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Review School
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AUDIT OF STOCKHOLDERS EQUITY PROBLEMS
PROBLEM 1
You are engaged in the audit of WOODHAVEN Co., a new
client, at the close of its first fiscal year, April 30, 2011. The
books had been closed prior to the time you began your
year-end field work.
Shown below are the shareholders equity accounts in the
general ledger.
Ordinary Share Capital
Sept
14,
2010
CD May 1, 2010
CR
110,000
1,200,000
April 28, 2011
J
109,000
April28,2011
109,000
B.
Retained Earnings
February
2,2011
52,500
April30,2011
800,000
Income Summary
April 30, 2011
6,000,000
CR
Treasury Shares
a. P 110,000 b. P 100,000
P 55,000
Share Premium
a. P 226,000 b. P 231,000
P 200,000
Retained Earnings
a. P 619,000 b. P 800,000
P 797,500
Stock Dividends Payable
a. P 123,500 b. P 95,000
P0
c.
P 50,000
d.
c.
P 228,500
d.
c.
P 676,500
d.
c.
P 109,000
d.
PROBLEM 2
COLDSPRING Corp., organized on June 1, 2011, was
authorized to issue shares as follows:
1.
QUESTIONS:
Based on the above and the result of your audit, determine
the following as of December 31, 2010:
Ordinary Share Capital
3
2.
3.
4.
________________________________________________________
a. P2,550,000
b. P2,100,000 c.
P5,100,000 d. P4,200,000
Total Share Premium
a. P50,890,000
b. P48,340,000c.
P48,808,000 d. P48,240,000
Total Contributed Capital
a. P53,908,000
b. P53,440,000c.
P55,990,000 d. P53,340,000
Total Shareholders equity
a. P54,270,000
b. P54,738,000c.
P56,820,000 d. P54,170,000
PROBLEM 3
The following information about a share based compensation
of UNIONDALE Company:
Vesting condition
Continued employment for three years
Share options can be exercised if the share price
increases from P100 on Jan. 1, 2009 to P130 on
Dec. 31, 2011. The options can be exercised any
time during the next seven years
Assumptions:
10,000 share options granted to senior
executives on Jan. 1, 2009
All senior executives are still in service as of Dec.
31, 2011
The entity uses a pricing model that takes into
account the possibility that the share price will
exceed P130 on Dec. 31, 2011.
FV of option using this market condition is P48
per option.
4
PROBLEM 5
Retained Earnings account of ELLENVILLE Co., follows:
Date
Particulars
Debit
Credit
01/01/08
Balance
P80,600
06/30/08
Dividends Paid
P25,000
12/31/08
Net income for the year
42,500
02/07/10
Premium on capital stock
10,000
04/30/10
Loss on sale of land
5,000
09/30/10
Dividends paid
20,000
12/31/10
Net income for the year
5,800
12/31/10
Revaluation surplus
40,000
07/01/11
Gain on sale of Treasury Stock
1,600
12/31/11
Net income for the year
33,700
Unrealized loss on
6
PROBLEM 7
RFM Company entered into a contract with a customer to
supply and install a machine on January 1, 2011 and to
service the machine on July 1, 2011 and January 1, 2012.
The cost of the machine to RFM is P80,000. It is possible for
a customer to purchase both the machine and the
maintenance services separately.
The customer is contractually obliged to pay RFM P200,000
on January 1, 2012.
The prevailing rate for one year credit granted to trade
customers in the industry is 5% per six-month period.
Experience has shown that the servicing of a machine of the
model sold to the customer is expected to cost RFM P15,000
to perform the first service and P25,000 to perform the
second service. When RFM provides machine services to
customers in a separate transaction, it earns a margin of
50% on cost.
On January 1, 2011, the cash selling price of a machine of
the model sold to the customer is 125,964.
Required:
1. The amount of income that should be recognized on the
sale of machine in 2011 is:
8
2.
3.
4.
5.
________________________________________________________
a. P125,964 b. P200,000
c. P185,000
d. P160,000
The amount of income that should be recognized on the
sale of services in 2011 is:
a. P25,000
b. P15,000
c. P22,500
d.
P37,500
The amount of income that should be recognized on the
sale of services in 2012 is:
a. P25,000
b. P15,000
c. P22,500
d.
P37,500
The amount of interest revenue that should be recognized
in 2011 is:
a. P6,298
b. P7,738
c. P14,036
d.
P0
The amount of interest revenue that should be recognized
in 2012 is:
a. P6,298
b. P7,738
c. P20,000
d.
P0
/jgs