FINANCIAL ACCOUNTING

SHAREHOLDERS EQUITY

1. An entity issued 10,000 ordinary shares of P 100 par value in exchange for land with a fair value
of P 1,500,000. The fair value of the shares issued is P 180 per share or a total of P 1,800,000.

If the fair value of the land is used, the entry is:

Land 1,500,000
Ordinary share capital 1,000,000
Share premium 500,000

If the fair value of the share is used, the entry is:

Land 1,800,000
Ordinary share capital 1,000,000
Share premium 800,000

If the par value of the share is used, the entry is:

Land 1,000,000
Ordinary share capital 1,000,000

2. For instance, if 1,000 ordinary shares of P 100 par value are issued to lawyers for their legal
services in getting the corporation organized, and the fair value of such services is reliably
determined to be P120,000, the entry is:

Legal expenses 120,000

Ordinary share capital 100,000
Share premium 20,000

3. The accounts shown below appear in the December 31, 2014 trial balance of Hollow
Corporation:
Preference share, authorized, P 50 par 10,000,000.00
Unissued preference share 3,600,000.00
Ordinary share, authorized, P 20 par 4,000,000.00
Unissued ordinary share 2,000,000.00
Subscription receivable, preference share 380,000.00
Subscription receivable, ordinary share 360,000.00
Subscribed preference share 600,000.00
Subscribed ordinary share 440,000.00
Treasury share, preference, at cost 1,360,000.00
Share premium 1,700,000.00
Accumulated profits and losses 2,000,000.00
All subscription receivables are due in year 2015

How much is the total shareholders’ equity of Hollow Corporation?

a. P 11,040,000 c. P 12,400,000
b. P 11,780,000 d. P 13,760,000
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Answer: B

Preference share issued (P10,000,000 - P 3,600,000) 6,400,000.00

Ordinary share issued (P4,000,000 - P 2,000,000) 2,000,000.00
Subscribed preference share 600,000.00
Subscribed ordinary share 440,000.00
Share premium 1,700,000.00
Accumulated profit 2,000,000.00
Treasury share (1,360,000.00)
Shareholders' equity 11,780,000.00

Types of Share Capital:

Ordinary shares – are normal shares issued by a company. The normal rights of ordinary
shareholders are to vote at company meetings and to receive dividends from profits. Ordinary
shares are often referred to as equity shares. The ordinary shareholders are the real owners of
the business.

Preference shares – are shares carrying a fixed rate of dividend, the shareholders have a prior
claim to any company profits available for distribution. They may also be called preferred
shares.

Subscription receivable and other receivable from sale of share should be reflected in the
shareholders’ equity section as a reduction from the related subscribed share capital. However,
subscriptions receivable collectible within one year may be shown as current assets.

4. Steam Company disclosed the following information for the year ended December 31, 2014:
Bonds Payable 300,000.00
Share premium on ordinary share 50,000.00
Donated capital 40,000.00
Treasury share at cost 20,000.00
Ordinary share capital, par P100 500,000.00
Ordinary share option warrants 100,000.00
Investments in Available for sale securities 70,000.00
Share premium from treasury share 15,000.00
Accumulated profits and losses 135,000.00

What is the total shareholders’ equity of Steam Company or the year ended December 31,
2014?

a. P 720,000 c. P 820,000
b. P 760,000 d. P 860,000
Answer: C
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Ordinary share capital, par P100 500,000.00

Share premium, ordinary share 50,000.00
Share premium, treasury share 15,000.00
Ordinary share option warrants 100,000.00
Donated capital 40,000.00
Accumulated profits and losses 135,000.00
Treasury share, at cost (20,000.00)
Total Shareholders' Equity 820,000.00

5. Corridor Company issued 6,000 shares of its P 100 par ordinary share to Max L. as compensation
for 1,000 hours of legal services performed. Max L. usually bills P 500 per hour for legal services.
On this date of issuance, the share was selling at a public trading at P 150 per share. By what
amount should the share premium account of Corridor Company increase as a result of the
issuance of those shares?

a. P 300,000 c. P 900,000
b. P 600,000 d. P 3,000,000
Answer: A

Value of the service (6,000 shares x P 150) 900,000.00

Less: par value of the share (6,000 x P 100) 600,000.00
Share premium 300,000.00

PFRS 2, paragraph 10: “For equity-settled share based payment transactions, the entity shall
measure the goods or services received, and the corresponding increase in equity, directly, at
the fair value of the goods or services received, unless that fair value cannot be estimated
reliably. If the company cannot estimate reliably the fair value of goods or services received, the
entity shall measure their value and the corresponding increase in equity, indirectly, by
reference to the fair value of the equity instruments granted.”

Journal entry to record the transaction:

Professional fee 900,000

Ordinary share capital 600,000
Share premium 300,000

6. On July 1, 2014, Boom exchanged 20,000 shares of its P 200 par value of equity shares for land.
A few months ago, the land was appraised by an independent appraiser at P 5,000,000. Boom
shares are currently traded at the stock exchange at P 300. The earnings per share is P 40. How
much should be debited to land account?

a. P 4,000,000 c. P 6,000,000
b. P 5,000,000 d. P 7,000,000

7. Martyr Company issued 15,000 shares of its P100 par ordinary share in acquiring a land that was
recently appraised at P 1,700,000. The ordinary share is actively selling at P 120 per share. What
is the amount of share premium to be credited on the issuance of shares?

a. P 200,000 c. P 500,000
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b. P 300,000 d. P 600,000

8. Ribbon Company issued 10,000 of its 6% preference share; par P 100, at P 125 per share. Each
share carried a detachable share warrant for one share of Ribbon’s ordinary shares, P 40 par, at
a specified option price of P 50 per share. Immediately after issuance, the market value of
Ribbon’s preference share was P 1,140,000 and the warrant was P 60,000. What portion of the
proceeds should be credited to ordinary share warrants outstanding?

a. None c. P 62,500
b. P 60,000 d. P 250,000

9. The Magic Lamp Corporation was incorporated on January 1, 2014, with following authorized
capitalization:

 40,000 ordinary shares, no par value, stated value P40 per share
 10,000 shares of 5% cumulative preference share, par value P 10 per share

During 2014, Magic Lamp issued 24,000 ordinary shares for a total of P 1,200,000 and 6,000
preference share at P 16 per share. In addition, on December 19, 2014, subscriptions for 2,000
preference shares were paid for on January 2, 2015. What should Magic Lamp report as total
contributed capital in its December 31, 2014 balance sheet?

a. P 1,040,000 c. P 1,294,000
b. P 1,262,000 d. P 1,330,000

10. The shareholders equity section of Fan Company revealed the following information on
December 31, 2014:

Preference share (100 par), P 2,300,000; share premium in excess of par preference,
P 805,000; ordinary share (p15 par), P 5,250,000; share premium in excess of par –ordinary,
P 2,750,000; subscribed ordinary share, P 50,000. Accumulated profits and losses,
P 1,900,000; and subscriptions receivable ordinary; P 400,000. How much is the legal
capital?

a. P 7,550,000 c. P 11,150,000
b. P 7,600,000 d. P 13,055,000

11. The Goat Corporation is authorized to issue 100,000 shares at P 20 par ordinary share. At the
beginning of 2014, 18,000 ordinary shares were issued and outstanding. These shares had been
issued at P 27 per share. During 2014, the company entered into the following transactions:

January 2 Issued 1,300 ordinary shares at P28 per share.

March 19 Exchanged 12,000 ordinary shares for a machine

The ordinary share was selling at P 30 per share.

May 8 Reacquired 500 ordinary shares at P29 per share.

July 19 Accepted subscriptions for 1,000 ordinary shares at P 31 per share. The
contact called for 10% down payment with the balance due on December
1.
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September 1 Sold 500 of treasury share at P 32 per share

December 1 Collected the balance due on July 1 subscriptions and issued the stock
certificate.

How much is the total contributed capital for December 31, 2014?

a. P 846,000 c. P 929,400
b. P 914,900 d. P 943,900

12. On July 1, 2014, Solo Company has 200,000 shares of P10 par ordinary share outstanding and
the market price of the share is P 12 per share. On the same date, Solo declared a 1 for 2 reverse
share split. The par of the share was increased from P10 to P 20. Immediately before the split,
the total Share Premium was P 900,000. What should be the balance in Solo’s Share Premium
account after the reverse stock/share split is effected?

a. None c. P 1,300,000
b. P 900,000 d. P 1,700,000

13. Granny Corporation purchased 10,000 shares of its P 1- par value ordinary share as treasury
share for P 120,000 on March 2, 2014. On December 19, 2014, Granny issued all 10,000 treasury
share, the reissuance would result in a credit to:

a. Share Capital of P 100,000

b. Accumulated Profits and Losses of P 70,000
c. Gain on sale investment of P 70,000
d. Share Premium of P 70,000

14. The following capital accounts are shown in the balance sheet of Laughing Corporation:
Ordinary share, 10,000 shares, par value P 100 1,000,000.00
Premium on ordinary shares 20,000.00
Share premium - treasury share 30,000.00
Accumulated profits and losses 750,000.00
Treasury share, 2,000 shares at cost 250,000.00

The entire 2,000 treasury shares were sold for P 200,000.

What would be the balance of the Accumulated Profits and Losses account after this
sale?

a. P 250,000 c. P 730,000
b. P 700,000 d. P 750,000
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