ORIA, MAYBELYN S.

CFAS - SEC 10

ILLUSTRATIVE EXERCISES:

Problem 9. Treasury shares (Cost method only)

a. August 10 Treasury share P 1,072,000

Cash P 1,072,000

Solution: 8,000 shares x P134

b. November 21 Cash P 1,160,000

Solution: 8,000 shares x P145

Treasury share P 1,072,000

Share Premium-Treasury share 88,000

Solution: P1,160,000 - P1,072,000

Problem 10. Treasury shares - Cost method

a. Cash P 1,200,000

Solution: 10,000 ordinary shares x P120 per share

Ordinary Share P 1,000,000

Solution: 10,000 ordinary shares x P100 par

Share Premium-Ordinary share 200,000

Solution: P1,200,000 - P1,000,000

b. Treasury Share 450,000

Cash 450,000
 Solution: 3,000 reacquired shares x P150 per share

c. Cash 170,000

Solution: 1,000 reissued issues x P170 per share

Treasury Share 150,000

Solution: 1,000 shares x P150 per share

Share Premium-Treasury share 20,000

Solution: P170,000 - P150,000

d. Cash 200,000

Solution: 2,000 shares x P100 per share

Share Premium-Treasury shares 20,000

Retained Earnings 80,000

3,000 - reacquire
Solution: P300,000 - (P200,000 + P20,000)
-1,000 - reissued
Treasury Share 300,000
2,000
Solution: 2,000 shares x P150 per share

Problem 11. Treasury share presentation

Shareholders’ Equity

CONTRIBUTED CAPITAL (including Legal Capital)

Ordinary Shares P 6,000,000

Solution: 60,000 shares x P100 par

Share Premium 60,000

Retained Earnings 2,000,000

Treasury Shares (700,000)

 Solution: 5,000 shares x P140 each P 7,360,000

Problem 12. Donated Capital

1. Prepare journal entries.

a. The company received 10,000 ordinary shares with par value of P100 from its
shareholders.

b. Cash P 1,300,000

Share Premium-Donated Capital P 1,300,000

Solution: 10,000 shares x P130 per share

2. How would the donated capital be accounted for in the shareholder’s equity of Pashmina?

Shareholders’ Equity

CONTRIBUTED CAPITAL (including Legal Capital)

Ordinary Shares

Solution: 10,000 shares x P100 par value

Share Premium

Retained Earnings

Treasury Shares

Solution: 5,000 x P140

Donated Capital

Problem 14. Retirement of treasury shares

a. Ordinary Shares 300,000

Solution: 30,000 shares x P10 par value per share

 Treasury Share 250,000

Share Premium-Treasury Share retirement 50,000

Solution: P300,000 - P250,000

b. Ordinary Shares 200,000

Solution: 20,000 (amount to be retired) x P10 par

Share Premium-Ordinary Shares 40,000

Solution: (20,000 x 400,000) / 200,000 (total share issued)

Share Premium-Treasury Shares 80,000

Retained Earnings 30,000

Solution: P350,000 - (P200,000 + 40,000 + 80,000)

Treasury Share 350,000

Solution: P200,000 + 40,000 + 80,000 + 30,000

MODULE 3 - ADDITIONAL ASSIGNMENT

Problem 1. Retirement, Conversion, and Treasury Shares

A. Prepare journal entries.

1. 5% Preference Share Capital P 50,000

Solution: 1,000 shares x P50

Preference Share - Premium 28,000

Solution: 1,000 shares x P28

Preference Share Holder P 78,000

Solution: 1,000 shares x P78 per share

Preference Share Holder 78,000

 Cash 78,000

2. 5% Preference Share Capital P 40,000

Solution: 800 shares x P50

Preference Share - Premium 9,600

Solution: 800 shares x P12

Preference Share Holder P 49,600

Solution: 800 shares x P62 per share

Preference Share Holder 49,600

Cash 49,600

3. 5% Preference Share Capital P 100,000

Solution: 2,000 shares x P50

Preference Share - Premium 60,000

Solution: P160,000 - P100,000

Preference Share Holder P 160,000

Solution: 2,000 shares x 4 x P20

Preference Share Holder 160,000

Equity Capital 160,000

4. 5% Preference Share Capital P 75,000

Solution: 1,500 shares x P50

Preference Share - Premium 105,000

 Solution: P180,000 - P75,000

Preference Share Holder P 180,000

Solution: 1,500 shares x 6 x P20

Preference Share Holder 180,000

Equity Capital 180,000

5. Equity Share Capital 40,000

Solution: 2,000 shares x P20

Ordinary Share Premium 6,000

Solution:2,000 shares x P3

Equity Share Holders 46,000

Solution: 2,000 shares x P23 per share

Equity Share Holders 46,000

Cash 46,000

6. Cash 42,000

Solution: 2,000 shares x P21 per share

Equity Share Capital 40,000

Solution: 2,000 shares x P20

Ordinary Share Premium 2,000

Solution: 2,000 shares x P1

B. Prepare Shareholders’ Equity at year-end.

Shareholders’ Equity

5% Preference Share Capital P 735,000

Ordinary Share Capital 2,340,000

Preference Share Premium 97,400

Ordinary Share Premium 396,000

Retained Earnings 1,250,000

Total Shareholders’ Equity P 4,818,400

Problem 2. Treasury Shares

Prepare journal entries.

a. September 2 Treasury Stock P 110,000

Cash P 110,000

(To record acquisition of 5,000 shares at P22 per share)

Solution: 5,000 shares x P22 per share

b. October 27 Cash 75,000

Solution: 3,000 shares x P25 per share

Treasury Stock 66,000

Solution: 3,000 shares x P22

Additional Paid In Capital in Excess of Par 9,000

Solution: 3,000 shares x P3

(To record reissue of 3,000 treasury shares at P25 per share)

c. October 27 Cash 36,000

 Solution: 2,000 shares x P18 per share

Additional Paid In Capital in Excess of Par 8,000

Solution: 2,000 shares x P4

Treasury Stock 44,000

Solution: P36,000 + P8,000

(To record reissue of 2,000 treasury shares at P18 per share)

Problem 3. Share Split and Recapitalization

Before Split After Split

a. Ordinary Share 40,000 200,000

Par Value 25 50

Total Par Value 1,000,000 1,000,000

(Carter Inc. is issuing 200,000 new shares with par value P5 to replace 40,000 shares with par
value of P25.)

Before Split After Split

b. Ordinary Share 40,000 20,000

Par Value 25 50

Total Par Value 1,000,000 1,000,000

(Carter Inc. is issuing 20,000 new shares with par value P50 to replace 40,000 shares with par
value of P25.)

c. Ordinary Share Capital 600,000

Share Premium - recap 600,000

d. Ordinary Share Capital 480,000

 Share Premium - recap 480,000

Problem 4.

1. Prepare journal entries.

a. March 03 15% Preference Share Capital P 90,000

Solution: 600 preference shares x P150

Preference Share Premium 18,000

Solution: 600 shares x P30

Cash P 99,000

Solution: 600 shares x P165

Retained Earnings 9,000

Solution: 600 shares x P15

(Preference shares retired)

b. March 21 No entry required

c. June 14 Treasury Shares 16,000

Cash 16,000

Solution: 2,000 ordinary shares x P8 per share

(Ordinary shares acquired)

d. August 05 15% Preference Share Capital 150,000

Solution: 1,000 shares x P150

Ordinary Share Capital 24,000

Solution: 1,000 shares x 4 x 6

 Ordinary Share Premium 126,000

Solution: P150,000 - P24,000

(Preference shares converted)

e. November 09 Cash 14,400

Solution: 1,200 shares x P12

Treasury Shares 9,600

Solution: 1,200 shares x P8

Treasury Share Premium 4,800

Solution: P14,400 - P9,600

(Reissued treasury shares)

f. December 28 Income Summary 450,000

Retained Earnings 450,000

(Profit for the year)

2. Prepare Shareholders’ Equity at year-end.

Shareholders’ Equity

15% Preference Share Capital, P150 par P 360,000

Ordinary Share Capital, P6 stated value 224,000

Preference Share Premium 102,000

Ordinary Share Premium 276,000

Treasury Share Premium 4,800

Retained Earnings 1,391,000

Treasury Shares (6,400)

 Total Shareholders’ Equity P 2,351,400

3. How many issued and outstanding shares at year-end?

a. Ordinary Shares 28,000

Outstanding Shares 29,000

Issued Shares 29,000

b. Preference Shares 2,400