Quiz

The shareholders’ equity section of Solar Company revealed the following information on December 31, 2021:
Preference share capital, P100 par 2,250,000

Share premium – preference share 805,000
Ordinary share capital, P10 par 5,250,000
Share premium – ordinary share 2,750,000
Subscribed ordinary share capital 50,000
Retained earnings 1,900,000
Notes payable 4,000,000
Subscription receivable – ordinary 400,000
shares
What is the amount of legal capital?

Solution:
2,250,000 + 5,250,000 + 50,000 = P7,550,000
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The following balances are shown in the shareholder’s equity of Apayao Company on January 1, 2021:
Preference share capital, 100,000 shares, P1,000,000
P10 par
Ordinary share capital, 500,000 shares, 6,000,000
P10 par
Share premium – preference 50,000
Share premium – ordinary 200,000
Retained earnings 100,000
During 2021, 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
Received loan proceeds 2,000,000
Net income for the year, P300,000
Determine the correct balance of shareholders’ equity on December 31, 2021.
Solution:
P1,000,000 + 6,000,000 + 50,000 + 200,000 = P7,250,000

P7,250,000 + 100,000 + 300,000 = P7,650,000
P7,650,000 – 55,000 – 60,000 = P7,535,000
The accounts below appear in the December 1, 2021 trial balance of Creation Company:
Authorized share capital P6,000,000
Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings – unappropriated 600,000
Retained earnings – appropriated 300,000
Treasury shares at cost 100,000
What amount should be reported as shareholders’ equity?

Solution:
Authorized share capital P6,000,000 P4,000,000 + 1,100,000 + 600,000 + 300,000 – 100,000
Unissued share capital (2,000,000) = P5,900,000
Total issued share capital P4,000,000
Share premium 500,000

Subscribed share capital 1,000,000
Subscription receivable (400,000)
Total contributed capital P1,100,000
MGI Company issued 200,000 ordinary shares when it began operation in 2020 and issued an additional 100,000 shares in 2021. In
2022, MGI also issued preference shares convertible into 100,000 ordinary shares. In 2023, MGI converted all the preference shares
and purchased 75,000 ordinary shares to be held in treasury. On December 31, 2023, how many ordinary shares were outstanding?
Solution:
200,000 + 100,000 + 100,000 – 75,000 = 325,000
On December 1 of the current year, Line Company received a donation of 2,000 shares with P50 par value from a shareholder. On that
date, the share market value was P350. The shares were originally issued for P250 per share. What is the decrease in shareholders’
equity as a result of the donation?
Answer:
0, because there is no entry for donation shares.
Coach Company issued 1,000 shares with P5 par value to Howe as compensation for 1,000 hours of legal services performed. Howe
usually bills P160 per hour for legal services. On the date of issuance, the share was trading on a public exchange at P160. By what
amount should the share premium account increase as a result of the transaction?
Solution:
Legal Expenses (1,000 x 160) 160,000
Share Capital (1,000 x 5) 5,000
Share Premium 155,000
160,000 – 5,000 = P155,000 is the amount that share premium should increase as a result of the transaction.
Legal expense 1,000 x 160 = 160,000

Share capital 1,000 x 5 = 5,000
Share premium 160,000 – 5,000 = P155,000
In 2020, Hyatt Company issued for P120 per share, 15,000 convertible preference shares of P100 par value. One preference share
may be converted into four ordinary shares of Hyatt’s P25 par value at the option of the preference shareholder. On December 31,
2020, all of the preference shares were converted into ordinary shares. The market value of the ordinary share at the conversion date
was P50. Calculate the amount that should be credited to ordinary share capital on December 31, 2020.
Solution:
Issue price = 15,000 x 120 = 1,800,000

15,000 x 4 ordinary shares = 60,000
60,000 x 25 par value = 1,500,000
Preference Share Capital (15,000 x 100) 1,500,000

Share Premium – Preference Shares (1,800,000 – 1,500,000) 300,000
Retained Earnings (1,800,000 – 1,500,000) 300,000
Ordinary Share Capital 2,100,000
Irish Company granted 10,000 share options to each of its five directors on January 1, 2020. The options vest on January 1, 2024. The
fair value of each option on January 1, 2020 is P50 and it is anticipated that all of the share options will vest on January 1, 2024.
Calculate the increase in expense and equity for the year ended December 31, 2020.
Solution:
Total Expense = 10,000 x 5 x 100% x 50 = P2,500,000
Equity = P2,500,000 / 1/5 = P500,000
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The shareholders’ equity section of Solar Company revealed the following information on December 31, 2021:

Preference share capital, P100 par 2,250,000

What is the amount of legal capital?

During 2021, the following transactions were completed:

Retirement of 5,000 preference shares at P11 per share

Determine the correct balance of shareholders’ equity on December 31, 2021.

P1,000,000 + 6,000,000 + 50,000 + 200,000 = P7,250,000

What amount should be reported as shareholders’ equity?

Share premium 500,000

Legal expense 1,000 x 160 = 160,000

Issue price = 15,000 x 120 = 1,800,000

Preference Share Capital (15,000 x 100) 1,500,000

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