Illustration # 1

XYZ’s articles authorized the issuance of 100,000 ordinary shares. XYZ sold the following ordinary shares
during 2021:

Feb. 12 Sold 1,000 shares for P100,000.

July 10 Sold 5,000 shares for P630,000.
Nov. 5 Sold 7,500 shares for P1,050,000.

Required:
Prepare journal entries to record each issuance, assuming that:
1. The ordinary shares have a P100 par value.
2. The ordinary shares have a P10 stated value.
3. The ordinary shares have no-par or stated value.

Solution:
1. With P100 par value:
Feb. 12 Cash 100,000
Ordinary Shares (1,000 shs. x P100) # 100,000

July 10 Cash 630,000

Ordinary Shares (5,000 shs. x P100) 500,000
Share Premium-OS (P630,000 – P500,000) # 130,000

Nov. 5 Cash 1,050,000

Ordinary Shares (7,500 shs. x P100) 750,000
Share Premium-OS (P1,050,000 – P750,000) # 300,000

2. With P10 stated value:

Feb. 12 Cash 100,000
Ordinary Shares (1,000 shs. x P10) 10,000
Share Premium-OS (P100,000 – P10,000) 90,000
#

July 10 Cash 630,000

Ordinary Shares (5,000 shs. x P10) 50,000
Share Premium-OS (P630,000 – P50,000) # 580,000

Nov. 5 Cash 1,050,000

Ordinary Shares (7,500 shs. x P10) 75,000
Share Premium-OS (P1,050,000 – P75,000) # 975,000

Page 1 of 8
 3. No-par or stated value:
Feb. 12 Cash 100,000
Ordinary Shares # 100,000

July 10 Cash 630,000

Ordinary Shares # 630,000

Nov. 5 Cash 1,050,000

Ordinary Shares # 1,050,000

Exercise # 2

Kaname Corporation was organized on Jan. 1, 2021. It is authorized to issue 20,000 shares of 6%, P50
par value preference shares, and 50,000 shares of no-par ordinary shares with a stated value of P10 per
share. The following stock transactions were completed during the year:

Jan. 10 Issued 10,000 ordinary shares for cash at P35 per share.
Mar. 1 Issued 10,000 preference shares for cash at P55 per share.
Apr. 1 Issued 2,500 ordinary shares for land. The asking price of the land was P90,000; the fair
market value of the land was P85,000.

May 1 Issued 7,500 ordinary shares for cash at P40 per share.
Aug. 1 Issued 1,000 ordinary shares to lawyers in payment of their bill for P50,000 pertaining to
services rendered in helping the corporation organize.
Sept. 1 Issued 500 ordinary shares for cash at P60 per share.
Nov. 1 Issued 2,000 preference shares for cash at P53 per share.

Required:
1. Journalize the transactions
2. Prepare the share capital section of the shareholders’ equity as of December 31, 2021.

Solution:
1. Journal Entries:
2021
Jan. 10 Cash (10,000 shs. x P35) 350,000
Ordinary Shares (10,000 shs. x P10) 100,000
Share Premium-OS (P350,000 – P100,000) *250,000
#
*it can also be computed as [(P35-P10) x 10,000 shs.]. This is
applicable to other items provided share capital is issued above
par value (stated value) and issue price/sh. is given.
Mar. 1 Cash (10,000 shs. x P55) 550,000
Preference Shares (10,000 shs. x P50) 500,000
Share Premium-PS (P550,000 – P500,000) 50,000
#

Apr. 1 Land 85,000

Ordinary Shares (2,500 shs. x P10) 25,000

Share Premium-OS (P1,050,000 – P750,000) 60,000

#
Page 2 of 8
May 1 Cash (7,500 shs. x P40) 300,000
Ordinary Shares (7,500 shs. x P10) 75,000
Share Premium-OS (P300,000 – P75,000) 225,000

Aug. 1 Organization Expense 50,000

Ordinary Shares (1,000 shs. x P10) Share 10,000
Premium-OS (P50,000 – P10,000) 40,000
#

Sept. 1 Cash (500 shs. x P60) 30,000

Ordinary Shares (500 shs. x P10) Share 5,000
Premium-OS (P30,000 – P5,000) 25,000
#

Nov. 1 Cash (2,000 shs. x P53) 106,000

Preference Shares (2,000 shs. x P50) Share 100,000
Premium-PS (P106,000 – P100,000) 6,000
#

2. Share Capital Section of SHE:

6% Preference Shares, P50 par, 20,000 shs. authorized,
12,000 shs. issued and outstanding P600,000
Share Premium-Preference 56,000 P656,000
Ordinary Shares, no par, stated value P10, 50,000 shs. authorized, 21,500
shs. issued and outstanding P215,000
Share Premium-Ordinary Total 600,000 815,000
Share Capital P1,471,000

Illustration # 3

The following information relates to the subscription balance of Mr. Pambihira with ABC Corporation:
a. shares subscribed 100,000 ordinary shares at P5 par value.
b. payment was P200,000 after which he defaulted; (after making several calls)
c. P21,000 was incurred for advertising the auction and other related expenses.
Bidders No. of shares willing to receive
Buti Ikaw 40,000
Bat Ako 50,000
Ikaw Na Lang 60,000

Required:
1. Who is the highest bidder?
2. How many shares were considered delinquent?
3. How many shares were issued to original subscriber?
4. Prepare all pertinent entries to record subscription, partial payment of subscription, incurrence
of advertising expense, sale to the highest bidder and the issuance of share certificates.
5. If ABC Corporation reacquires the delinquent shares, what is the journal entry?

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 Solution:
1. Buti Ikaw is the highest bidder because she is willing to pay the unpaid balance of the
subscription, (plus accrued interest if there is any) advertising costs and other expenses in
connection with public auction for the smallest number of shares (40,000 shares in this case).
2. 100,000 shares. Under Section 67 of the Corporation Code of the Philippines: “if within thirty
(30) days from the said date, no payments made, all stocks covered by said subscription shall
thereupon become delinquent and shall be subjected to sale...”
3. 60,000 shares (100,000 shs. – 40,000 shs.)
4. The pertinent entries are as follows:
Subscription Receivable (100,000 shs. x P5) 500,000
Subscribed Ordinary Shares 500,000
To record receipt of subscription.

Cash 200,000
Subscription Receivable 200,000
To record partial collection on the subscription.

Receivable from Highest Bidder 21,000

Cash 21,000
To record advertising costs incurred on public auction.

Cash (P300,000 + P21,000) 321,000

Receivable from Highest Bidder 21,000
Subscription Receivable (P500,000 – P200,000) 300,000
To record receipt of payment for the offer price.

Subscribed Ordinary Shares 500,000

Ordinary Shares 500,000
To record the issuance of shares.

5. If ABC Corporation reacquires the delinquent shares, the journal entry would be:
Treasury Shares 321,000
Receivable from Highest Bidder Subscription 21,000
Receivable 300,000
To record acquisition of delinquent shares as TS.

Illustration # 4

Bilib Ako, Inc. has been authorized to issue 125,000 shares of P10 par ordinary shares. The following 2021
transactions relate to the initial issuance of shares:
Feb. 1 Sold subscriptions for 25,000 shares of stock. The shares have a subscription
price of P15 per share. One-third of the subscription price was received as a down
payment.
15 Sold 10,000 shares for P180,000.
Mar. 1 An instalment amounting to one-third of the subscription price was received.
Apr. 1 The final one-third of the subscription price was received, and the share issued.

Required: Prepare Journal entries to record the transactions.

Page 4 of 8
Solution:
2021
Feb. 1 Cash (25,000 shs. x P15 x 1/3) 125,000
Subscription Receivable (25,000 shs. x P15 x 2/3) 250,000
Subscribed Ordinary Shares (25,000 shs. x P10) 250,000
Share Premium (25,000 shs. x P5) *125,000
#
*Alternatively (25,000 shs. x P15 = P375,000 – P250,000 = P125,000)

15 Cash (10,000 shs. x P18*) 180,000

Ordinary Shares (10,000 shs. x P10) 100,000
Share Premium (P180,000 – P100,000) 80,000
#
*No need to compute for this since the given is total sales price.
Debit
it directly for P180,000. But to determine its price per/sh. of
selling
P18, it is computed as follows:(P180,000/10,000
shs.)
Mar. 1 Cash (25,000 shs. x P15 x 1/3) 125,000
Subscription Receivable 125,000
# 125,000
Cash (25,000 shs. x P15 x 1/3)
Apr. 1
Subscription Receivable 125,000
#

Subscribed Ordinary Shares 250,000

Ordinary Shares # 250,000

Illustration # 5

The Dec. 31, 2021, shareholders’ equity section of MNO Corporation’s statement of financial
position is as follows:
MNOCorporation
Partial Statement of Financial Position
December 31, 2021

Shareholders’ Equity
Share Capital
Ordinary Shares, P4 par, 200,000 shares authorized, 150,0000 shares issued
and outstanding P600,000
Share Premium 375,000
Total Share Capital P975,000
Retained Earnings 365,000
Total Shareholders’ Equity P1,340,000

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Required:
Prepare the journal entries to record the following transactions that took place during January 2021:
Jan. 4 Purchased 24,000 shares of its own stock for P168,000.
10 Sold 4,000 shares of the treasury stock for P9 per share.
29 Sold 14,000 shares of the treasury stock for P6 per share.
31 Sold the remaining 6,000 shares of treasury stock for P7 per share.

Solution:
2021
Jan. 4 Treasury Shares (24,000 shs. x P7) 168,000
Cash 168,000
To record acquisition of treasury shares.

10 Cash (4,000 shs. x P9) 36,000

Treasury Shares (4,000 shs. x P7) 28,000
Share Premium- TS (P36,000 – P28,000) 8,000
To record sale of treasury shares above cost.

29 Cash (14,000 shs. x P6) 84,000

Share Premium- TS 8,000
Retained Earnings 6,000
Treasury Shares (14,000 shs. x P7) 98,000
To record sale of treasury shares below cost.
Note: TS is issued at P6 or for a total of P84,000, which is at below cost of P7 or for a
total of P98,000. Technically, there is a “loss” on sale ( please bear in mind that no gain or
loss shall be recognized on the purchase, sale, issue or cancellation of treasury shares)
of P14,000 (P84,000 – P98,000). The rule is to debit first to share premium- treasury to
the extent of its balance. If this is insufficient or no share premium-treasury
balance, it is charged to retained earnings account. So, in the given transaction above,
the P14,000 will be charged first to the share premium-TS. But the balance of share
premium-TS of P8,000 is not enough to absorb it. Hence, the excess of P6,000 (P14,000 –
P8,000) will be charged to RE account.

31 Cash (6,000 shs. x P7) 42,000

Treasury Shares 42,000
To record sale of treasury shares at cost.

Illustration # 6

The shareholders’ equity section of Allaine, Inc. as of December 31, 2021, appeared as follows:
6% Preference Shares, P75 par, 200,000 shares authorized, 70,000 shares issued P?
Ordinary Shares, P5 par value, 500,000 shares authorized, shs. issued and
shs. outstanding 500,000
Share Premium-Ordinary 600,000
Retained Earnings 1,000,000
Total Share Capital and Retained Earnings P?
Less: Treasury Stock-Ordinary, 10,000 shares, at cost 40,000
Total Shareholders’ Equity P?

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Required:
Provide the answers to each of the following questions:
1. What is the total issue price of the preference shares?
2. How many ordinary shares were issued?
3. How many ordinary shares are outstanding?
4. What was the total issue price of the ordinary shares?
5. What is the total legal capital of the corporation?
6. What is the total contributed capital of the corporation?
7. What is the total shareholders’ equity
8. For how much per share was the treasury stock purchased?
9. What is the amount of the required preference dividends?

Solution:
1. 70,000 shs. x P75 = P5,250,000
2. P500,000/P5 = 100,000 shs.
3. 100,000 shs. issued – 10,000 shs. in treasury = 90,000 shs. outstanding
4. P500,000 + P600,000 = P1,100,000
5. P5,250,000 + P500,000 = P5,750,000
Note: Legal capital is the portion of contributed capital that cannot be distributed to the
owners during the lifetime of the corporation unless the corporation is dissolved and all of its
liabilities is settled first. It is based on the concept of trust fund doctrine which states that share
capital of a corporation is a trust fund held for the protection of its creditors. Legal capital
is computed as follows:
a. For par value shares, legal capital is the aggregate par value of shares issued and
subscribed.
b. For no-par value shares, legal capital is the total consideration received by a corporation
for the issuance of its share to the shareholders including the excess of issue price over
the stated value.
6. P5,750,000 + P600,000 = P6,350,000
Note: Contributed capital consists of share capital, subscribed capital stock and subscription
receivable.
7. P5,250,000 + P500,000 + P600,000 + P1,000,000 – P40,000 = P7,310,000
8. P40,000/10,000 shs. = P4/sh.
9. 70,000 shs. x P75 par x 6% = P315,000
Alternatively: P5,250,000 x 6% = P315,000

Illustration # 7

The accounts below appeared in the Dec. 31, 2021, trial balance of Lezly Corporation:

Ordinary Shares, P15 par, 20,000 shs. authorized, 18,000 shs. issued P270,000
Subscription Receivable 17,000
Subscribed Ordinary Shares 27,000
Retained Earnings 200,000
Share Premium 95,000
Treasury Stock, 1,000 shs., at cost 25,000

Required: From these accounts determine the ff.-

1. Total authorized ordinary shares
2. Total unissued ordinary shares

3. Total issued ordinary shares

4. Ordinary shares subscribed

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 5. Total shareholders’ equity
6. Number of shares issued
7. Number of shares subscribed
8. Number of shares in treasury
9. Number of shares outstanding

Solution:
1. Total authorized ordinary shares: 20,000 shs. x P15 = P300,000
2. Total unissued ordinary shares: [(20,000 shs. – 18,000 shs.) x P15) = P30,000
3. Total issued ordinary shares: 18,000 shs. x 15 = P270,000
4. Ordinary shares subscribed: P27,000
5. Total shareholders’ equity:
Ordinary Shares P270,000
Share Premium 95,000
Subscribed Ordinary Shares P27,000
Less: Subscriptions Receivable (17,000) 10,000
Retained Earnings 200,000
Total P575,000
Less: Treasury Stock (25,000)
Total Shareholders’ Equity P550,000

6. Number of shares issued: 18,000 shs.

7. Number of shares subscribed: P27,000/P15 = 1,800 shs.
8. Number of treasury shares: 1,000 shs.
9. Number of outstanding shares: 18,000 shs. issued – 1,000 shs. in treasury = 17,000 shs.

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