Chapter 6 – Corporation: Formation and Share Capital Transactions

Exercises

True or False

1. F 6. T 11. F 16. T 21. F 26. T 31. F

2. T 7. F 12. T 17. T 22. T 27. F 32. T
3. F 8. T 13. T 18. F 23. T 28. T 33. F
4. F 9. T 14. T 19. T 24. F 29. T 34. T
5. F 10. F 15. F 20. T 25. T 30. F 35. T

Matching Type

1. A 6. D 11. Q
2. J 7. G 12. T
3. R 8. K 13. H
4. N 9. B 14. M
5. L 10. C 15. O

Multiple Choice - Theory

1. B 6. D 11. C 16. C
2. D 7. D 12. B 17. A
3. A 8. B 13. D 18. C
4. B 9. C 14. B 19. B
5. D 10. C 15. D 20. D

Problems

Problem 1

(1) Memorandum Entry Method

Memo: Received authorization to issue 300,000 shares of P20 par

value share capital.

a. Cash (25% x 1,500,000) 375,000

Subscription Receivable 1,125,000
Subscribed Share Capital (25% X 300,000 = 75,000; 75,000 x 20) 1,500,000

b. Cash (10,000 x 22) 220,000

Share Capital (10,000 x 20) 200,000
Share Premium 20,000

c. Cash (30% x 120,000) 36,000

Subscription Receivable 84,000
Subscribed Share Capital (5,000 x 20) 100,000
Share Premium (5,000 x 4) 20,000

d. Cash 1,125,000
Subscribed Share Capital 1,500,000
Subscription Receivable 1,125,000
Share Capital 1,500,000

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(2) Journal Entry Method

Unissued Share Capital (300,000 x 20) 6,000,000

Authorized Share Capital 6,000,000

a. Cash 375,000
Subscription Receivable 1,125,000
Subscribed Share Capital 1,500,000

b. Cash 220,000
Unissued Share Capital 200,000
Share Premium 20,000

c. Cash 36,000
Subscription Receivable 84,000
Subscribed Share Capital 100,000
Share Premium 20,000

d. Cash 1,125,000
Subscribed Share Capital 1,500,000
Subscription Receivable 1,125,000
Unissued Share Capital 1,500,000

Problem 2

(1) Memorandum Entry Method

Shareholders’ Equity

Share Capital, P20 par, 300,000 shares authorized;

85,000 shares issued P1,700,000
Subscribed Share Capital, 5,000 shares 100,000
Share Premium 40,000
Total Shareholders’ Equity P1,840,000

(2) Journal Entry Method

Shareholders’ Equity

Authorized Share Capital, P20 par, 300,000 shares P6,000,000

Less Unissued Share Capital 215,000 shares 4,300,000
Issued Share Capital 85,000 shares P1,700,000
Subscribed Share Capital, 5,000 shares 100,000
Share Premium 40,000
Total Shareholders’ Equity P1,840,000

Problem 3

(a) Memo: Received authorization to issue 60,000 shares of P100

par value ordinary share capital

Nov. 4 Cash (9,000 x 100) 900,000

Ordinary Share Capital 900,000

7 Subscription Receivable (5,500 x 120) 660,000

Subscribed Ordinary Share Capital (5,500 x 100) 550,000
Share Premium 110,000

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Nov. 11 Cash (25% x 750,000) 187,500
Subscription Receivable 562,500
Subscribed Ordinary Share Capital (6,000 x 100) 600,000
Share Premium (6,000 x 25) 150,000

15 Cash 660,000
Subscription Receivable 660,000

15 Subscribed Ordinary Share Capital 550,000

Ordinary Share Capital 550,000

21 Machinery 125,000
Ordinary Share Capital (1,000 x 100) 100,000
Share Premium 25,000

22 Cash 562,500
Subscribed Ordinary Share Capital 600,000
Subscription Receivable 562,500
Ordinary Share Capital 600,000

24 Professional Fees 60,000

Ordinary Share Capital (500 x 100) 50,000
Share Premium 10,000

30 Cash (40% x 4,940,000) 1,976,000

Subscription Receivable 2,964,000
Subscribed Ordinary Share Capital (38,000* x 100) 3,800,000
Share Premium (38,000 x 30) 1,140,000

*Authorized shares 60,000

Less issued shares (9,000 + 5,500 + 6,000 + 1,000 + 500) 22,000
Remaining unissued shares 38,000
(b)
Shareholders’ Equity

Ordinary Share Capital, P100 par, 60,000 shares

authorized; 22,000 shares issued P2,200,000
Subscribed Ordinary Share Capital, 38,000 shares 3,800,000
Share Premium 1,435,000
Total Shareholders’ Equity P7,435,000

Problem 4

(a) Memo: Received authorization to issue 200,000 shares of no

par value ordinary and 5,000 shares of 6%, P200 par value
preference.

Sept. 14 Cash (200,000 x 30 x 25%) 1,500,000

Subscription Receivable-Ordinary (200,000x30x75%) 4,500,000
Subscribed Ordinary Share Capital 6,000,000

18 Cash (5,000 x 220) 1,100,000

Preference Share Capital (5,000 x 200) 1,000,000
Share Premium – Preference 100,000

18 Share Premium – Preference 5,000

Cash 5,000

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Oct. 15 Cash 1,500,000
Subscription Receivable - Ordinary 1,500,000

(b)
Shareholders’ Equity

Preference Share Capital, P200 par, 5,000 shares

authorized, issued and outstanding P1,000,000
Subscribed Ordinary Share Capital, no par 6,000,000
Share Premium - Preference 95,000
Total Shareholders’ Equity P7,095,000

Problem 5
(a)
1. Subscription Receivable 450,000
Subscribed Ordinary Share (25,000 x 15) 375,000
Share Premium (25,000 x 3) 75,000

2. Cash (45% x 450,000) 202,500

Subscription Receivable 202,500

3. Due from the Highest Bidder 247,500

Subscription Receivable 247,500

4. Due from the Highest Bidder 4,000

Cash 4,000

5/6. Cash 256,530

Due from the Highest Bidder 251,500
Interest Income (251,500 x 12% x 2/12) 5,030

Subscribed Ordinary Share Capital 375,000

Ordinary Share Capital 375,000

(b) Zubiri is the highest bidder. The 25,000 shares shall be allocated as follows:
To Zubiri (highest bidder) 9,000 shares
To Martinez 16,000 shares
Total 25,000 shares

Problem 6

(a)
a. Unissued Preference Share (10,000 x 50) 500,000
Unissued Ordinary Share (200,000 x 10) 2,000,000
Authorized Preference Share 500,000
Authorized Ordinary Share 2,000,000

b. Cash 600,000
Unissued Ordinary Share (40,000 x 10) 400,000
Share Premium – Ordinary (40,000 x 5) 200,000

c. Land 700,000
Building 1,100,000
Unissued Ordinary Share (120,000 x 10) 1,200,000
Share Premium – Ordinary 600,000

d. Professional Fees (2,000 x 16) 32,000

Unissued Ordinary Share (2,000 x 10) 20,000
Share Premium – Ordinary 12,000

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e. Cash (530,000 x 40%) 212,000
Subscription Receivable – Preference 318,000
Subscribed Preference Share (10,000 x 50) 500,000
Share Premium – Preference (10,000 x 3) 30,000

f. Cash 318,000
Subscribed Preference Share 500,000
Subscription Receivable 318,000
Unissued Preference Share 500,000

(b)

(1) Authorized Unissued Issued

Preference P 500,000 -0- P 500,000
Ordinary 2,000,000 P380,000 1,620,000
Total legal capital P2,120,000

(2) Share Premium – Preference P 30,000

Share Premium – Ordinary 812,000
Total additional paid-in capital P842,000

(3) Total legal capital P2,120,000

Total additional paid-in capital 842,000
Total paid-in capital P2,962,000

Problem 7
Partnership Books

(a) Inventory (320,000 – 280,000) 40,000

Daryl, Capital (14,000 x 280/520) 7,538
Emily, Capital (14,000 x 240/520) 6,462
Accumulated Depreciation 6,000
Allowance for Uncollectible Accounts 20,000

Accounts Payable 344,000

Shares of Cookie Bar Corporation 534,000
Accumulated Depreciation 22,000
Allowance for Uncollectible Accounts 20,000
Cash 240,000
Accounts Receivable 200,000
Inventory 320,000
Equipment 160,000

Daryl, Capital 287,538

Emily, Capital 246,462
Shares of Cookie Bar Corporation 534,000

Books of Cookie Bar Corporation

(b) Cash 240,000

Accounts Receivable 200,000
Inventory 320,000
Equipment 138,000
Accounts Payable 344,000
Allowance for Uncollectible Accounts 20,000
Share Capital 534,000

Cash 300,000
Share Capital 300,000

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(c)
Cookie Bar Corporation
Statement of Financial Position
December 31, 2021
Assets Liabilities
Current Assets Current Liabilities
Cash P 540,000 Accounts Payable P 344,000
Accounts Receivable P200,000
Allowance for Shareholders’ Equity
Uncol. Accounts 20,000 180,000 Share Capital 834,000
Inventory 320,000
Total Current Assets P1,040,000
Non-current Assets
Equipment ___138,000 _________
TOTAL LIABILITIES &
TOTAL ASSETS P1,178,000 SHAREHOLDERS’ EQUITY P1,178,000

Practice Exercises

A. 1. 24,000 Authorized ordinary shares (2,000,000 / 50) 40,000

Less Unissued ordinary shares (800,000 / 50) 16,000
Issued ordinary shares 24,000

2. 8,000 Authorized shares 40,000

Issued shares (24,000)
Subscribed shares (400,000/50) (8,000)
Shares available for subscription 8,000

3. P1,900,000 Issued (2,000,000 – 800,000) 1,200,000

Subscribed 400,000
Share Premium 300,000
Total contributed capital 1,900,000

B. 4. 100,000 2,000,000 / 20 100,000

5. 4,000 1,000,000 – 600,000 = 400,000; 400,000 / 100 par 4,000

6. P140 Increase in preference share capital 400,000

Increase in share premium-preference 160,000
Total 560,000
Divided by the number of shares issued ÷ 4,000
Average issue price per share 140

7. 10,000 2,000,000 – 1,800,000 = 200,000; 200,000 / 20 par 10,000

8. P60 Increase in ordinary share capital 200,000

Increase in share premium-ordinary 400,000
Total 600,000
Divided by the number of shares issued ÷10,000
Average issue price per share 60

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C. 9. P7,609 Market price: Ordinary (1,000 x 18) 18,000
Preference (2,000 x 14) 28,000
Allocation of lump sum price
Ordinary: 45,000 x 18/46 17,609
Preference: 45,000 x 28/46 27,391
Share Premium:
Ordinary: 17,609 – (1,000 x 10) 7,609
Preference: 27,391 – (2,000 x 10) 7,391
10. P7,391 See No. 9

D. 11. P312,500 5,000,000 x 25% x 25% 312,500

E. 12. P200,000 Ordinary Share (20,000 x 10) 200,000

13. P 60,000 Preference Share (600 x 100) 60,000
14. P640,000 Additional Paid-in Capital
20,000 x (30 – 10) 400,000
600 x (500 – 100) 240,000 640,000

F. 15. P130; 130,000 / 1,000 130

1,000 140,000 / 140 1,000 shares

G. 16. P640,000 8,000 shares x (180 – 100) = 640,000 640,000

H. 17. P160,000 560,000 – (4,000 x 100) 160,000

I. 18. P100,000 4,000 shares x (225 – 200) 100,000

J. 19. P900,000 30,000 issued shares x 30 900,000

K. 20. P2,969,850 Ordinary Share 1,260,000

Share Premium-Ordinary 1,082,750
Share Premium-Preference 92,100
Preference Share 500,000
Subscribed Preference Share 140,000
Subscription Receivable-Preference (105,000)
Total contributed capital 2,969,850

21. P3,161,800 Total contributed capital 2,969,850

Retained Earnings 191,950
Total shareholders’ equity 3,161,800

L. 22. P17.00 (2,550,000 + 340,000) / 170,0002,550,000/15= 170,000 shares 17.00

23. 60,000 3,000,000 / 50 60,000 shares

M. 24. P63 6,300,000 / 100,000 63.00

25. P7,120,000 820,000 + 3,000,000 + 3,300,000 7,120,000

26. P6,620,000 7,120,000 – 500,000 6,620,000

N. 27. 24,000 Alexis Benz Carlo

Capitals before incorporation 800,000 1,200,000 2,000,000
Revaluation of assets 400,000 400,000 400,000
Adjusted capitals 1,200,000 1,600,000 2,400,000
Par value ÷ 100
Number of shares issued 24,000

28. P0 Par value of shares issued is equal to the adjusted net assets.

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O. 29. P610,000 Subscription balance (30,000 x 40 x ½) 600,000
Advertising costs 10,000
Total amount receivable from highest bidder 610,000

30. 16,000 Total delinquent shares 30,000

Number of shares for the highest bidder 14,000
Number of shares received by Daniel 16,000

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