MULTIPLE CHOICE – PROBLEMS

1. Choose the situation which illustrates the minimum requirement of the law to corporate formation
Authorized Capital Subscribed Capital Paid-in Capital
A. P100,000 P25,000 P5,000
B. 100,000 5,000 5,000
C. 50,000 12,500 3,125
D. 60,000 15,000 5,000
2. Jardolin Corporation issued 10,000 shares of P20 par value ordinary shares at P50 per share. The amount that
would be credited to Ordinary Share Premium is
A. P200,000 B. P500,000 C. P300,000 D. P700,000
3. Calimpusan Corp. was organized on January 01, 2013 with authorized capital of 100,000 shares of P200 par value
ordinary shares. During 2013, Calimpusan had the following transactions:
Jan 10 – issued 25,000 shares at P220 per share
Mar 25 – issued 1,000 shares for legal services when the fair value was P240 a share
Sept 30 – issued 5,000 shares for a tract of Land when the fair value was P260 a share
What amount should Calimpusan report for Ordinary Share premium on Dec. 31, 2013?
A. P800,000 B. P840,000 C. 540,000 D. P500,000
4. The Dec. 31, 2013 condensed statement of financial position of Rabago Services, an individual proprietorship
follows:
Current Assets P 1,400,000 Liabilities P 700,000
Equipment (net) 1,300,000 Rabago, Capital 2,000,000
Total P 2,700,000 Total 2,700,000
Fair market values at Dec. 31, 2013 are as follows:
Current Assets P1,600,000
Equipment 2,100,000
Liabilities 700,000
On Jan. 02, 2014, Rabago Services was incorporated, with 5,000 shares of P100 par value ordinary shares issued.
How much should be credited to Ordinary Share Premium?
A. P3,200,000 B. P2,500,000 C. P2,300,000 D. P2,000,000
5. Sorra Corporation’s records included the following shareholders’ equity accounts:
Preference Shares, par value P150, authorized 20,000 shares P2,550,000
Preference Share Premium 150,000
Ordinary Shares, no par, P50 stated value, 100,000 shares authorized 3,000,000
The number of issued and outstanding shares for each class of stock is:
Ordinary shares Preference shares
A. 60,000 17,000
B. 60,000 18,000
C. 63,000 17,000
D. 63,000 18,000
6. Ramirez Co. issued 1,000 shares of its P5 par ordinary shares to Salut as compensation for 1,000 hours of legal
services performed. Salut usually bills P160 per hour for legal services. On the date of issuance, the stock was
trading on a public exchange at P140 per share. By what amount should the share premium account increase as
a result of this transaction?
A. P160,000 B. P135,000 C. P140,000 D. P155,000
7. Cedric and Deniece are partners. They decide to incorporate their business and are recording the incorporation of
the new business. Cedric has a P35,000 capital account balances, while Deniece has a P26,400 balance. Cedric
receives 7,500 shares and Deniece receives 6,000 shares of P4 par ordinary share capital. The correct entry to
record the issuance of ordinary shares, assuming the corporation will use the books of the partnership, is:
A. Cedric, Capital 35,000 C. Cedric, Capital 35,000
Deniece, Capital 26,400 Deniece, Capital 26,400
Ordinary Share Capital 61,400 Gain on Incorporation 61,400
B. Cedric, Capital 35,000 D. Cedric, Capital 35,000
Deniece, Capital 26,400 Deniece, Capital 26,400
Ordinary share Capital 54,000 Capital Adjustment Account 61,400
Ordinary Share Premium 7,400
8. On April 1, 2013, Fudz Corp., a newly formed company had the following shares issued and outstanding:
Preference share, P50 par, 6,000 shares originally issued at P100
Ordinary share, P20 par, 20,000 shares originally issued at P60
Fudz shareholders’ equity should report preference share capital, ordinary share capital and paid in capital in
excess of par, respectively at:
a. P600,000; P1,200,000; P0
b. P600,000; P400,000; P800,000
c. P300,000; P1,200,000; P300,000
d. P300,000; P400,000; P1,100,000

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LONG PROBLEM

Kalaw and Woo are partners sharing profits and losses in the ratio of 1:2 respectively. On July 1, 2013, they decided to
form KW Corporation by transferring the assets and liabilities from the partnership to the corporation in exchange for its
shares of stock. The following is the post closing trial balance of the partnership:
Debit Credit
Cash P 45,000
Accounts Receivable (net) 60,000
Inventory 90,000
Property & Equipment (net) 174,000
Liabilities P 60,000
Kalaw, Capital 94,800
Woo, Capital 214,200
Total P369,000 P369,000

It was agreed that adjustments be made to the following assets to be transferred to the corporation:
Accounts Receivables P 40,000
Inventory 68,000
Property and Equipment 180,600

KW Corporation was authorized to issue P100 par preference share and P10 par ordinary share. Kalaw and Woo agreed to
receive for their equity in the partnership 720 shares of the ordinary shares stock each, plus even multiples of 10 shares
of preference shares for the remaining interest.

REQUIRED:
1. Compute for the total number of preference and ordinary shares to be issued by the corporation in exchange for
the assets and liabilities of the partnership.
2. Prepare one journal entry to record the issuance of the shares computed in Number 1, assuming new set of
books was opened for the corporation.

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