Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Accounting Review III - Practical Accounting I (ACCTG100C) P1 - 17

SHAREHOLDERS’ EQUITY

1. The shareholders’ equity section of AA Company revealed the following information on December 31, 2018:

Preference share P3,700,000

Share premium – Preference share 800,000
Ordinary share 5,000,000
Share premium – Ordinary share 2,700,000
Subscribed share capital – Ordinary 55,000
Accumulated profits 2,100,000
Note payable 5,000,000
Subscription receivable – ordinary share 300,000

How much is the legal capital?

A. P 8,755,000 C. P8,700,000
B. 12,255,000 D. 8,455,000

2. BB Corporation was organized on January 1, 2018, with authorized share capital of 100,000 shares of P40 par value
ordinary share. During 2018, BB had the following transactions affecting shareholders’ equity:

January 15 - Issued 25,000 shares at P44 a share

March 20 - Issued 1,000 shares for legal services when the fair value was P48 a share
September 28 - Issued 5, 000 shares for a tract of land when the fair value was P52 a share

What amount should BB report as share premium at December 31, 2018?

A. P108,000 C. P160,000
B. 168,000 D. 100,000

3. On March 1, 2018, CC Corporation issued 10,000 shares of its P10 par value ordinary shares and 20,000 shares of its P20
par value convertible preference share for a total of P800,000. At this date, the ordinary share was selling for P36 per
share, and convertible preference share was selling at P27 per share. What amount of the proceeds should be credited to
share premium – ordinary?
A. P380,000 C. P220,000
B. 120,000 D. 0

4. On December 31, 2018, DD Corporation received a donation of 2,000 shares of its P50 par value ordinary shares from a
shareholder. On that date, the share’s market value was P350 per share. The share was originally issued for P250 per
share. By what amount would this donation cause total shareholders’ equity to decrease?
A. P700,000 C. P200,000
B. 500,000 D. 0

5. Effective April 27, 2018, the shareholders of EE Corporation approved a two-for-one split of the company’s ordinary share,
and an increase in authorized ordinary shares from 100,000 shares (par value P20 per share) to 200,000 shares (P10 par
value). EE’s shareholders’ equity accounts immediately before issuance of the split shares were as follows:

Ordinary shares, par value P20; 100,000 shares authorized;

50,000 shares outstanding P1,000,000
Share premium 150,000
Accumulated profits 1,350,000

By what amount would this share-split cause total shareholders’ equity to increase?
A. P500,000 C. P 0
B. 200,000 D. 1,000,000

6. FF Corporation holds 10,000 shares of its P10 par value ordinary shares as treasury shares reacquired in 2016 for
P150,000. On December 12, 2018, FF issued all 10,000 shares for P195,000. Under the cost method of accounting for
treasury shares, the reissuance would result in a credit to
A. Share capital of P100,000 C. Gain on sale of investment of P45,000
B. Accumulated profits of P45,000 D. Share premium of P45,000
7. Of the 200,000 ordinary shares issued by GG Corporation, 30,000 shares were held as treasury shares on December 31,
2017. During 2018, transactions involving GG’s ordinary shares were as follows:

January 1, through October 31

12,000 ordinary shares were distributed to officers as part of a share compensation plan

November 1
A 3-for-1 share split took effect.

December 1
GG purchased 7,000 of its own shares to discourage an unfriendly take over. These shares were not
retired.

At December 31, 2018, how many of GG’s ordinary shares were issued and outstanding?
Issued Outstanding
A. 600,000 539,000
B. 600,000 543,000
C. 593,000 564,000
D. 557,000 557,000

8. In 2017, HH Corporation issued 5,000 shares of P20 par value ordinary shares for P200 per share. In 2018, HH acquired
2,000 of its shares at P300 per share and immediately canceled these 2,000 shares. In connection with the retirement of
these 2,000 shares, HH should debit
Share premium Accumulated profits
A. P 40,000 P560,000
B. 200,000 360,000
C. 360,000 200,000
D. 560,000 0

9. In 2018, II Corporation issued rights to shareholders to subscribed to additional shares of its ordinary shares. One right
was issued for each share owned. A shareholder could purchase one additional share for 10 rights plus P50 cash. The
rights expired on September 30, 2018. On July 1, 2018, the market price of a share with the right attached was P60 while
the market price of one right alone was P4. II’s shareholders’ equity on June 30, 2018 comprised of the following:

Ordinary shares, P25 par value, 40,000 shares

issued and outstanding P1,000,000
Share premium 600,000
Accumulated profits 800,000

By what amount should II’s accumulated profits decrease as a result of issuance of the stock rights on July 1, 2018?
A. P 0 C. P 80,000
B. 50,000 D. 100,000

10. On December 31, 2018, LL Company had outstanding 10%, P1,000,000 face amount convertible bonds maturing on
December 31, 2023. Interest is payable on June 30 and December 31. Each P1,000 bonds is convertible into 100 shares
of LL’s P10 par ordinary shares. On December 31, 2018, the unamortized balance in the premium on bonds payable
account was P120,000. On December 31, 2018, 800 bonds were converted when LL’s ordinary shares had a market price
of P24 a share. LL incurred P8,000 in connection with the conversion. LL’s entry to record the conversion should include a
credit to share premium of
A. P 96,000 C. P 88,000
B. 104,000 D. 120,000
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wep//shareholdersequity