. 15,000 ordinary shares were subscribed for at par.
9. Forty percent of the ordinary share capital subscription was collected.
10. The balance owing on the subscription described in 4 and 5 was collected, and the preference shares
were issued.
Journalize the foregoing transactions.

Problem 8.7 SUBSCRIPTION AND DELINQUENCY

Lagoon Company was organized at the beginning of the current year.
The entity provided the following transactions affecting shareholders' equity:
1. The corporation was authorized to issue 100,000 ordinary shares with par value of P 100.
2. Twenty-five percent of the authorized ordinary capital was subscribed for at par value.
3. Collected twenty-five percent of the subscription.
4. Full collection was received on 10,000 shares originally subscribed.
5. Issued the share certificates on the fully paid 10,000 shares.
6. Land with fair value of P800,000 and a building thereon fairly valued at P2,500,000 were acquired for
30,000 shares.
7. Issued 10,000 shares for an outstanding bank loan of P1,300,000, including accrued interest of P200,000.
On this date, shares are quoted at P120 per share.
Journalize the foregoing transactions.

Problem 8.8 SHARE PREMIUM

Cool Ethan Company is authorized to issue 300,000 of P2 par value ordinary shares. The company has the
following transactions:
1. Issued 60,000 shares at P30 per share; received cash.
2. Issued 750 shares, selling at P35 per share, to lawyers for services in connection with the organization
of the corporation. The value of the legal services was P27,000.
3. Issued 900 shares, valued objectively at P30,000, to the employees instead of paying them cash wages.
4. Issued 37,500 shares in exchange for a building valued at P885,000 and land valued at P240,000. (The
building was originally acquired by the investor for P750,000 and has P300,000 of accumulated
depreciation; the land was originally acquired for P90,000.)

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 8

Basic Equity Transactions
BAFACR4X
Intermediate Accounting III

5. Received cash for 19,500 shares issued at P38 per share.

6. Issued 12,000 shares at P45 per share; received cash.
Compute the amount of Share Premium.

Problem 8.9 COMPREHENSIVE

The Gallery Company is authorized to issue 100,000 shares of P500 par value ordinary share capital. Gallery
has the following transactions during the month:
• Issued 20,000 shares at par, receiving cash.
• Received a bill amounting to P180,000 for services in securing the corporate charter and for other
preliminary legal costs of organizing the corporation. The bill was settled by issuing 300 shares of
ordinary share capital.
• Issued 12,500 ordinary shares in exchange for land and building with fair values of P5,000,000 and
3,000,000, respectively.
• Received cash for 6,500 ordinary shares sold at P550 per share.
• Received subscription for 20,000 shares at P550 per share, receiving 25% down.
• Collected balance of the subscription price on the 12,000 shares subscribed above and share certificates
were accordingly issued.
Journal entries to record the foregoing transactions.

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