INTERMEDIATE ACCOUNTING 3

SHAREHOLDERS’
EQUITY
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

SHAREHOLDERS’ EQUITY
INTERMEDIATE ACCOUNTING 3
PREPARED BY: Maga, Hyacinth T.

DISCLAIMER: This paper is prepared by bonafide NUJPIANS for A.Y. 2021-2022.

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EXCLUSIVE FOR ACCOUNTANCY STUDENTS OF NATIONAL UNIVERSITY ONLY

1. Statement 1 A partnership is an artificial being created by operation of law, which

ownership can be transferred through succession and the powers, attributes, and
properties expressly authorized by law.
Statement 2 Persons who are licensed to practice a profession and partnerships or
associations organized for the purpose of practicing the profession shall always be
allowed to form a corporation.
Statement 3 A corporation is a legal or juridical person with a personality separate and
distinct from its shareholders and individual members.
a. False, True, True
b. True, False, True
c. False, False, True
d. True, False, False
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2. I. Treasury shares requires that the shares must be issued originally.

II. A corporation can acquire treasury shares only to the extent of retained earnings
balance.
III. Dividends are collection of capital to the shareholders in proportion to their past
shares in the entity.
IV. According to the GAAP, stock dividends may be declared from premium on par
value share.
V. Property dividends are distribution of earnings of the entity to the shareholders in
the form of noncash assets.
a. Only I and V are true
b. Only III and IV are false
c. Only I, II but not V are true
d. Only V is true except I

3. This arises from the fact that the terms of the bond issue and preference share issue
may impose restrictions on the payment of the dividends.
a. Contractual appropriation
b. Voluntary appropriation
c. Legal appropriation
d. Money market appropriation

4. Granted to officers and key employees to enable them to acquire share in the company
during a specified period upon fulfillment of the resolutory conditions at a specified
price.
a. Share based premium
b. Share compensation
c. Share Bonus
d. Share option

5. It is equal to the excess of the market value of liability to the excess of the market
value of share over a predetermined price for a given number of shares over a definite
vesting period.
a. par value
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

b. fair value
c. fair value of asset
d. fair value of liability

6. Soriano Corp. provided the following data at the year-end:

Authorized share capital 6,000,000
Unissued share capital 2,500,000
Subscribes share capital 2,000,000
Subscription receivable 600,000

Share premium 800,000

Retained earnings unappropriated 250,000
Retained earnings appropriated 150,000
Revaluation surplus 138,000
Treasury shares, at cost 99,000

What total amount should be reported as shareholder’s equity?

a. 6,129,000
b. 6,139,000
c. 5,989,000
d. 6,088,000

7. Jeddy Co. began its operations on January 1, 2020 by issuing at P18 per share one-
half of the 969,000 ordinary shares of P1 par value that had been authorized for issue.
In addition, the entity had 500,000 authorized preference shares of P4 par value.
During 2020, the entity had P1,025,000 of net income and declared P230,000 worth
of dividends.
During 2021, the entity had the following transactions:
• Issued 100,000 ordinary shares for P22 per share
• Issued 150,000 preference shares for P9 per share
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• Authorized the purchase of a custom-made machine to be delivered in January

2021. The entity restricted P300,000 of retained earnings for the purchase of the
machine.
• Issued additional 50,000 preference shares for P10 per share
• Reported P1,213,000 of net income and declared on December 31, 2020 a
dividend of P696,000 to shareholders of record on January 15, 2021 to be paid on
February 1, 2021
What amount should be reported as total SHE on December 31, 2021?
a. 14,083,000
b. 11,500,000
c. 10,003,000
d. 14,779,000

8. Reyes Industries held 12,000 shares of P12 par value as treasury shares reacquired for
P115,000. At year-end the entity reissued all 12,000 shares for P180,000.
What is credited for the excess of the reissuance price over the cost of treasury
shares?
a. Share capital, P144,000
b. Retained earnings, P65,000
c. Fain on sale of investment, P65,000
d. Share premium, P65,000

9. Hybe Co issued 66,000 shares of P10 par value for P110 per share at the beginning of
the year.
During the period, the entity reacquired 2,000 shares at P150 per share and
immediately cancelled these 2,000 shares.
In connection with the retirement of shares, what amount should be debited to share
premium?
a. 200,000
b. 20,000
c. 80,000
d. 300,000
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10. At the beginning of 2020, YG Entertainment had 800,000 ordinary shares authorized
and 400,000 shares outstanding.
January 31 Declared 10% share dividend
July 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November 30 Declared 2-for-1 share split
How many ordinary shares are outstanding at year-end?
a. 720,000
b. 680,000
c. 780,000
d. 390,000

11. SM Ent. issued 300,000 shares of P4 par value at P9 per share. On January 1, 2020,
the retained earnings amounted to P3,100,000.
In March 2020, the entity reacquired 50,000 treasury shares at P20 per share. In June
2020, the entity sold 12,000 of these shares to corporate officers for P25 per share.
The entity used the cost method to record treasury shares.
Net income for the period was P700,000. How much is the unappropriated retained
earnings at year-end?
a. 3,840,000
b. 3,800,000
c. 3,080,000
d. 3,040,000

12. At the beginning of the current year, JYP Entertainment declared a 12% share
dividend. The market price of the entity’s 330,000 outstanding shares of P50 par
value was P92 per share on that date.
The share dividend was distributed on July 1 when the market price was 100 per
share.
What amount should be credited to share premium for the share dividend?
a. 1,463,500
b. 1,663,200
c. 1,480,030
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

d. 1,640,000

13. Cube Entertainment reported the following shareholder’s equity at the beginning of
the current year:
Share capital, P5 par, 600 shares authorized,
200,000 shares issued and outstanding 1,000,000
Share premium 6,000,000
Retained Earnings 2,800,000
Total shareholder’s equity 9,800,000

During the current year, the following chronological transactions affected the
shareholder’s equity:
• Reacquired 10,000 shares at P30 per share to be held as treasury.
• Declared and issued a 30% share dividend.
• Declared and paid cash dividend of P10 per share.
• Net income for the current year amounted to P3,000,000
What amount should be reported as unappropriated retained earnings?
a. 3.045,000
b. 2,745,000
c. 2,700,000
d. 2,600,000

14. TierOne Entertainment provided its shareholders’ equity at year-end:

Share capital, P30 par, 100,000 shares auth and outstanding 3,000,000
Share premium 1,500,000
Retained Earnings (deficit) (2,100,000)

The entity put into effect a quasi-reorganization by reducing the par value of the share
to P5 and eliminating the deficit against the share premium.
Immediately after the quasi-reorganization, what amount should be reported as share
premium?
a. 1,500,000
b. 1,900,000
c. 4,000,000
d. 600,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

15. Onic Philippines granted 30,000 share appreciation rights which entitled its
employees to receive cash equal to the difference between P20 and the market price of
the share on the date each right is exercised.
The service period is 2019 through 2021, and the rights are exercisable in 2022. The
market price of the share was P25 and P28 on December 31, 2019 and 2020,
respectively.
What amount should be recorded as compensation expense for 2020?
a. 120,000
b. 150,000
c. 110,000
d. 10,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

ANSWER KEY
1. C
2. B
3. A
4. D
5.D

6. B
Authorized share capital 6,000,000
Unissued share capital (2,500,000)
Issued share capital 3,500,000
Subscribes share capital 2,000,000
Subscription receivable 600,000 1,400,000
Share premium 800,000
Retained earnings:
Unappropriated 250,000
Appropriated 150,000 400,000
Revaluation surplus 138, 000
Total 6,238,000
Treasury shares, at cost (99,000)
Shareholders’ Equity 6,139,000

7. A
Issuance or ordinary shares in January
(969,000 x ½ x 18) 8, 721, 000
Net Income for 2020 1, 025,000
Dividend declared in 2020 (230,000)
Total SHE – December 31, 2020 9,516,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Shareholders’ Equity – 2020 9, 516,000

Issuance of ordinary shares (100,000 x 22) 2,200,000
Issuance of preference shares (150,000 x 9) 1,350,000
Issuance of preference shares (50,000 x 10) 500,000
Net income for 2021 1,213,000
Dividend declared in 2021 (696,000)
Total SHE – December 31, 2021 14,083,000

8. D
Cash 180,000
Treasury shares 115,000
Share Premium-TS 65,000

9. A
Share capital (2,000 x 10) 20,000
Share premium (2,000 x 100) 200,000
Retained earnings (squeezed) 80,000
Cash 300,000

10. C
Original shares 400,000
Share dividend 40,000
Total shares issued before split 440,000
Remaining treasury shares (50,000)
Outstanding shares before split 390,000

Shares issued after split (440,000 x 2) 880,000

Treasury shares before split (50,000 x 2 ) (100,000)
Outstanding shares after split 780,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

11. D
Retained earnings January 1 3,100,000
Net income 700,000
Total retained earnings 3,800,000
Appropriated for treasury shares(38,000 x 20) (760,000)
Unappropriated retained earnings 3,040,000

12. B
Market value on date of declaration
(12% X 330,000 = 39,600 Shares x 92) 3,643,200
Par value of shares issued as share dividend
(39,600 x 50) (1,980,000)
Share premium 1,663,200

13. B
Retained Earnings-beg 2,800,000
Share dividend (57,000 x 5) (285,000)
Cash dividend (247,000 x 10) (2,470,000)
Net Income 3,000,000
Appropriated for treasury shares (10,000x 30) (300,000)
Unappropriated balance-ending 2,745,000

14. B
To reduce the par value:
Share capital 2,500,000
Share premium 2,500,000

To eliminate the deficit:

Share premium 2,100,000
Retained earnings 2,100,000

Considering the adjustments, the share premium account should have a balance of
P1,900,000.
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

15. C
Fair value of share appreciation right- Dec 31, 2019
(25-20) 5
Fair value of share appreciation right- Dec 31, 2020
(28-20) 8

Accrued compensation – 12/31/2020

(30,000 X 8= 240,000/3 X 2 YEARS) 160,000
Accrued compensation – 12/31/2019
(30,000 X 5 / 3 YEARS) (50,000)
Compensation Expense for 2020 110,000