Chapter 10

Shareholders’ Equity (Part 1)

PROBLEM 1: TRUE OR FALSE

1. FALSE
2. FALSE – SEC not DTI
3. FALSE
4. TRUE
5. FALSE
6. FALSE
7. FALSE – fair value
8. FALSE
9. FALSE
10. FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. B - 2,000 sh. x (18 – 5) = 26,000 share premium recorded at the
subscription date, not collection date
2. A
3. A
4. D – The purchase of treasury shares is recorded as debit to
treasury shares and credit to cash.
5. D – The pro forma entry to record the reissuance of treasury
shares above cost is as follows:
Cash 120 (above cost)
Treasury shares 100 (cost)
Share premium 20

Choice (c) is incorrect. Although ‘share premium – retirement’ is

credited, any share premium from the original issuance is also
debited. The net effect on share premium is a credit.

6. A
7. A
Choice (b) can happen if there is no down payment.
8. C
9. D
10. D

PROBLEM 3: EXERCISES
1. Solutions:
Requirement (a):
Jan. 1, 20x1
Memorandum method Journal entry method
Memo entry – Authorized Unissued share capital 2M
capitalization is ₱2,000,000 divided into Authorized share capital 2M
10,000 shares with par value per share
of ₱200.

Cash 125K Cash 125K

(2M x 25% x 25%) (2M x 25% x 25%)
Subscription receivable 375K Subscription receivable 375K
Subscribed share capital 500K Subscribed share capital 500K
(2M x 25%) (2M x 25%)

Feb. 1, 20x1
Memorandum method Journal entry method
Cash 300K* Cash 300K*
Subscription receivable 300K Subs. receivable 300K
Subscribed share capital 400K Subscribed share capital 400K
Share capital 400K Unissued share capital 400K

* Subscription price of 2,000 shares (2,000 x ₱200) 400,000

Portion already paid (400,000 x 25%) (100,000)
Balance collected 300,000

Feb. 28, 20x1

Memorandum method Journal entry method
Cash (1,000 x ₱200) 200K Cash (1,000 x ₱200) 200K
Share capital 200K Unissued share capital 200K

Requirement (b):
 Memorandum method Journal entry method
Share capital 600,000 Authorized sh. capital 2,000,000
Subscribed sh. capital 100,000 Unissued sh. capital (1,400,000)
Subs. receivable (75,000) Issued share capital 600,000
Subscribed sh. capital 100,000
Subs. receivable (75,000)
Total Share capital 625,000 Total Share capital 625,000

2. Solution:
Jan. Cash (5,000 x ₱120) 600,000
1,
20x
Share capital (5,000 x ₱100) 500,000
1 Share premium [5,000 x (₱120 – ₱100)] 100,000
Jan. Subscription receivable (2,000 x ₱160) 320,000
31,
20x
Subscribed share capital (2,000 x 200,000
1 ₱100) 120,000
Share premium [2,000 x (₱160 – ₱100)]

3. Solutions:
July 1, Treasury shares (1,000 x ₱90) 90,000
20x1 Cash 90,000
July 1, Retained earnings – unrestricted 90,000
20x1 Retained earnings – 90,000
appropriated

Requirement (a):
Sept. Cash (1,000 x ₱140) 140,00
1, Treasury shares (1,000 x ₱90) 0 90,000
20x1 Share premium – treasury shares 50,000

Sept. Retained earnings – appropriated 90,000

1, Retained earnings – unrestricted 90,000
20x1
Requirement (b):
Sept. Cash (1,000 x ₱60) 60,000
1, 20x1 (a) Share premium – treasury shares -
(b) Retained earnings 30,000
Treasury shares (1,000 x ₱90) 90,000
Sept. Retained earnings – appropriated 90,000
1, 20x1 Retained earnings – 90,000
unrestricted

4. Solution:
Requirement (a):
July 1, Treasury shares (1,000 x ₱80) 80,000
20x1 Cash 80,000
July 1, Retained earnings – unrestricted 80,000
20x1 Retained earnings – 80,000
appropriated

Sept. 1, Share capital (1,000 x ₱100) 100,000

20x1
Share premium – original issuance 20,000
(₱320K x 1,000/16,000)
Treasury shares (1,000 x ₱80) 80,000
Share premium - retirement 40,000
Sept. 1, Retained earnings – appropriated 80,000
20x1
Retained earnings – unrestricted 80,000

Requirement (b):
July Share capital (1,000 x ₱100) 100,00
1, Share premium – original issuance 0
20x1 (₱320K x 1,000/16,000) 20,000
(a) Share premium – treasury shares
(b) Retained earnings (balancing figure) 10,000
Cash (1,000 x ₱140) 10,000 140,00
0
5. Solution:
June 1, No entry (memo only)
20x1
June Cash (30,000 x ½ x ₱50) 750,000
20, Ordinary share capital (30K x ½ x 150,000
20x1 ₱10) 600,000
Share premium – Ordinary share
June No entry (memo only)
30,
20x1

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
Ordinary shares, ₱5 par 800,000
Subscribed share capital 100,000
Share premium 1,120,000
Subscription receivable (80,000)
Cumulative losses on translation of foreign
operation (60,000)
Retained earnings - appropriated 320,000
Retained earnings - unappropriated 700,000
Treasury shares, at cost (200,000)
Total shareholders' equity 2,700,000

2. A
Share capital (30K x 10) 300,000
Subscribed shares (40K x 10) 400,000
Subscriptions receivable (40K x 18 x 25%) (180,000)
Share premium (30K x 2) + (40K x 8) 380,000
Total SHE 900,000
Short-cut for total equity: (30,000 x 12) + (40,000 x 18 x 75%) = 900,000

3. C
Date Cash (10,000 x ₱14) 140,00
Share capital (10,000 x ₱1) 0 10,000
Share premium 130,00
0
Date Share premium 2,000
Cash 2,000
Date Cash (20,000 x ₱20 x 25%) 100,00
Subscriptions receivable (20K x ₱20 x 0
75%) 300,00 20,000
Subscribed share capital (20,000 x ₱1) 0 380,00
Share premium 0

Dat Cash (15,000 x ₱20 x 75%) 225,00

e
Subscriptions receivable 0 225,00
0
Dat Subscribed share capital (15,000 x ₱1) 15,000
e
Share capital 15,000
Dat Share premium 3,000
e
Cash 3,000

Total SHE before share transactions 900,000

Share capital (10,000 + 15,000) 25,000
Subscribed share capital (20,000 - 15,000) 5,000
Subscription receivable (300,000 – 225,000) (75,000)
Share premium (130,000 – 2,000 + 380,000 – 3,000) 505,000
Total SHE after share transactions 1,360,000

Short-cut: 900,000 + (10,000 x 14 – 2,000) + (20,000 x 20 x 25%) +

(15,000 x 20 x 75% - 3,000) = 1,360,000

4. C

Jan. 3 No entry (memorandum method assumed)

 Jan. 5 Cash (5K x ₱52) + (60K x ₱14) 1,100,000
Preference share capital (5K x ₱50) 250,000
Share premium - PS [5K x (₱52 - ₱50)] 10,000
Ordinary share capital (60K x ₱10)
600,000
Share premium - OS [60K x (₱14 - ₱10)]
240,000

Jan. 24 Organization costs (2K x ₱16) 32,000

Ordinary share capital (2K x ₱10)
20,000
Share premium - OS [2K x (₱16 - ₱10)]
12,000

Feb. 3 Land 250,000

Building 1,000,000
Ordinary share capital (80K x ₱10)
800,000
Share premium - OS 450,000

Sept. 12 Cash (3K x ₱53 x 40%) 63,600

Subscription receivable (3K x ₱53 x 60%) 95,400
Subscribed share capital – PS (3K x ₱50) 150,000
Share premium - PS [3K x (₱53 - ₱50)] 9,000

Oct. 1 Cash 15,900

Subscription receivable 15,900

250,00
Preference share capital 0
150,00
Subscribed sh. Capital - PS 0
19,00
Share premium - PS (10K + 9K) 0
(79,500
Subscription receivable (95.4K - 15.9K) )
Ordinary share capital (600K + 20K + 800K) 1,420,000
 702,00
Share premium - OS (240K + 12K + 450K 0
Total contributed capital 2,461,500

5. D
Par No-par
Ordinary share capital 1,600,000 1,600,000
Subscribed share capital 200,000 200,000
Share premium 600,000
Legal capital 1,800,000 2,400,000

6. B
Jan. 2, Cash (25,000 x 15 x 50%) 187,500
20x1 Subscription receivable (25,000 x 15 x 50%) 187,500
Subscribed share capital (25,000 x 10) 250,000
Share premium 125,000
Jan. Cash (20,000 x 15 x 50%) 150,000
28, Subscription receivable 150,000
20x1
Subscribed share capital (20,000 x 10) 200,000
Ordinary share capital 200,000

July Treasury shares (5,000 x 17) 85,000

14, Cash 85,000
20x1
Dec. Cash (2,500 x 20) 50,000
27, Treasury shares (2,500 x 17) 42,500
20x1 Share premium – Treasury shares 7,500

Share premium, Dec. 31, 20x1: (125K + 7.5K) = 132,500

7. A
Date Cash (10,00 x ₱48) 480,000
(a) Share premium – treasury shares (1) -
(b) Retained earnings 20,000
 Treasury shares (10,000 x ₱50) 500,00
0

(1)
There is no balance in this account because the problem states that
the reacquisition was the first treasury share transaction of Entity A.

8. D

Date Cash (10,000 x ½ x ₱58) 290,00

Treasury shares (10,000 x ½ x ₱50) 0 250,00
Share premium – treasury shares 0
40,000

Date Share capital (5,000 x ₱10) 50,000

Share premium – original issuance (5K x ₱5) 25,000
(a) Share premium – treasury shares (see 40,000
above) 135,000
(b) Retained earnings (balancing figure) 250,000
Treasury shares (5,000 x 50)

9. A
Jan. Share capital (150,000 x ₱2 par) 300,000
2, Share premium (2.55M x 300K ÷ 1.7M) 450,000
20x Retained earnings 450,000
3
Cash 1,200,000

1,400,00
Ordinary shares (1,700,000 – 300,000)
0
2,100,00
Share premium (2,550,000 – 450,000)
0
6,250,00
Retained earnings (6,700,000 – 450,000)
0
9,750,00
Total shareholders' equity
0

10. D
Date Share capital (1,000 x ₱10) 10,000
Share premium – original issuance (1K x ₱20) 20,000
Cash (1,000 x 25) 25,000
Share premium – retirement 5,000

11. C
 Proportional method:
Fair Total
No. of value fair Allocatio
shares per sh. value Fraction n
Preference
shares 200 150 30,000 30/150 40,000

Ordinary shares 1,000 120 120,000 120/150 160,000

Totals 1,200 150,000 150/150 200,000

Dat Cash 200,000

e
Preference share capital (200 x ₱130 par) 26,000
Share premium – PS (40,000 – 26,000) 14,000
Ordinary share capital (1,000 x ₱100 par) 100,000
Share premium – OS (160,000 – 100,000) 60,000

 Incremental method:
Lump sum price 200,000
Allocation to ordinary shares, at fair value (1,000 x
(120,000)
₱120)
Excess allocated to preference shares 80,000

The entry to record the issuance is as follows:

Date Cash 200,000
Preference share capital (200 x ₱130 par) 26,000
Share premium – PS (80,000 – 24,000) 54,000
Ordinary share capital (1,000 x ₱100 par) 100,000
Share premium – OS (120,000 – 100,000) 20,000

12. C (120,000 rights x ₱0.10) = 12,000 debit to share premium

13. B
(a) Cash (3,000 x ₱18) 54,000
Callable preference shares (3,000 x ₱10) 30,000
Share premium – Callable PS 24,000
to record issuance of callable preference shares
(b) Cash (2,000 x ₱25) 50,000
Convertible preference shares (2,000 x 40,000
₱20) 10,000
Share premium – Convertible PS
to record issuance of convertible preference shares
(c) Callable preference shares (2,000 x ₱10) 20,000
Share premium – Callable PS (24K x 2K/3K) 16,000
Cash (2,000 x ₱17) 34,000
Share premium – redemption 2,000
(d) Convertible preference shares (1,000 x ₱20) 20,000
Share premium – Convertible PS (10K x 5,000
1/2) 25,000
Ordinary share (1,000 x ₱25 par)

Share premium, beg. 280,000

(a) 24,000
(b) 10,000
(c) (16,000)
(c) 2,000
(d) (5,000)
Share premium, end. 295,000

14. C

Case (1):
Fair value Total Fair Allocatio
Equity instruments per sh. value Fraction n
Preference
sh. 4,000 100 400,000 400/500 396,800
Warrants 4,000 25 100,000 100/500 99,200
500,000 500/500 496,000
Date Cash (4,000 x 124) 496,000
Preference share capital (4,000 x ₱80 par) 320,000
Share premium – PS (396,800 – 320,000) 76,800
Share premium – warrants 99,200
outstanding

Case (2):
Fair value of ordinary share 58
Subscription price (10)
Intrinsic value per share of warrant 48
Number of ordinary shares purchasable under the
warrants 2,000*
Assigned value of share warrants 96,000

* 4,000 preference shares ÷ 2 warrants per ordinary sh. = 2,000

Issue price 496,000

(96,000
Assigned value of share warrants
)
Excess allocated to preference shares 400,000

Date Cash (4,000 x 124) 496,000

Preference share capital (4,000 x ₱80 par) 320,000
Share premium – PS (400,000 – 320,000) 80,000
Share premium – warrants 96,000
outstanding

15. D

PROBLEM 5: CLASSROOM ACTIVITY

Answer:
Cash 45,678.60
Share capital 16,000.00
(100 shares per certificate x 16 certificates x ₱10 par*]
Share premium 29,678.60
* See share certificate below.
 P a g e | 15

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
Requirement (a):
Jan. 6, 20x1
Memorandum method Journal entry method
Memo entry – Authorized Unissued share capital 3M
capitalization is ₱3,000,000 divided into Authorized share capital 3M
600,000 shares with par value per share
of ₱5.

Cash (3M x 25% x 25%) 187.5K Cash (3M x 25% x 25%) 187.5K
Subscription receivable 562.5K Subscription receivable 562.5K
Subscribed share capital 750K Subscribed share capital 750K
(3M x 25%) (3M x 25%)

Jan. 31, 20x1

Memorandum method Journal entry method
Cash 450K* Cash 450K*
Subscription receivable 450K Subscription receivable 450K
Subscribed share capital 600K Subscribed share capital 600K
Share capital 600K Unissued share capital 600K

* Subscription price of 120,000 shares (120,000 x ₱5) 600,000

Portion already paid (120,000 x ₱5 x 25%) (150,000)
Balance collected 450,000

Feb. 14, 20x1

Memorandum method Journal entry method
Cash (60,000 x ₱20) 1.2M Cash (60,000 x ₱20) 1.2M
Share capital (60K x ₱5) 300K Unissued sh. capital (60K x ₱5) 300K
Share premium 900K Share premium 900K
Share premium 12K Share premium 12K
Cash 12K Cash 12K

Feb. 28, 20x1

Memorandum method Journal entry method
Subs. receivable (150K x ₱25) 3.75M Subs. receivable (150K x ₱25) 3.75M
Subs. sh. capital (150K x ₱5) 750K Subs. sh. capital (150K x ₱5) 750K
Share premium 3M Share premium 3M
 P a g e | 16

Requirement (b):
Memorandum method Journal entry method
Share capital 900,000 Authorized sh. capital 3,000,000
Subscribed sh. cap. 900,000 Unissued sh. capital (2,100,000)
Subs. receivable (3,862,500) Issued share capital 900,000
Share premium 3,888,000 Subscribed sh. capital 900,000
Subs. receivable (3,862,500)
Share premium 3,888,000
Total Share capital 1,825,500 Total Share capital 1,825,500

2. Solutions:
Sept. 1, Treasury shares (3,000 x ₱90) 270,00
20x1 Cash 0 270,00
0
Sept. 1, Retained earnings – unrestricted 270,00
20x1 Retained earnings – 0 270,00
appropriated 0

Requirement (a):
Nov. 1, Cash (3,000 x ₱140) 420,00
20x1 Treasury shares (3,000 x ₱90) 0 270,00
Share premium – treasury shares 0
150,00
0
Nov. 1, Retained earnings – appropriated 270,00
20x1 Retained earnings – unrestricted 0 270,00
0

Requirement (b):
Nov. 1, Cash (3,000 x ₱60) 180,00
20x1 (a) Share premium – treasury shares 0
(b) Retained earnings -
Treasury shares (3,000 x ₱90) 90,000 270,00
0
 P a g e | 17

Nov. 1, Retained earnings – appropriated 270,00

20x1 Retained earnings – 0 270,00
unrestricted 0

3. Solution:
Requirement (a):
May Share capital (4,000 x ₱100 par) 400,00
9, Share premium – original issuance 0
20x1 (320K x 4,000/16,000 issued shares) 80,000
Cash (4,000 x ₱80) 320,00
Share premium – retirement 0
160,00
0

Requirement (b):
May Share capital (1,000 x ₱100) 400,00
9, Share premium – original issuance 0
20x1 (320K x 4,000/16,000 issued shares) 80,000
(a) Share premium – treasury shares
(b) Retained earnings (balancing figure) 10,000
Cash (4,000 x ₱140) 70,000 560,00
0

4. Solution:
Sept 1, No entry (memo only)
20x1
Sept. Cash (30,000 x ₱60) 1,800,00
21, Ordinary share capital (30,000 x ₱50) 0 1,500,00
20x1 Share premium – Ordinary share 0
300,000
Sept. No entry (memo only)
30,
20x1
 P a g e | 18

5. Solution:
May Cash 200,000
21, Share premium – donated 200,000
20x1 capital
July 5,
No entry (memo only)
20x1
July Land 1,000,000
20, Share premium – donated 1,000,000
20x1 capital
Dec. Cash (1,000 x ₱260) 260,000
19, Share premium – donated 260,000
20x1 capital