Supplemental Material

Stockholders’ Equity – Part 1

Theory
1. The net assets of a corporate entity is popularly known as
a. Contributed capital
b. Retained earnings
c. Shareholders’ equity
d. Legal capital
2. Total shareholders’ equity represents
a. a claim against a specific assets of a corporate entity
b. a claim against the total assets of a corporate entity
c. the maximum amount that can be borrowed from the corporate entity
d. only the total capital contributed by the shareholders
3. Which of the following statement about shareholders’ equity is correct?
a. Reports financial position at a point in time.
b. Reports financial performance for a period of time.
c. Reports of sources and changes of equity.
d. Reports changes in cash between accounting periods.
4. Organization cost shall
a. Be capitalized
b. Be deferred
c. Be expensed outright
d. Not be recognized
5. The residual interest in a corporate entity belongs to
a. The creditors of the corporate entity.
b. The preferred shareholders.
c. The ordinary shareholders.
d. All shareholders.
6. It represents money that shareholders invest in a corporate entity.
a. Treasury stock.
b. Preferred stock.
c. Additional paid-in capital.
d. Paid-in capital.
7. Shares that have a fixes per-share amount printed on the share certificate are called
a. Par value shares.
b. Stated value shares.
c. No-stated value shares.
d. Fixed value shares.
8. The par value is used to determine the share’s
a. Maximum issue price
b. Minimum issue price
c. Fair value
d. Market price
9. It refers to the portion of the paid-in capital that represents the total of the shares issued that
contains common and preferred stocks.
a. Share capital
b. Preference shares.
c. Share premium.
d. Retained earnings.
10. Contributed capital does not include
a. Share capital account
b. Share premium account
c. Retained earnings
d. All these are included in contributed capital.
 11. When shares are issued in exchange for property, which of the following is the best evidence of
the fair value of the transaction?
a. the fair value of the property received.
b. The selling price of the shares in the recent transaction.
c. The price of the shares quoted on the stock exchange.
d. Any of the foregoing.
12. If shares are issued to extinguish a financial liability, the shares issued shall be measured by
reference to which of the following?
a. Fair value of shares.
b. Fair value of liability extinguished.
c. Carrying value of liability extinguished.
d. Par value of the shares.
13. When shares are issued in payment of services rendered, what is the least appropriate basis for
recording the transaction?
a. Fair value of services.
b. Fair value of the shares.
c. Par value of the shares.
d. Any of these provides an appropriate basis for recording the transaction.
14. When more than one class of share capital is issued at a basket price and the total selling price is
not equal to the sum of the market prices, the cash received is allocated between classes of
share capital based on their
a. Relative market value.
b. Relative book value.
c. Par value.
d. Stated value.
15. Which of the following best describes the legal capitalization of a corporation that issues no-par
value share capital?
a. Stated value of shares issued and subscribed.
b. Stated value of shares outstanding.
c. Stated value of shares authorized.
d. Entire consideration received or receivable.

Problems

Elvin received 6,000 shares of Ponce Company’s P100 par ordinary shares in exchange for 1,000 hours of
legal services. Elvin charges P500 per hour for legal services. On the day of issuance, the share was selling
for P150 per share in public market.

1. At what amount should the share premium account of Ponce Company increase as a result of the
issuance of those shares?

Seokjin traded 20,000 shares of its P200 par value equity shares for land on July 1, 2020. An independent
appraiser valued the land at P5,000,000 a few months ago. Seokjin shares are now trading at P300 on the
stock exchange. The earnings per share is P40.

2. How much should be debited to land account?

At the beginning of 2022, German Company was organized with authorized capital of 100,000, P200 par
value shares.

January 15 Issued 10,000 shares at P28 per share.

May 1 Issued 5,000 shares in exchange for land with a fair value of P1,200,000. On this date, fair
value of the shares was P250 per share.

November 23 Issued 2,000 shares for legal services when the fair value was P260 per share.

3. What amount should be reported as share capital?

4. What amount should be reported as share premium?
Tires Company was incorporated on January 1, 2019 with the following authorized capitalization:

Ordinary share capital, 500,000 shares, P10 par value P 5,000,000

Preference share capital, 100,000 shares, P100 par value P 10,000,000

During 2019, the company issued 100,000 ordinary shares for a total of P1,200,000 and 20,000
preference shares at P150 per share.

In addition, on December 20, 2019, subscriptions for 10,000 preference shares were taken at a total
purchase price of P1,750,000. These subscribed shares were paid for on January 15, 2020.

5. Prepare the journal entries to record the foregoing transactions.