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QUIZ 1:
1. The entry to record the reissuance of treasury shares above their original
acquisition cost includes
a. a credit to share premium
b. a debit to share premium
c. a debit to retained earnings
d. b and c

2. Ten thousand shares of ₱20 par value common stock were initially issued at ₱25 per
share. Subsequently, two thousand of these shares were purchased as treasury
stock at ₱30 per share. What is the effect of the purchase of the treasury stock on
the amount reported in the balance sheet for each of the following?

Share premium Retained earnings

a. No effect No effect
b. No effect Decrease
c. Decrease No effect
d. Decrease Decrease

3. The entry to record the retirement of shares at below their original acquisition cost
includes
a. a debit to share premium arising from the original issuance
b. a debit to any share premium arising from treasury shares
c. a debit to retained earnings
d. all of these including (c) when (a) and (b) are insufficient to offset any difference
between the original issuance price and the retirement price.

4. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other
share transactions occurred until March 31, 20x1, when Fogg acquired some of the
issued shares for ₱20 per share and retired them. Which of the following
statements correctly states an effect of this acquisition and retirement?
a. 20x1 profit is decreased.
b. 20x1 profit is increased.
c. Share premium is decreased.
d. Retained earnings is increased.

5. Redeemable preference shares are classified by the issuer as

a. financial liability
b. own equity, presented in shareholders’ equity
c. a or b
d. reduction of share capital in shareholders’ equity

6. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share
at ₱18 per share. In 20x1, Newt issued 3,000 of these shares at ₱25 per share.
Newt uses the cost method to account for its treasury stock transactions. What
accounts and amounts should Newt credit in 20x1 to record the issuance of the
3,000 shares?

Treasury sh. Sh. premium Retained earnings Ordinary sh.

a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000
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7. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par
value ordinary shares from a shareholder. On that date, the stock’s market value
was ₱35 per share. The stock was originally issued for ₱25 per share. By what
amount would this donation cause total stockholders’ equity to decrease?
a. 70,000 b. 50,000 c. 20,000 d. 0

8. On July 1, 20x1, Vail Corp. issued rights to stockholders to subscribe to additional

share of its common stock. One right was issued for each share owned. A
stockholder could purchase one additional share for 10 rights plus ₱15 cash. The
rights expired on September 30, 20x1. On July 1, 20x1, the market price of a share
with the right attached was ₱40, while the market price of one right alone was ₱2.
Vail’s stockholders’ equity on June 30, 20x1, comprised the following:

Ordinary shares, ₱25 par value, 4,000 shares issued and outstanding…..₱100,000
Share premium…………………….……………………………………………..60,000
Retained earnings……………..…………………………………………………80,000

By what amount should Vail’s retained earnings decrease as a result of issuance of the
stock rights on July 1, 20x1?
a. 0 b. 5,000 c. 8,000 d. 10,000

9. On September 20x1, West Corp. made a dividend distribution of one right for each
of its 120,000 shares of outstanding common stock. Each right was exercisable for
the purchase of 1/100 of a share of West's ₱50 variable rate preference share at an
exercise price of ₱80 per share. On March 20, 20x3, none of the rights had been
exercised, and West redeemed them by paying each stockholder ₱0.10 per right. As
a result of this redemption, West's stockholders' equity was reduced by
a. 120 b. 2,400 c. 12,000 d. 36,000

10. The following trial balance of Shaw Corp. at December 31, 20x1, has been adjusted
except for income tax expense.
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Dr. Cr.
Cash 675,000
2,695,00
Accounts receivable (net)
0
2,185,00
Inventory
0
Property, plant and equipment 7,366,00
(net) 0
Accounts payable and accrued 1,801,00
liabilities 0
Income tax payable 654,000
Deferred income tax liability 85,000
2,300,00
Ordinary shares
0
3,680,00
Share premium
0
3,350,00
Retained earnings, 1/1/x1
0
13,360,0
Net sales and other revenues
00
11,180,0
Costs and expenses
00
1,129,00
Income tax expense
0
25,230, 25,230,
Totals 000 000

Other financial data for the year ended December 31, 20x1:
 Included in accounts receivable is ₱1,000,000 due from a customer and payable in
quarterly installments of ₱125,000. The last payment is due December 30, 20x3.
 The balance in the deferred income tax liability account pertains to a temporary
difference not related to a balance sheet account that arose in a prior year, of
which ₱15,000 is expected to be paid in 20x2.
 During the year, estimated tax payments of ₱475,000 were charged to income tax
expense. The current and future tax rate on all types of income is 30%. In Shaw's
December 31, 20x1, balance sheet,

The working capital and the total shareholders’ equity as of December 31, 20x1 are
Working capital Total Shareholders’ Equity
a. 2,600,000 10,856,000
b. 2,881,000 10,856,000
c. 3,075,000 9,330,000
d. 3,075,000 10,856,000

PROBLEM SOLVING

1. On December 31, 2018, UNO COMPANY reported the following balances from the
shareholders’ equity section of its balance sheet.
Ordinary Share Capital (P10 par value) P700,000
Subscribed Share Capital 300,000
Ordinary Share Premium 400,000
Treasury Shares (cost is @ P20 per share) 200,000
Retained Earnings 450,000
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On June 30, 2019, UNO declared a P2.50 cash dividend per share to ordinary
shareholders on record on July 15, 2019 and to be settled on August 1, 2019. During
2019, UNO reported profit or loss amounting to P280,000.
Based on the bond indenture, the company is required to make monthly appropriations
for bond sinking fund of P30,000. The bonds were issued on September 30, 2019.
REQUIREMENT: How much is the balance of retained earnings – unappropriated as of
December 31, 2019?
SOLUTION:
Retained earnings (1/1/2019) P450,000
Net income
Cash dividends declared [(70,000 shs. + 30,000 shs. – 10,000 shs.) x P2.50] (225,000)
Retained earnings (12/31/2019)
Appropriations for treasury shares (200,000)
Appropriations for bond sinking fund (P30,000 per month x 3 months) (90,000)
Retained earnings unappropriated (12/31/2019) P215,000

2. TRES CORP. owned 50,000 shares of KWATRO CORP. accounted for as a long-term
equity investment. The carrying amount of the investment is P1,200,000. On August 1,
2019, the entity declared a dividend of 1 share of KWATRO CORP. on every two share of
TRES CORP. owned. The dividends are to be settled on February 1, 2020. On the date
of declaration, TRES CORP. has 80,000 outstanding shares. The investment had the
following fair value:
August 1 P25 per share
December 31 P30 per share
February 1 P27 per share
REQUIREMENTS:
(a) Prepare the journal entries pertaining to the property dividends on August 1,
2019, December 31, 2019 and February 1, 2020.
SOLUTION:
NCAHFS (@ lower between FV-CTS and CA) Property Dividends Payable (@FV)
08/01/2 NCAHFS 960,000 Retained Earnings (40,000 shs x P25) 1,000,000
019 Investment (40,000 shs x P24) 960,000 Property Dividends Payable 1,000,000
12/31/2 Retained Earnings (40,000 shs x P5) 200,000
No entry on remeasurement
019 Property Dividends Payable 200,000
02/01/2 Property Dividends Payable 120,000
No entry on remeasurement
020 Retained Earnings (40,000 shs x P3) 120,000
Property Dividends Payable 1,080,000
02/01/2
NCAHFS 960,000 Entry for Settlement, the gain is presented within profit or loss
020
Gain on Settlement 120,000

(b) Prepare the journal entries pertaining to the property dividends on August 1,
2019, December 31, 2019 and February 1, 2020 assuming the investment had
the following fair value:
August 1 P22 per share
December 31 P25 per share
February 1 P28 per share

NCAHFS (@ lower between FV-CTS and CA) Property Dividends Payable (@FV)
NCAHFS (40,000 shs x P22) 880,000 Retained Earnings (40,000 shs x P22) 880,000
08/01/2
Impairment Loss 80,000 Property Dividends Payable 880,000
019
Investment (40,000 shs x P24) 960,000
12/31/2 NCAHFS 80,000 Retained Earnings (40,000 shs x P3) 120,000
019 Impairment Loss 80,000 Property Dividends Payable 200,000
02/01/2 Property Dividends Payable 120,000
No entry on remeasurement
020 Retained Earnings (40,000 shs x P3) 120,000
02/01/2 Property Dividends Payable 1,120,000 Entry for Settlement, the gain is presented within profit or loss
020 NCAHFS 960,000
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Gain on Settlement 160,000