ACC 154 – ASSIGNMENT 1

Problem 1

The following is the equity section Gandalf Corporation’s Statement of Financial Position on December 31,
2022:
Share Capital, P20 par value; Authorized 1,500,000 shares; issued and
outstanding 900,000 shares P 18,000,0000
Share Premium 1,500,000
Retained earnings 5,400,000
TOTAL EQUITY P 24,900,000

Transactions during 2023 and other information relating to the equity accounts were as follows:
a. On January 26, Gandalf reacquired 75,000 treasury shares for P22 per share.
b. On April 4, Gandalf sold 45,000 treasury shares for P28 per share.
c. On June 1, Gandalf declared a cash dividend of P2 per share, payable on July 15, 2023, to
shareholders of record on July 1, 2023.
d. On August 15, each shareholder was issued one right for each share held to purchase two
additional shares for P24 per share. The rights expire on October 31, 2023.
e. On September 30, 150,000 rights were exercised when the market value of the share was P25 per
share.
f. On November 2, Gandalf declared a two for one share split-up and changed the par value of the
share from P20 to P10 per share. On November 20, shares were issued for the share split.
g. On December 5, 60,000 shares were issued in exchange for a secondhand equipment. It originally
cost P1,200,000, was carried by the previous owner at a carrying amount of P600,000, and was
recently appraised at P780,000.
h. Profit for 2023 was P1,440,000.

Requirements:
1. Compute the total share capital to be presented in the Statement of Financial Position as of
December 31, 2023.
2. Compute the total share premium to be presented in the Statement of Financial Position as of
December 31, 2023.
3. Compute the unappropriated retained earnings to be presented in the Statement of Financial
Position as of December 31, 2023.
4. Compute the appropriated retained earnings to be presented in the Statement of Financial Position
as of December 31, 2023.

Problem 2

You were able to gather the following information in connection with your audit of the equity section of the
statement of financial position of Lalaland Inc. The company is a manufacturer of school and office
equipment. As of December 31, 2022, the equity of the company is presented below:
Cumulative Preference Share Capital (P30 par value; 100,000 shares
authorized, 12,000 shares issued and outstanding) P 360,000
Ordinary share capital (P20 par value; 1,000,000 shares authorized,
330,000 shares issued and outstanding) 6,600,000
Retained Earnings 3,732,000
P 10,692,000
Lalaland’s equity transactions during 2023 were as follows:
a. On January 31, 24,000 preference shares were issued in exchange for land with a fair value of
P600,000. Six months ago, 2,000 shares of Lalaland’ preference shares were exchanges “over the
counter” for P28 per share.
b. On February 14, 13,500 ordinary shares were sold to Ms. Smith at P50 per share.
c. On December 14, Lalaland purchased dissident shareholder Smith’s 13,500 shares at P54 per
share. The shares are to be held as treasury shares.
d. On December 20, Lalaland contracted with Ms. Briane for the sale of 30,000 previously unissued
ordinary shares at P50 per share to be issued when the purchase price is fully paid. On December
31, only P1,170,000 had been paid. Briane agreed to pay the balance on or before January 31,
2024.
e. On December 31, Lalaland retired 12,000 preference shares at P36 per share.
f. A cash dividend pf P4 per share was declared on the preference shares on October 15 and paid
on November 15.
g. A cash dividend of P3 per ordinary share was declared on December 15, and payable on January
15, 2024.
 h. Lalaland’s profit for the year 2023 was P1,500,000.

Requirements:
1. Preference share capital
2. Ordinary share capital
3. Share premium
4. Total Retained Earnings
5. Total Shareholders’ Equity

Problem 3

You gathered the following information pertaining to the equity section of the OMG Corporation in
connection with your audit of the company’s financial statements for 2023:

Ordinary share capital, P2 par value; authorized 1,500,000 shares;

issued 750,000 shares; outstanding 700,000 shares P 1,400,000
Share premium (excess over par) 14,000,000
Share premium (from treasury shares) 200,000
Total Paid-In Capital P 15,600,000
Unappropriated Retained Earnings 8,100,000
TOTAL EQUITY P 23,700,000

All the outstanding ordinary and treasury shares were originally issued in 2020 for P22 per share. The
treasury shares were acquired on March 31, 2022. OMG uses the par value method of accounting for
treasury shares.

During 2023, the following events or transactions occurred relating to OMG’s equity:
Feb 10 Issued 200,000 of unissued ordinary shares for P25 per share
Mar 15 Declared cash dividend of P0.40 per share to shareholders of record on April 1, 2023, and
payable on April 15, 2023. This was the first dividend ever declared by OMG.
Aug 30 OMG’s president retired, OMG purchased from the retiring president 50,000 ordinary
shares of OMG for P26 per share, which was equal to market value on this date. These
shares were cancelled.
Dec 15 Declared a cash dividend of P0.40 per share to shareholders of record on January 2, 2024,
and payable on January 15, 2024.

OMG is being sued by two separate parties for patent infringements. OMG management and outside legal
counsel share the following opinions regarding these suits:

Suit Likelihood of losing the suit Estimated loss

A Reasonably Possible P600,000
B Probable P400,000

Based on the result of your audit, answer the following questions:

1. The issuance of 200,000 ordinary shares on February 10, 2023, caused OMG’s share premium to
increase by what amount?
2. The retirement of 50,000 ordinary shares on August 30, 2023, caused OMG’s share premium to
decrease by what amount?
3. OMG wants to appropriate retained earnings for all loss contingencies that are not properly
accruable by a charged to expense. How much of OMG loss contingencies should be appropriated
by charged to unappropriated retained earnings?
4. How much cash dividends should OMG charge against unappropriated retained earnings in 2023?
5. How much should OMG show in note to financial statement as a restriction on retained earnings
because of the acquisition of treasury shares?