PROBLEM 1

Tires Company was incorporated on January 1, 2019 with the following authorized capitalization:

Ordinary share capital 500,000 shares, P10 par value 5,000,000

Preference share capital, 100,000 shares, P100 par value 10,000,000

During 2019, the company issued 100,000 ordinary shares for a total of P1,200,000 and 20,000
preference shares at P150 per share.

In addition, on December 20, 2019, subscriptions for 10,000 preference shares were taken at a total
purchase price of P1,750,000. These subscribed shares were paid for on January 15, 2020.

1. Prepare the journal entries to record the foregoing transactions

2. What amount should be reported as total contributed capital on December 31, 2019?

PROBLEM 2
Mikasa Company provided the following information at year-end:

Preference share capital, P100 par 460,000

Share premium - Preference 161,000
Ordinary share capital, P10 par 1,050,000
Share premium - Ordinary 550,000
Subscribed ordinary share 10,000
Retained Earnings 380,000
Subscription receivable - Ordinary 8,000
Treasury shares - common 12,000

1. What is the amount of legal capital?

2. Assume the same information except that the ordinary share has a P10 stated value, what is the
amount of legal capital?

PROBLEM 3
A company acquired machinery by issuing 100,000 ordinary shares with a par value of P12.

Prepare the appropriate journal entry under each of the following situations
1. The machinery has a fair value of P2,000,000 while the shares have fair value of P15
2. The shares have fair value of P15 while the machinery’s fair value cannot be reliably determined
3. Both the machinery’s and shares’ fair values cannot be reliably determined

PROBLEM 4
At the beginning of 2019, Umberto Company issued 20,000 ordinary shares of P20 par value ad 40,000
cumulative preference shares of P20 par value of a total consideration 1,600,000.

Scenario A: At this date, the ordinary share was selling for P36 and the cumulative preference share was
selling for P27.

1. What amount of the proceeds should be allocated to the ordinary shares?

2. What amount of proceeds should be allocated to the preference shares?
3. What is the share premium from the issuance of ordinary shares?
4. What is the share premium from the issuance of preference shares?

Scenario B: At this date, the ordinary share was selling for P36 while the fair value of the preference
shares cannot be determined reliably

1. What amount of the proceeds should be allocated to the ordinary shares?

2. What amount of proceeds should be allocated to the preference shares?
3. What is the share premium from the issuance of ordinary shares?
4. What is the share premium from the issuance of preference shares?

PROBLEM 5
The LAOS COMPANY wants to raise its working capital. After analysis of the available options, the
company decides to issue 6,000 shares of P30 par preference shares with detachable warrants. The
package of the shares and warrants sells for 120. The warrants enable the holder to purchase 6,000
shares of P10 par ordinary shares at P40 per share. Immediately following the issuance of the shares,
the share warrants are selling at P10 per share. The market value of the preference shares without the
warrants is 90

1. What amount should be assigned to the share warrants issued?

2. Prepare the appropriate journal entries upon:
a. Issuance
b. Exercise of the 80% of share warrants
c. Expiration of the remaining warrants

PROBLEM 6
On July 31, 2020, Cypher’s equity consisted of the following:

Ordinary share, P10 par 3,000,000

Share premium 600,000
Retained earnings 200,000

Cypher Company issued rights to shareholders on August 1, 2020 to subscribe to additional shares of its
ordinary share. For every ten rights and P20 cash, a shareholder can purchase new share. The rights will
be terminated on October 1, 2020. The market price of a share with the right attached was P40 on
August 31, 2020, while the market price of the right alone was P4.

What is the effect on the shareholder’s equity as a result of the issuance of the share rights?

PROBLEM 7:
A shareholder donated its 100,000 shares with a par value of P5. These were subsequently sold for P10
per share.

Prepare the appropriate journal entries

PROBLEM 8:
One company received as a donation, machinery with a fair value of 800,000.

Prepare the appropriate journal entry if:

1. The donor is a shareholder
2. The donor is not a shareholder

PROBLEM 9:
At the beginning of 2018, Baker Company reported the following shareholder’s equity:

Share capital, P10 par, outstanding 450,000 shares 4,500,000

Share premium 1,800,000
Retained Earnings 4,380,000

During 2018, the company had the following transactions:

Acquired 12,000 treasury shares for P540,000
Sold 7,200 treasury shares at P50 per share
Sold the remaining treasury shares at P41 per share
1. Prepare the journal entries to record the transaction
2. What is the total amount of share premium on December 31, 2018?

PROBLEM 10
At year-end, Pack Company cancelled 5,000 shares of P50 par value held in treasury at an average cost
of P120 per share

Before recording the cancellation of the treasury shares, the entity had the following balances:

Share capital issued originally at 75 per share 2,500,000

Share premium 1,250,000
Retained Earnings 1,000,000
Treasury shares, at cost 600,000

1. Prepare the journal entry for the cancellation of treasury shares

2. Prepare the shareholder’s equity section of Pack Company after the cancellation of treasury shares

PROBLEM 11
At the beginning of the current year, Rona Company issued 50,000 shares of P10 par value for P100 per
share

During the year, the entity reacquired 2,000 shares at P150 per share and immediately cancelled these
2,000 shares

1. In connection with the retirement of shares, what amount should be debited to share premium?
2. In connection with the retirement of shares, what amount should be debited to retained earnings?
PROBLEM 12
An entity has 10,000 shares issued and outstanding, with P100 par value

Determine the amount of outstanding shares, par value and share capital if:
1. The shares are split-up 5 to 1
2. The shares are split split-down 5 to 1

PROBLEM 13
During the current year, Alto Company declared a 1 for 5 reverse share split, when the market value of
the share was P100

Prior to the split, the entity had 100,000 shares of P10 par value issued and outstanding

After the split, what is the par value of the share?

PROBLEM 14
Seco Company was incorporated at the beginning of the current year.

Jan. 2 Number of shares authorized 80,000

Feb. 1 Number of shares issued 60,000
July 1 Number of shares reacquired but not cancelled 5,000
Dec 1 Two-for-one share split

What is the number of shares outstanding at year-end?

PROBLEM 15
At the beginning of current year, Nest Company issued 100,000 ordinary shares. Of these, 5,000 shares
were held as treasury

During the current year, the entity reported the following transactions

May 1 1,000 shares of treasury were sold

Aug. 1 10,000 unissued shares were sold
Nov. 15 A 2-for-1 share split took effect

1. How many shares were outstanding at year-end?

2. How many shares were issued at year-end?

PROBLEM 16
James Company declared and distributed 10% share dividend with fair value of P1,000,000 and par value
of P700,000, and 30% share dividend with fair value of P2,500,000 and par value of P2,000,000

1. Prepare the appropriate journal entries

2. What aggregate amount should be debited to retained earnings for the share dividends?
PROBLEM 17
At the beginning of the current year, Rudd Company had 700,000 ordinary shares authorized and
300,000 shares outstanding

Jan. 31 Declared 10% share dividend

Jun. 30 Purchased 100,000 shares
Aug. 1 Reissued 50,000 shares
Nov. 30 Declared 2-for-1 share split

How many ordinary shares are outstanding at year-end?

PROBLEM 18
On December 1, 2019, Mars Company declared property dividend of equipment payable on February 28,
2020. The carrying amount of the equipment on December 1, 2019 is P800,000. Estimated costs to
distribute and fair value less cost to distribute on different dates are as follow:

Fair value Estimated cost to Fair value less cost to

distribute distribute
December 1, 2019 P750,000 P50,000 P700,000
December 31, 2019 730,000 50,000 680,000
February 28, 2020 745,000 55,000 690,000

1. Prepare the journal entries to record the foregoing transactions

2. What amount of impairment loss is recognized on December 1, 2019?
3. What is the measurement of dividend payable on December 31, 2019?
4. What is the measurement of equipment held for distribution on December 31, 2019?
5. What amount of gain or loss on distribution of property dividend is recognized on February 28. 2020?

PROBLEM 19
The following selected information from Dad Co.’s accounting records as of December 31, 2021 is
presented to you:

Total income since incorporation 420,000

Total cash dividend paid 130,000
Total property dividends distributed 30,000
Excess of proceeds over cot of treasury shares sold 110,000

What amount should Dad report as retained earnings on December 31, 2021?
PROBLEM 20
Cyan Company issued 200,000 shares of P5 par value at P10 per share. At the beginning of current year,
the retained earnings amounted to 3,000,000

In March, the entity reacquired 50,000 treasury shares at P20 per share. In June, the entity sold 10,000
of these shares to corporate officers for P25 per share. The entity used the cost method to record these
shares.

Net income for the current year was P600,000

1. Prepare journal entries to record the transactions

2. What amount should be reported as unappropriated retained earnings at year-end?
3. What total amount should be reported as retained earnings at year-end?

PROBLEM 21
At the beginning of current year, Franta Company was authorized to issue share capital of 100,000
shares with P50 par value. The entity had the following share capital transactions during the year:

Jan. 1 Sold 80,000 shares at P60 per share

May 1 Reacquired 4,000 treasury shares at P65 per share
Jul. 1 Approved a share spit of 5 for 1
Oct. 31 Issued a 10% share dividend when the market value of a share is P25
Dec. 31 Reissued all of the treasury shares at P30
Dec. 31 Net income for the year was P3,000,000

1. What is the number of shares outstanding at year-end?

2. What amount should be reported at share capital at year-end?
3. What total amount should be reported as share premium at year-end?
4. What amount should be reported as total shareholder’s equity at year-end?