SM-Chapter 6 & 7_2022 ed.

Exercise 6 – 1 Multiple Choice ( n x 2)

Encircle the letter of your chosen answer.

1. The total amount of the shareholders’ investments in the books of the issuing
corporation is called:
a. Contributed Capital c. Retained Earnings
b. Donated Capital d. Total Shareholders’ Equity

2. Treasury shares shall be credited:

a. at the reissuance price which is above cost.
b. at the reissuance price which is below cost.
c. at an amount equal to the cost of the treasury shares sold.
d. at the original par value of the shares held in the treasury.

3. Which of the following is excluded under the Share Capital section of

Shareholders’ Equity?
a. Ordinary Share Capital c. Subscribed Ordinary Shares
b. Donated Capital d. Treasury Shares – Ordinary Shares

4. Treasury shares are:

a. shares held by the Bureau of Treasury.
b. unissued shares that are held by the treasurer of the corporation.
c. shares previously issued, bought back and held by the corporation.
d. part of the total outstanding shares but not part of the total issued shares
of the corporation.
5. The acquisition of treasury shares will result in
a. a decrease in one asset account and increase in another asset account.
b. a decrease in asset account and decrease in a liability account.
c. a decrease in asset account and decrease in a shareholders’ equity
account.
d. no increase nor decrease in an asset, liability or shareholders’ equity
account.

6. Which of the following statements is false?

a. Treasury shares may either be ordinary share or preference share.
b. Treasury shares will be recorded at par value when purchased.
c. The cost of treasury shares shall be deducted from Total Share Capital
and Retained Earnings in determining Total Shareholders’ Equity.
d. Treasury Shares shall be credited when they are retired.

7. Statement 1 Preference share is considered the residual equity of a corporation.

Statement 2 In case of par value shares, legal capital is the aggregate par value
of all issued and subscribed shares.

a. Both statements are true. c. Both statements are false.

b. Only Statement 1 is true. d. Only Statement 2 is true.

8. On March 1, 2022 authorized ordinary shares were sold on a subscription basis

at a price in excess of par value and 20% of the subscription price was collected.
On June 1, the remaining 80% of the subscription price was collected. Share
premium increased on:
March 1 June 1 March June1
a. No Yes c. Yes
No
b. No No d. Yes Yes
 9. The issuance of preference share to shareholders
a. increases preference share outstanding.
b. has no effect on preference share outstanding.
c. increases authorized preference shares.
d. decreases authorized preference shares.

10. For a corporation, Income Summary account is ultimately closed to:

a. Share Capital c. Dividends
b. Accumulated Profits (Losses) d. Share Premium

PROBLEM 6-1 page 179

Assumption # 1:

September 20 Organization Expense ……………………….P50,000

Ordinary Share Capital ………………………………..P 30,000
Share Premium – OS ………………………………… 20,000
Issued 1,000 ordinary shares
1,000 sh. x P30 par=P30,000

November 15 Cash ……………………………………………P375,000

Ordinary Share Capital ………………………………..P225,000
Share Premium – OS ………………………………… 150,000
Issued 7,500 ordinary shares
7,500 sh. X P30 par=P225,000
Assumption # 2

September 20 Organization Expense ……………………….P50,000

Ordinary Share Capital ………………………………..P 40,000
Share Premium – OS ………………………………… 10,000
Issued 1,000 ordinary shares
1,000 sh x P40= P40,000

November 15 Cash ……………………………………………P375,000

Ordinary Share Capital ………………………………..P300,000
Share Premium – OS ………………………………… 75,000
Issued 7,500 ordinary shares
7,500 sh xP40=P300,000
Assumption # 3:

September 20 Organization Expense ……………………….P50,000

Ordinary Share Capital ………………………………..P50,000
Issued 1,000 ordinary shares

November 15 Cash ……………………………………………P375,000

Ordinary Share Capital ………………………………..P375,000
Issued 7,500 ordinary shares

Problem 6 – 2 page 180

I) Journal Entry Method

2021
May 25 Unissued Preference Shares………………….P5,000,000
Unissued Ordinary Shares …………………… 5,000,000
Authorized Preference Shares ……………………………..P 5,000,000
Authorized Ordinary Shares ………………………………… 5,000,000
Authorized to issue 250,000 ordinary shares
and 100,000 preference shares
100,000 sh x P50= P5,000,000
250,000 sh x P20= P5,000,000

2022
June 1 Cash ……………………………………………..P1,375,000
Unissued Ordinary Shares………………………………….P1,100,000
Share Premium – OS ………………………………………. 275,000
Issued 55,000 ordinary shares
55,000xP20= P1,100,000
55,000xP 5= P 275,000

June 15 Merchandise Inventory ……………………….. P 400,000

Furniture and Fixtures ……………………….. 150,000
Equipment ……………………………………… 175,000
Land …………………………………………….. 875,000
Unissued Ordinary Shares………………………………….P1,500,000
Share Premium – OS ………………………………………. 100,000
Issued 75,000 ordinary shares in
exchange for non-Cash assets
 75,000shxP20=P1,500,000

July 1 Cash………………………………………………. P 968,750

Subscription Receivable – OS ………………… 2,700,000
Subscription Receivable – PS ………………… 206,250
Subscribed Ordinary Shares ………………………………P2,400,000
Subscribed Preference Shares ……………………………. 250,000
Share Premium – OS ……………………………………….. 1,200,000
Share Premium - PS ……………………………………….. 25,000
Received subscriptions for 120,000 ordinary shares
and 5,000 preference shares with 25% downpayment;
balance collectible within 90 days

OS: 120,000 shxP30 = P3,600,000: Subs. Rec.

P3,600,000 x .25 = P900,000 (Cash)
P3,600,000 x .75 = P2,700,000(Subscription Rec. balance)
120,000 shxP20 par= P2,400,000 Subscribed OS
120,000 shxP10 = P1,200,000 Share Premium

PS: 5,000 shxP55 = P 275,000 Subs. Rec.

P 275,000 x .25 = P 68,750 (Cash)
P275,000 x .75 = P206,250 (Subscription Rec. balance)
5,000 sh, x P50 = P250,000 (Subscribed PS)
5,000 sh x P 5 = P25,000 Share Premium

September 15 Cash ………………………………………………P2,906,250

Subscription Receivable – OS ………………… P2,700,000
Subscription Receivable – PS …………………… 206,250
Full collection

Subscribed Ordinary Shares …………………P2,400,000

Subscribed Preference Shares ………………. 250,000
Unissued Ordinary Shares …………………………………. P 2,400,000
Unissued Preference Shares ……………………………….. 250,000
Issued 120,000 ordinary shares and
5,000 preference shares

II) Memorandum Method

2021
May 25 Memo Entry: Elmar Inc. was authorized to issue 250,000 ordinary shares with P20 par
value per share and 100,000 preference shares with P50 par value per
share.
2022
June 1 Cash ……………………………………………..P1,375,000
Ordinary Share Capital ………………………………….P1,100,000
 Share Premium – OS ………………………………………. 275,000
Issued 55,000 ordinary shares

June 15 Merchandise Inventory ……………………….. P 400,000

Furniture and Fixtures ……………………….. 150,000
Equipment ……………………………………… 175,000
Land …………………………………………….. 875,000
Ordinary Share Capital…………………………………. P1,500,000
Share Premium – OS ………………………………………. 100,000
Issued 55,000 ordinary shares in
exchange for non-Cash assets

July 1 Cash………………………………………………. P 968,750

Subscription Receivable – OS ………………… 2,700,000
Subscription Receivable – PS ………………… 206,250
Subscribed Ordinary Shares ………………………………P2,400,000
Subscribed Preference Shares ……………………………. 250,000
Share Premium – OS ……………………………………….. 1,200,000
Share Premium - PS ……………………………………….. 25,000
Received subscriptions for 120,000 ordinary shares
And 5,000 preference shares with 25% downpayment;
Balance collectible within 90 days

September 15 Cash ………………………………………………P2,906,250

Subscription Receivable – OS ………………… P2,700,000
Subscription Receivable – PS …………………… 206,250
Full collection

Subscribed Ordinary Shares …………………P2,400,000

Subscribed Preference Shares ………………. 250,000
Ordinary Share Capital …………………………………. P 2,400,000
Preference Share Capital ……………………………….. 250,000
Issued 120,000 ordinary shares and
5,000 preference shares
2.
Elmar Inc.
Statement of Financial Position
As of September 30, 2022

Assets Shareholders’ Equity

Cash ……………………………….P 5,250,000 Contributed Capital:

Merchandise Inventory ………….. 400,000 9% Preference Share Capital…….P250,000
Land ………………………………. 875,000 Ordinary Share Capital …………..5,000,000
Furniture and Fixtures …………. 150,000 Share Premium – PS ……………. 25,000
Equipment ……………………… 175,000 Share Premium – OS ……………1,575,000
Total Assets P6,850,000 Total Shareholders’ Equity P6,850,000
========= =========

Problem 6 – 3 page 181

Organization Expenses ……………………….P 100,000

Ordinary Share Capital …………………………………P 30,000
Share Premium – OS …………………………………. 70,000
Issued 3,000 ordinary shares
3,000 sh x P10 par = P30,000

Problem 6 – 4 page 181

1. Keith is the delinquent subscriber

2. Duane is the highest bidder.
3. 3,000 shares will be issued to Keith, the delinquent subscriber.

10,000 sh x P12= P120,000….Subscription Rec.

P120,000 x ½ = P60,000

10,000 sh x P10 par = P100,000

4. Receivable from the Highest Bidder P 62,500

Subscription Receivable – Ordinary Shares P 60,000
Cash ………………………………………………………… 2,500

Cash ………………………………………………….P 62,500

Receivable from the Highest Bidder ………………………P 62,500

Subscribed Ordinary Shares ………………………P 100,000

Ordinary Share Capital ……………………………………..P 100,000
 5. Treasury Shares or Treasury Stocks ……………..P 62,500
Subscription Receivable – Ordinary Shares ……………...P 60,000
Receivable from the Highest Bidder ………………………. 2,500

Problem 6 – 5 page 182

JOURNAL ENTRY METHOD
4/1 Unissued Preference Shares ……………………………………..P 1,500,000
Unissued Ordinary Shares …………………………………….. 1,500,000
Authorized Preference Shares ………………………………………………….P 1,500,000
Authorized Ordinary Shares ……………………………………………………. 1,500,000

4/2 Cash ……………………………………………………………………..P 120,000

Subscription Receivable – PS ………………………………………… 280,000
Subscribed Preference Shares ………………………………………………..P 200,000
Share Premium – PS …………………………………………………………… 200,000

4/30 Cash …………………………………………………………………… P 120,000

Subscription Receivable – PS ………………………………………………….P 120,000

5/1 Cash …………………………………………………………………… P 450,000

Unissued Ordinary Shares ………………………………………………………P 300,000
Share Premium – OS ……………………………………………………………. 150,000

5/22 No Entry

5/28 Receivable from the Highest Bidder ………………………………….P 160,000

Subscription Receivable – PS …………………………………………………..P 160,000

Cash …………………………………………………………………… P 160,000

Receivable from the Highest Bidder …………………………………………….P 160,000

Subscribed Preference Shares ……………………………………….P 200,000

Unissued Preference Shares …………………………………………………….P 200,000

Problem 6 – 6 page 183

2021
June 1 Memo Entry: Tictac Co. was authorized to issue 60,000 shares of 9% Preference Shares with
P100 par value per share and 220,000 Ordinary Shares with P20 par value per
share.
a) Cash …………………………………..P1,470,000
Subscription Receivable – PS 2,142,000
Subscription Receivable – OS 1,288,000
Subscribed Preference Shares ……………….P3,000,000
Subscribed Ordinary Shares …………………. 1,600,000
Share Premium – PS …………………………… 60,000
Share Premium – OS …………………………… 240,000
 b) Cash ………………………………… .P3,349,500
Subscription Receivable – PS P2,142,000
Subscription Receivable – OS 1,207,500

Subscribed Preference Shares ……………….P3,000,000

Subscribed Ordinary Shares …………………. 1,500,000
Preference Share Capital ……………………………… P3,000,000
Ordinary Share Capital …………………………………. 1,500,000

c) Treasury Shares- OS…… P300,000

Cash ……………………………………………………… .P300,000

d) Treasury Shares - PS…… P2,700,000

Cash ………………………………………………………. P2,700,000

e) Machinery ………………………………………. P630,000

Treasury Shares – PS …………… .P540,000
Share Premium – Treasury Shares (PS) ……………… 90,000

f) Cash …………………………………………….. P88,000

Share Premium – (OS) …………………….. 12,000
Treasury Shares - OS ………… ..P 100,000

g) Memo Entry: Received 100,000 ordinary shares as donation.

h) Cash …………………………………………….. P3,000,000

Donated Capital …………………………………………..P3,000,000

i) Equipment ……………………………………… P70,000

Donated Capital …………………………………………..P70,000

j) Income Summary ………………………………..P1,480,000

Retained Earnings ………………………………………… P1,480,000
Net income for the year

Shareholders’ Equity

9% Preference Share Capital, P100 par; 60,000 authorized shares;

30,000 shares issued & 18,000 shares outstanding ………………………P 3,000,000
Ordinary Share Capital, P 20 par; 220,000 authorized shares;
75,000 shares issued & 67,000 shares outstanding ……………………… 1,500,000
Share Premium – PS …60,000 + 90,000………………………………………… 150,000
Share Premium – OS …240,000 – 12,000……………………………………… 228,000
Subscribed Ordinary Shares ……………………………………… P 100,000
Less: Subscription Receivable – OS ……………………………. 80,500 19,500
Donated Capital ………………………………………………… ………….. 3,070,000
Total Share Capital or Total Contributed Capital P 7,967,500
Retained Earnings 1,480,000
Total Share Capital and Retained Earnings ………………………………… P 9,447,500
Less Treasury Shares – OS …8,000 shrs x P25 …………………P 200,000
Treasury Shares – PS 12,000 shares x 180 ………………… 2,160,000 ( 2,360,000)
Total Shareholders’ Equity P 7,087,500
=========
Problem 6 – 7 page 184

1. 70,000 shares x P75 = P5,250,000

2. P500,000/P5 stated value = 100,000 shares issued
3. 100,000 shares issued -10,000 treasury shares = 90,000 shares outstanding
4. P500,000 + P600,000 = P1,100,000
5. P5,250,000 + P1,100,000 = P6,350,000

Continuation Problem 6 – 7
6. P5,750,000 + 600,000 = P6,350,000
7. P7,310,000
8. P40,000 ÷ 10,000 shares = P4 per share
9. 6% x P75 par = P4.50 per share

Problem 6 – 8 pages 185 – 188

1. C
2. A
3. A
4. B
5. C
6. D
7. C
8. B
9. B
10. C
1. Authorized P5,000,000
Unissued 2,000,000

Issued P3,000,000

Subscribed 1,000,000

Less subs. Rec. 400,000 600,000

Share Premium 500,000

Share capital P4,100,000

Unrestricted R/E 600,000

Restricted 300,000 900,000

Total Share Capital and R/E P5,000,000

Less Treasury Shares at cost 100,000

Total Shareholders’ Equity P4,900,000

2. No computations
3.
4. Fair value of the stocks , P150 x 10,000 sh= P1,500,000

5.
6. Assets 24,000
M. Sy, Cap. 12,000
C. Peron, Cap 12,000

Adjusted capital 80,000+12,000= 92,000

capital 80,000+12,000= 92,000

184,000

20,000 sh x P1= 20,000

164,000