Intermediate accounting by robles empleoanswers chapter 3 vol 2 2009

Chapter 3 – Shareholders’ Equity

CHAPTER 3
SHAREHOLDERS’ EQUITY
PROBLEMS
3-1.

(Budomo Company)
Cash (20,000 x 300)


6,000,000

Ordinary Share


6,000,000

Legal Expense/Professional Fees

90,000

Ordinary Share (250 x 300)
Share Premium - Ordinary




75,000
15,000

Land

1,000,000

Building
Ordinary Share (12,500 x 300)
Share Premium - Ordinary

2,950,000

Cash (6,500 x 380)

2,470,000

3,750,000
200,000

Ordinary Share (6,500 x 300)
Share Premium - Ordinary
3-2.

a.

Cash (10,000 x 200)
Ordinary Share (10,000 x 150)
Share Premium - Ordinary
Share Premium-Ordinary
Cash

b.

Land (3,500 x 560)
Ordinary Share (3,500 x 200)
Share Premium – Ordinary

c.

Cash
Preference Share
Ordinary Share
Share Premium – Preference
Share Premium – Ordinary
MV: Pref – 5,000 x 800=4M
Ord – 100,000 x 120 =
12M
Allocation:
Pref: 18M x 4/16 = 4.5M
Ord: 18M x 12/16 = 13.5M

22

1,950,000
520,000
2,000,000
1,500,000
500,000
60,000
60,000
1,960,000

18,000,000

700,000
1,260,000
2,500,000
10,000,000
2,000,000
3,500,000


Chapter 3 – Shareholders’ Equity

d.

Subscription Receivable
Cash
Subscribed Ordinary Share
Share Premium – Ordinary

450,000
150,000

Land
Cash
Donated Capital
(Blazing Red Corporation)
Shareholders’

5,000,000

e.

3-3.

500,000
100,000
40,000
4,960,000

Equity

Contributed Capital
10% Preference Share, cumulative and non-participating, P100
par
30,000 shares authorized; 12,000 shares issued and
outstanding
Ordinary Share, P10 par, 100,000 shares authorized, 30,000
shares
issued, 29,000 shares outstanding
Subscribed Ordinary Share, 4,500 shares
Subscription Receivable – Ordinary
Share Premium – Preference
Share Premium –Ordinary
Total contributed capital
Retained Earnings
Appropriated for Treasury Share
P
15,000
Unappropriated
195,000

Treasury Shares, 1,000 ordinary shares, at cost
Total Shareholders’ Equity

P1,200,000

300,000
45,000
(43,200)
275,000
77,000
P1,853,800

210,000
( 15,000)
P2,048,800

The total amount of P2,048,800 may also be obtained without necessary
preparing the shareholders’ equity in good format (if not required) as
follows:
Issue of 30,000 ordinary shares
Issue of preference shares in exchange of equipment
1,475,000
Subscriptions for 4,500 ordinary shares at 16
72,000
Subscriptions receivable (60%)
(43,200)
Purchase of 1,000 treasury shares at 15
(15,000)
Retained earnings
Total shareholders’ equity, December 31, 2009

2,048,800
3-4.

P

350,000

210,000
P

(Millennium Company)
(a)
(1)
(2)

Treasury Share
Cash

140,000
140,000

Cash
Treasury Share
Paid in Capital from Treasury
Share

23

60,000

56,000
4,000


Chapter 3 – Shareholders’ Equity

(3)

(4)

Cash
Paid in Capital from Treasury Share
Retained Earnings
Treasury Share

65,000
4,000
1,000

Ordinary Share
Share Premium
Retained Earnings
Treasury Share

10,000
3,000
1,000

70,000

14,000

(b)

Total shareholders’ equity, December 31, 2008
P2,200,000
(1) Purchase of treasury share (10,000 x 14)
(140,000)
(2) Sale of treasury share (4,000 x 15)
60,000
(3) Sale of treasury share (5,000 x 13)
65,000
Net income for the year
180,000
Dividends declared
(200,000)
Total shareholders’ equity, December 31, 2009
P2,165,000
The total shareholders’ equity may also be obtained by determining the
balance of the shareholders’ equity accounts, as follows:
Ordinary Share, P10 par (99,000 shares issued and outstanding)
P 990,000
Share Premium
297,000
Retained Earnings
878,000
Total shareholders’ equity
P2,165,000
3-5.

(Consuelo Enterprises, Inc.)
(a)

(b)

(c)

Preference Share (4,000 x 20)
Share Premium – Preference (4,000 x
1.60)
Retained Earnings
Cash (4,000 x 22)

80,000
6,400

Preference Share (4,000 x 20)
Share Premium – Preference (4,000 x
1.60)
Retained Earnings
Cash (4,000 x 26)

80,000
6,400

Preference Share (4,000 x 20)
Share Premium – Preference (4,000 x
1.60)
Cash (4,000 x 20.50)
PIC from Retirement of Preference

80,000
6,400

1,600
88,000

17,600
104,000

82,000
4,400

Average preference share premium per share
160,000 / 100,000 shares
=
1.60
3-6.

(Concepcion Enterprises, Inc.)
(a)

Preference Share (3,000 x 20)
Share Premium – Preference (3,000 x
1.60)
Retained Earnings

24

60,000

4,800
25,200


Chapter 3 – Shareholders’ Equity

Ordinary Share (3,000 x 30)
(b)

3-7.

Preference Share (3,000 x 20)
Share Premium – Preference (3,000 x
1.60)
Ordinary Share (1,500 x 30)
PIC from Conversion of Preference

(Red Heart Corporation)
06/15/09
Cash
Ordinary Share
Share Premium – Ordinary
09/30/09

Retained Earnings (80,000 x 5% x
110)

90,000
60,000
4,800

45,000
19,800
6,000,000

440,000
400,000

Share Dividends Distributable (4,000
x 100)

Share Premium – Ordinary
11/10/09

Share Dividends Distributable
Ordinary Share

12/31/09

Income Summary
Retained Earnings

03/31/10

Treasury Share (3,000 x 95)
Cash
Cash (1,500 x 120)
Treasury Share (1,500 x 95)
PIC from Treasury Share

05/01/10

40,000
400,000
1,175,000
285,000
180,000

08/10/10

Issued 82,500 rights to shareholders
entitling holders to purchase 2
additional shares for P125 per
share.

09/15/10

Cash (30,000 x 125)
Ordinary Share (30,000 x 100)
Share Premium – Ordinary

3,750,000

Cash (80,000 x 125)

10,000,00
0

10/31/10

Ordinary Share (80,000 x 100)

Share Premium – Ordinary

400,000
1,175,000
285,000
142,500
37,500

3,000,000
750,000

12/10/10

Retained Earnings
Dividends Payable (192,500 x 5)

962,500

**12/20/10

Ordinary Share (1,000 x 100)
Share Premium – Ordinary (1,000 x
10)*
Retained Earnings
Treasury Share
*Share premium per share
300,000/30,000 = 10

100,000
10,000

25

5,000,000
1,000,000

10,000

8,000,000
2,000,000
962,500

120,000


Chapter 3 – Shareholders’ Equity

12/31/10

3-8.

Income Summary
Retained Earnings

1,200,000

(Red Carpet Company)
(a)
Total lump sum price is P147,000 (1,500 x 98), allocated as follows:
Securities

Preference
Warrant
Entry

(b)

3-9.

1,200,000

Market value
90
10

Allocation
147,000 x 90/100
147,000 x 10/100

Cash
Preference Share (1,500 x 30)
Share Premium – Preference
Share Warrants Outstanding

Allocated Price
132,300
14,700
147,000
45,000
87,300
14,700

Cash (600 x 40)
Share Warrants Outstanding
Ordinary Share
Share Premium – Ordinary

24,000
11,760
6,000
29,760

(Red Hot Company)
(a)
Value of each option
Number of shares granted
Total value assigned to share options
Required service period
Annual compensation expense
(b)

Share Options Outstanding
Cash (30,000 x 50)
Ordinary Share (30,000 x 20)
Share Premium - Ordinary

P8
x 30,000
P240,000
 3years
P 80,000

240,000
1,500,000
600,000
1,140,000

3-10. (Fire Red Company)
01/02/09 Memo: granted 40,000 share options were granted to certain
officers for the purchase of the company’s P100 par ordinary
shares at P430 per share.
12/31/09
12/31/10

Compensation Expense
Share Options Outstanding
(40,000 x 80)  4 years
Compensation Expense
Share Options Outstanding

01/01/11

Memo: 8,000
cancelled.

share

12/31/11

Compensation Expense

options

800,000
800,000
800,000
were

Share Options Outstanding
Total accrued compensation
expense
(32,000 x 80)=2,560,000
x 3/4
1,920,00
0

26

800,000

320,00
0

320,000


Chapter 3 – Shareholders’ Equity

Less: previously accrued
Compensation expense-2011

12/31/12

06/30/13

1,600,00
0
320,00
0

Compensation Expense
Share Options Outstanding
(32,000 x 80) / 4
Cash (32,000 x 430)
Share Options Outstanding (32,000 x
80)
Ordinary Shares (32,000 x 100)
Share Premium – Ordinary

640,000
640,000
13,760,000
2,560,000
3,200,000
13,120,000

3-11. (Red Fox Corporation)
(a)
2009

2010

2011

(b)
01/01/09

12/31/09

200 – 10 – 15 = 175 employees
options=17,500
17,500 x 32 = 560,000; 560,000 x 1/3

x

100
186,667

200–10–12–5=173
employees
x
100
options=17,300
17,300 x 32 x 2/3 = 369,067; 369,067 – 186,667

182,400

200-10-12-8=170
employees
x
options=17,000
17,000 x 32 = 544,000; 544,000 – 369,067

174,933

100

Granted 100 share options to each of its 200 employees to
buy P100 par ordinary share at P220 per share. The options
are exercisable starting January 1, 2010 provided that the
employees are still in the service.
Options expire on
December 31, 2011.
Compensation Expense
Share Options Outstanding
Compensation Expense
Share Options Outstanding

186,667

12/31/11

Compensation Expense
Share Options Outstanding

174,933

2012

Cash (140 x 100 x 220)
Share Options Outstanding (14,000 x
32)

Ordinary Share (14,000 x 200)
Share Premium - Ordinary

3,080,000
448,000

Cash (10 x 100 x 220)
Share Options Outstanding (1,000 x
32)
Ordinary share (1,000 x 200
Share Premium - ordinary

220,000
32,000

12/31/10

2013

27

182,400

186,667
182,400
174,933

2,8000,000
728,000

200,000
52,000


Chapter 3 – Shareholders’ Equity

Share option outstanding (20 x 100 x
32)
Paid in capital from Forfeited
share
options

64,000
64,000

3-12. (Cherry Company)

(a)
01/01/09

Memo: Granted 10,000 share options for the purchase of P100
par ordinary shares at P120 per share. The options vest once
the market price of ordinary shares reached P200. Options
expire at the end of 2012.

12/31/09

Compensation Expense
Share Options Outstanding
(10,000 x 20) / 3 years

66,667

12/31/10

Compensation Expense
Share Options Outstanding
(10,000 x 20) - 66,667

133,333

2011

Cash (10,000 x 120)
Share Options Outstanding
Ordinary Shares (10,000 x 100)

(b)
01/01/09

12/31/09

1,000,00
0
400,000

Share Premium-Ordinary

Memo: Granted 10,000 share options for the purchase of P100
par ordinary shares at P120 per share. The options vest once

the market price of ordinary shares reached P200. Options
expire at the end of 2010.
66,667

Compensation Expense
Share Options Outstanding

66,667

12/31/11

Compensation Expense
Share Options Outstanding

66,666

2012

Cash (8,000 x 120)
Share Options Outstanding (80%
200,000)
Ordinary Shares (8,000 x 100)
Share Premium-Ordinary
Share Options Outstanding (20%
200,000)
PIC from Forfeited Share Options

(c)

133,333

1,200,000
200,000

Compensation Expense
Share Options Outstanding
(10,000 x 20) / 3 years

12/31/10

66,667

66,667

66,667

x

66,666

960,000
160,000
800,000
320,000

x

40,000
40,000

If the stock price reached P200 by June 2012, the same entries will
be made for year 2009 through 2011, as given in (b) The recorded

28


Chapter 3 – Shareholders’ Equity

share options, however, will be cancelled at the end of 2012, as the
options already expire.
12/31/12

Share Options Outstanding
PIC from Forfeited Share Options

200,000
200,000

3-13. (Panda Company)
(a)
01/01/09

Granted 80 share options to each of 400 employees for
the purchase of P100 par ordinary shares at P140 per
share.

12/31/09

Compensation Expense
Share Options Outstanding

400 x 80 x 22 = 704,000
704,000/2 = 352,000

352,000

12/31/10

Compensation Expense
Share Options Outstanding

352,000

2011

Cash (32,000 x 140)
Share Options Outstanding
Ordinary Share (32,000 x 100)

4,480,00
0
352,000

Share Premium – Ordinary
(b)

352,000

352,000

3,200,00

0
1,632,00
0

The
full
amount
of
P704,000
is
recognized as compensation expense
since the options vests already in 2007.

3-14. (Paul Company)

(a)

01/01/09

Memo: Issued to its CEO share options for the purchase of ordinary
shares at a strike price of P50. The options are exercisable beginning
January 1, 2012 and expire on December 31, 2013. The number of
share options will be based on the level of sales for 2011.

12/31/09

Compensation Expense
Share Options Outstanding
10,000 sh x 30 x 1/3

100,000

Compensation Expense
Share Options Outstanding
15,000 sh x 30 x 2/3
300,000
Less:
previously accrued
100,000
Compensation expense
200,000

200,000

Compensation Expense
Share Options Outstanding

240,000

12/31/10

12/31/11

29

100,000

200,000

240,000

Chapter 3 – Shareholders’ Equity

18,000 sh x 30 x 3/3
540,000
300,000

Less:

previously accrued

Compensation

expense

240,000
(b)

Assuming that the chief executive officer resigned in 2010.

12/31/10

Share Options Outstanding
Compensation Expense

100,000

100,000

Note:
When the grant of share options is based on non-market
performance condition, the amount of recognized services received during
the vesting period shall be based on the number of share options expected
to vest. The entity shall reverse that estimate, if necessary, if the share
options are later forfeited, or lapse at the end of the share option’s life.
Thus, in effect, on a cumulative basis, no compensation expense is
recorded as a result of the stock options.
3-15. (Joey Corporation)
(a)
12/31/09 Compensation Expense
Share Appreciation Rights Payable

66,667

10,000 x (140 -120) x 1/3

12/31/10

Compensation Expense
Share Appreciation Rights Payable

133,333

Compensation Expense
Share Appreciation Rights Payable
10,000 x (165 - 120) = 450,000
450,000 –200,000 = 250,000

250,000

133,333

10,000 x (150 - 120) x 2/3 = 200,000
200,000 – 66,667 = 133,333

12/31/11

66,667

250,000

(b) (1)Assuming that the rights were exercised on January 1, 2012, when
the market price is P165.
01/01/12

Share Appreciation Rights Payable
Cash

450,000

450,000

(b) (2)Assuming that the rights were exercised on December 31, 2012,
when the market price is P172.
12/31/12

3-16. (Red Bull
12/31/09

12/31/10

Share Appreciation Rights Payable
Compensation Expense
Cash 10,000 x (172-120)

450,000
70,000
520,000

Corporation)
Compensation Expense
Share Appreciation Rights Payable
10,000 x 26.80 x 1/3

89,333

Compensation Expense
Share Appreciation Rights Payable

118,667

10,000 x 31.20 x 2/3 = 208,000
208,000 – 83,333 = 118,667

30

89,333

116,667

Chapter 3 – Shareholders’ Equity

12/31/11

Compensation Expense
Share Appreciation Rights Payable

194,000

Share Appreciation Rights Payable
Compensation Expense
Cash 10,000 x (165-120)

394,000
56,000

10,000 x 39.40 = 394,000
394,000 –200,000 = 194,000

2012

194,000

450,000

3-17. (Emerald Company)
(a)

(b)

Fair value of the equity alternative
4,000 shares x 150
Fair value of debt component
3,600 shares x 158
Fair value of equity component

600,000
568,800
31,200

2009: 3,600 x 160=576,000/3
31,200/3
Total compensation expense

192,000
10,400
202,400

2010: 3,600 x 165 x 2/3 = 396,000
396,000 – 192,000
31,200/3
Total compensation expense

204,000
10,400
214,400

2011: 3,600 x 168 = 604,800

604,800 – 396,000
31,200/3
Total compensation expense

208,800
10,400
219,200

2012: 2,700 x (172-165)
(c)
01/01/09

12/31/09

18,900

Granted each of the four executives the right to choose
either 1,000 ordinary shares or to receive cash payment
equal to 900 shares, conditional upon the completion of
three years of service.
Compensation Expense
Share Options Outstanding
Share Appreciation Rights Payable

202,400

12/31/10

Compensation Expense
Share Options Outstanding

Share Appreciation Rights Payable

214,400

12/31/11

Compensation Expense
Share Options Outstanding
Share Appreciation Rights Payable

219,200

Share Options Outstanding
Share Appreciation Rights Payable
Cash
PIC from Unexercised Share
Options
31,200 / 4 = 7,800

7,800
151,200

12/31/11

31

10,400
192,000
10,400
204,000

10,400
208,800

151,200
7,800


Chapter 3 – Shareholders’ Equity

12/31/12
12/31/12

604,800 / 4 =151,200
Compensation Expense
Share Appreciation Rights Payable

18,900

Share Options Outstanding
Share Appreciation Rights Payable
Ordinary Share (3,000 x 100)
Share Premium – Ordinary
7,800 x 3 = 23,400
151,200 x 3 = 453,600 +
18,900

23,400
472,500

3-18. (Red Stone Company)

(a)
Retained Earnings ( 10,000 shares x P20)
Share Dividends Distributable
Share Premium

(b)

(c)

18,900

300,000
195,900

200,000

Share Dividends Distributable
Ordinary Shares

100,000

Retained Earnings (30,000 x 10)
Share Dividends Distributable

300,000

Share Dividends Distributable
Ordinary Shares

300,000

100,000
100,000
100,000
300,000
300,000

Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par
previously issued and outstanding.

3-19. (Buenviaje Corporation)
Capital structure:
Preference
20,000
P2,000,000

Number of shares outstanding
Total par value
(a)

Preference share is

non-cumulative and non-participating

2009
Current preference dividends (9% x 2,000,000)
Excess (1,500,000 – 180,000)
Dividend per share

Preference

P 180,000

2010
Current preference dividends (9% x 2,000,000)
Excess (2,400,000 – 180,000)
Dividend per share

Preference
P 180,000

2011
Current preference dividends (9% x 2,000,000)
Excess (5,600,000 – 180,000)
Dividend per share

Preference
P 180,000

(b)

Preference share

P9.00

P9.00

P9.00

Ordinary
250,000

P2,500,000

Ordinary
P1,320,000
P5.28
Ordinary
P2,220,000
P8.88
Ordinary
P5,420,000
P21.68

is cumulative and non-participating.

2009
Dividends in arrears (9% x 2,000,000 x 3)
Excess (1,500,000 – 540,000)

32

Preference
P 540,000

Ordinary
P

960,000


Chapter 3 – Shareholders’ Equity

Dividend per share
2010
Current preference dividends (9% x 2,000,000)
Excess (2,400,000 – 180,000)
Dividend per share

P2.70
Preference
P 180,000

2011
Current preference dividends (9% x 2,000,000)
Excess (5,600,000 – 180,000)
Dividend per share

Preference
P 180,000

(c)
Preference share
2009
Current dividends:
9% x 2,000,000
9% x 2,500,000
Excess:
1,095,000 x 2.0/4.5
1,095,000 x 2.5/4.5
Total dividends
Dividend per share

P3.84
Ordinary
P2,220,000
P8.88

P9.00

P9.00

Ordinary
P5,420,000
P21.68

is cumulative and fully participating
Preference
P

180,000

Ordinary
P

225,000

486,667
P

2010
Current dividends:

9% x 2,000,000
9% x 2,500,000
Excess:
1,995,000 x 2.0/4.5
1,995,000 x 2.5/4.5
Total dividends
Dividend per share

Preference

2011
Current dividends:
9% x 2,000,000
9% x 2,500,000
Excess:
5,195,000 x 2.0/4.5
5,195,000 x 2.5/4.5
Total
Dividend per share

Preference

P

608,333
P 833,333
P3.33

666,667
P33.33

180,000

Ordinary
P

225,000

886,667
P1,066,667
P53.33

P

180,000

1,108,333
P1,333,333
P 5.33
Ordinary
P

225,000

2,308,889
P2,488,889
P124.44

3-20. (Mama Mia Company)
Retained Earnings

Share Dividends Distributable
50% x 100,000 x 10 = 500,000
Share Dividends Distributable
Ordinary Shares
Fractional Share Warrants Outstanding
Fractional Share Warrants Outstanding
Ordinary Share
PIC from Unexercised Fractional Share
Warrants

33

2,886,111
3,111,111
P 12.44

500,000
500,000
500,000
100,000

400,000
100,000
80,000
20,000


Chapter 3 – Shareholders’ Equity

3.21. (Kenneth Corporation)

October 31, 2009
Trading Securities
Unrealized Gain on Trading Securities
10,000 shares x (15 – 14)

10,000
10,000

Retained Earnings
Property Dividends Payable
10,000 shares x 15

150,000
150,000

December 31, 2009
Trading Securities
Unrealized Gain on Trading Securities
10,000 shares x (17 – 15)

20,000

Retained Earnings
Property Dividends Payable

20,000

February 28, 2010
Retained Earnings
Property Dividends Payable

30,000

Property Dividends Payable
Trading Securities
Gain on Disposal of Trading Securities

20,000

20,000

30,000

200,000
170,000
30,000

3-22. (Buenas Aires Corporation)
Total SHE

Preferenc
e
Shares
Issued

12/31/08Balances
P16,500,000
2009 transactions:
a) 4,000 x 280
(1,120,000)

b) 8,000 x 75
(600,000)
c) 2:1 share split
d) 6,000 x 45
270,000
e) 4,000 x 46
f) 2,000 x 48
96,000
g) Net income
2,000,000
12/31/09 balances
P7,146,000
*P600,000 x 6,000/16,000 = 225,000

(a)
(b)
(c)
(d)

30,000

Ordinary
Shar
es
Issu
ed
100,000

Treasury Share
Shares

Cost

(4,000)
100,000

26,000

200,000

8,000
8,000
(6,000)
4,000
(2,000)

P600,000
(225,000)*

12,000

P375,000

Total shareholders’ equity
P17,146,000
Number of preference shares issued and outstanding
26,000
Number of ordinary shares issued
200,000
Number of ordinary shares outstanding(200,000 – 12,000)

188,000
Cost of remaining treasury shares
P
375,000

3-23. (La Vida Company)
Retained earnings balance as of December 31, 2009
3,900,000 – 600,000 – 240,000
Total shareholders’ equity as of December 31, 2009
6,000,000 + 8,000,000 + 3,060,000

34

P 3,060,000
P17,060,000


Chapter 3 – Shareholders’ Equity

(a)
Par value of preference share
Dividends in arrears (6,000,000 x 9% x 3
yrs.)
Excess to ordinary (17,060,000 – 7,620,000)
Total equity
Divide by the number of shares outstanding
Book value per share
(b)
Liquidation value

(60,000 shares x P105)

Dividends in arrears (P6,000,000 x 9% x 3
yrs.)
Excess to ordinary (17,060,000 – 7,920,000)
Total equity
Divide by the number of shares outstanding
Book value per share
3-24. (Los Angeles Company)
(a)
Retained Earnings
Accumulated Depreciation
Current Assets
Building
Ordinary Share
Ordinary Share

Preferenc
e
P6,000,00
0
1,620,000

P7,620,00
0
60,000
P 127
Preferenc
e
P6,300,00

0
1,620,000

P7,920,00
0
60,000
P132

P9,440,00
0
P9,440,00
0
800,000
P 11.80
Ordinary

P9,140,00
0
P9,140,00
0
800,000
P11.425

400,000
75,000
100,000
375,000
6,000,000

Share Premium

Share Premium
Retained Earnings

Ordinary

4,000,00
0
2,000,00
0

1,400,000
1,400,00
0

(b) Current Assets
P 400,000
Liabilities
P1,000,000
Land
1,500,000
Ordinary Share
Building
4,625,000
Share Premium
Accumulated Depreciation
( 925,000)
Total Assets
P5,600,000
Total Equities

3-25. (Las Vegas, Inc.)
Retained Earnings
Inventory

4,000,000
600,000
P5,600,000

300,000
300,000

Land
Buildings

1,500,000
1,875,000

35


Chapter 3 – Shareholders’ Equity

Machinery and Equipment
Accum. Depreciation – Buildings
Accum. Depreciation – Machinery &
Equipment
Revaluation Surplus
Revaluation Surplus
Retained Earnings

350,000
875,000
150,000
3,700,00
0
2,300,000

2,300,00
0

MULTIPLE CHOICE PROBLEMS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10
MC11

C
D
B
B
B
C

C
C
A
C
C

MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20
MC21
MC22

A
C
C
A
D
B
D
C
D
C
C

Problems
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36
MC37
MC38
MC39
MC40
MC41
MC42

C
B
D
D
D
A
A
C

B
A
B
C
B
B
D
C
B
D
D
B

MC43

A

MC44

A

230,000 + 525,000 + 5,000 = 760,000
480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000
(60,000 x 2) – (5,000 x 2) = 110,000
125,000 x 3 = 375,000
375,000 – [(12,000 x 3) + 5,000] = 334,000
20,000 x 9 = 180,000; 180,000/2 = 90,000 x 1/2 = 45,000
600,000 x 5 = 3,000,000
1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000
7,000,000 + (35,000 x 70) = 9,450,000

2,000 x 8 = 16,000
70 – (70/2) = 35
(5,000 x 80) – (5,000 x 40) = 200,000
600 x 10 x 60% = 3,600; 6,000 – 3600 = 2,400
Interest expense for 2009 = 100,000 x 10% x 9/12 = 7,500
2,120,000 – (2,000 bonds x 1,040) = 40,000
945,000/ 70 = 13,500; 13,500/90,000 = 15%
80,000 + (2,000,000 x 8%) = 240,000; 300,000 – 240,000 = 60,000
(3,000,000 x 5% x 2 years) – 100,000 = 200,000 arrears, end
(110,000 + 10,000) x 2 = 220,000 issued; 220,000 – (4,000 x 2) =
212,000
24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000
72,000 + (12,000 x 4/6) = 80,000; 24,000 + (12,000 x 2/6) =28,000
80,000/4,000 = 20; 28,000/20,000 = 1.40
8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000

36


Chapter 3 – Shareholders’ Equity

MC45
MC46

A
B

MC47

C

MC48
MC49
MC50
MC51
MC52

C
D
A
C
B

MC53
MC54
MC55
MC56
MC57
MC58

B
D
B
B
B
B

MC59

C

MC60

D

(15 x 2)/5 = 6.00
25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000
1,000,000 + 250,000 = 1,250,000
(40,000x 105) – (600 x 110) + (400 x 95) + 830,000 – 200,000 =
4,802,000
5,520,000 – 25,000 – 170,000 + 40,000 + 900,000 = 6,265,000
(2,000 x 85) – (800 x 42.50) = 136,000
[3,000 x (30-20)] / 3 years = 10,000
4,500,000 x 95% = 4,275,000; 4,275,000/3 = 1,425,000
4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 –
1,425,000=1,395,000
(4 x 200 x 300) x ½ = 120,000
(90% x 7 x 200 x 300) – 120,000 = 258,000
360,000 – 70,000 = 290,000; 290,000/5,000 = 58
3,150,000/ 50,000 = 63
3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51
RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8%
x 3 years = 1,200,000, but dividends are limited to the extent of
RE balance of P1,000,000; Thus, equity of ordinary share is
13,500,000 – 5,000,000 – 1,000,000 = 7,500,000; 7,500,000/
750,000 shares = P10
13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ;
7,200,000/750,000 shares = 9.60
(200,000 x 2) + (200,000 x 5) – 950,000 = 450,000

37