Assessment on Accounting for Shareholders' Equity:

Part II: Problem Solving

Requirements:
a. Journalize the transactions given below using Journal Entry Method and
Memorandum Method
b. Prepare the Shareholders' Equity as at December 31, 2020, December
31, 2021 and December 31, 2022

Year 2020
On January 1, Neo, Inc. was authorized by the Securities and Exchange
Commission to issue the following types of shares:
a. 100,000 shares of P100 par value ordinary shares
b. 30,000 shares of P100 par value preference shares

c. 20,000 shares of P100 par value preference shares which have a

mandatory redemption date of December 31, 2022 at P102.5 and a
dividend rate of 10% per annum.

On January 10, the following subscriptions were received:

a. 20,000 shares of P100 par value ordinary shares at P103 of which 60%
of the subscriptions was collected.
b. 20,000 shares of P100 par value preference shares of which 80% of the
subscriptions was collected.
c. cash subscription for 18,000 shares of preference shares with
mandatory redemption date.

On January 30, the company received from Nova Castillo a subscription

for 5,000 ordinary shares at P105 per share. Nova made a 50% down
payment.

Also on this date, the company collected the full subscription for the
20,000 preference shares subscribed on January 10. 50% of the balance
on the 20,000 ordinary shares subscribed on January 10 was also
collected.

On February 15, the company collected P100,000 from Nova Castillo. The
company also collected in full the subscription on the 10,000 ordinary
shares subscribed on January 10.

On March 1, the company issued the remaining authorized preference

shares with mandatory redemption date.
On March 15, the company received a bill from its legal counsel for
organization services rendered amounting to P100,000. The company
issued 800 ordinary shares in payment for these services. The company
also collected the full subscription on the 10,000 ordinary shares
subscribed on January 10.

On March 30, Carlo Han transferred the following assets in exchange for
5,000 preference shares:
Land with a known market value of P400,000.

Equipment which cost Carlo P300,000 but with an accumulated

Depreciation of P100,000. No market value can be established for
the equipment nor for the preference shares.

On April 30, the subscription of Nova Castillo was declared delinquent.

On May 30, the corporation pays P50,000 for expense incurred in

connection with the auction of the delinquent sales.

On June 5, the auction sale was conducted. The offer price included
accrued interest on the subscription balance amounting to P5,000. The
following are the bidders:
Christian Crisostomo - 2,000 shares
Sharon Diaz - 1,500 shares
Blessed Cruz - 3,000 shares

On July 30, the company received 2,000 ordinary shares as donation from
one of its shareholders. These shares are coming from shares subscribed
on January 30 and issued on June 5.

On August 15, the company received subscription for 10,000 ordinary

shares at P102 per share. The company received a 25% down payment.

On September 18, the company collected P400,000 as payment for the

10,000 ordinary shares subscribed on August 15.

On December 31, the company's income statement showed a net income

of P1,000,000. Prior to the determination of net income, the company
declared and paid dividend on the mandatorily redeemable preference
shares of P191,667.

Year 2021

On January 5, the company collected the remaining balance on the 10,000

ordinary shares subscribed on August 15, 2020.
On May 18, the company received another subscription for 3,200 ordinary
shares at P104 per share. The company received P150,000 as initial
payment.

On June 30, the company's bank loan with a principal amount of P500,000
and an accrued interest of P50,000 was due. In payment for this loan, the
company issued 5,300 ordinary shares.

On July 15, the company collected in full the subscription on the 3,200
ordinary shares.

On September 30, the company reacquired 3,000 ordinary shares at P97

per share.

On October 20, the company reissued at P101.5 the 1,500 ordinary shares
received as donation on July 30, 2020.

On November 5, the company received subscription for 3,000 ordinary

shares at P103.5 per share. The company collected P250,000.

On December 31, the company's income statement showed a net loss of

P600,000. Prior to this, the company declared and paid dividend on the
mandatorily redeemable preference shares of P200,000.

Year 2022

On February 5, the company collected in full the November 5 subscription

for 3,000 ordinary shares.

On March 6, the company decided to retire the remaining 500 shares it

received as donation.

On May 11, the company reissued 1,000 of the 3,000 ordinary shares it
reacquired on November 5, 2021. The reissue price is P100 per share.

On July 2, the company issued 3,000 of its remaining preference shares at

P104. To make the issue attractive, it has issued the shares with 3,000
share warrants to acquire 1,500 ordinary shares at P102.5. On this date,
the market values are: Preference shares - no known market value; Share
Warrants - no known market value; Ordinary Shares P105. The warrants
are valid until October 3, 2022.
On September 18, the company reissued 1,500 of the 3,000 ordinary
shares it reacquired on November 5, 2021 at P80 per share.

On September 25, 80% of the share warrants was exercised.

On October 3, the remaining share warrants lapsed.

On December 8, the company received subscription for 15,000 ordinary

shares at P107 per share. The company received a 40% down payment.

On December 31, the company's income statement showed a net income

of P2,400,000. Prior to this, the company declared and paid dividend on
the mandatorily redeemable preference shares of P200,000. It also settled
in full its obligation for the redeemable preference shares.