DOMALAON, LORIE JAE E.

May 21, 2017

ACT 123
SHE

EASY

Problem 1
On September 30,2014 Pink Company issued 3,000 shares of its P10 par
ordinary shares in connection with a share dividend. No entry was made on
the share dividend declaration date. The market value per share immediately
after the issuance was P15. Pinks shareholders equity accounts immediately
before issuance of the share dividends were as follows:
OS, P10 par, 50,000 shares authorized P250,000
Paid in capital in excess of par 300,000
Retained Earnings 350,000
Treasury shares, 5,000 shares at cost
(40,000)
What should be the Retained Earnings balance immediately after the share
dividend declaration?
SOLUTION:
Retained Earnings 350,000
Approp. For small stock dividend (3k X P15) (45,000)
Balance after dividend declaration P305,000

Problem 2
Eco Company declares a 10% scrip dividends on July 1,2014 payable a year
after with 12% interest. The total par value of the outstanding shares of Eco
is P10,000,000.
What is the total appropriation to the retained earnings as a result of the
script dividends declaration?
SOLUTION:
P10,000,000 X 10% = P1,000,000

Problem 3
Melon company has a retained earnings balance of P400,000 at the end of
2015. During 2014, it had issued P100,000 of 5-year, 12%, long-term bonds.
The bond provisions require that each year over the 5-year period an
additional P20,000 of retained earnings be unavailable for dividends. This
restriction is in addition to any other retained earnings restriction that the
company might make. During 2015, the company also decided to self-
insure against fire losses because of its previous safety record, and to avoid
high insurance premiums. The board of directors decided to restrict retained
earnings at end of each year in an amount equal to P8,000 annual premium
that would have been paid.
How much is the total appropriated retained earnings as of December
31,2015?
DOMALAON, LORIE JAE E. May 21, 2017
ACT 123
SOLUTION:
Appropriation for bond redemption (2014) 20,000
Appropriation for bond redemption (2015) 20,000
Appropriation for self-insurance 8,000
Appropriated for RE P48,000

Problem 4
The DoubleHeart Company wants to raise its working capital. After analysis
of the available options, the company decides to issue 6,000 shares of P30
par preference shares with detachable warrants. The package of the shares
and warrants sells for P120. The warrants enable the holder to purchase
6,000 shares of P10 par ordinary shares at P40 per share. Immediately
following the issuance of the shares, the share warrants are selling at P10
per share. The market value of the preference shares without the warrants is
P90.
What amount should be assigned to the share warrants issued? P720,000
SOLUTION:
P120 X 6,000 shares = 720,000 / 10 = P72,000

Problem 5
Casio,Inc. began operations in January 2014, and reported the following
results for each of its three years of operations.
2014 P300,000 net loss
2015 30,000 net loss
2016 3,950,000 net income
at December 31,2016 the companys capital accounts were as follows:
5% cumulative prefence shares, par value P100;
authorized, P100,000 shares;
issued and outstanding 60,000 shares P6,000,000
ordinary shares, par value P10;
authorized 1,000,000 shares;
issued and outstanding 800,000 8,000,000
France, Inc. has never paid a cash or stock dividend and there has been no
change in the capital accounts since it began operations.
What is the book value of the ordinary shares on December 31, 2016?
P13.40
SOLUTION:
8,000,000 + 2,720,000 = 10,720,000 / 800,000 shares = P13.40

Problem 6
The following are the shareholders equity accounts of Taiwan Company at
December 31,2016.
Ordinary shares P10 par; authorized 200,000 shares;
Issued 90,000 shares 900,000
Preference shares, 12% P25par; authorized 100,000 shares;
Issued 15,000 shares;cumulative 375,000
DOMALAON, LORIE JAE E. May 21, 2017
ACT 123
Share premium 2,5000,000
Retained Earnings 4,750,000
Treasury shares (7,500 ordinary shares) 371,250
The preference shares are participating in distribution in excess of a 15%
dividend rate on the ordinary shares. No dividends have been paid in 2014 or
2015. On December 31,2016, india wants to pay a cash dividend of P2 a
share to ordinary shareholders.
What is the amount to be paid to preference shareholders? P153,750
SOLUTION:
90,000 + 63,750 = P153,750

MODERATE

Problem 7
A partial list of the accounts and ending account balances taken from the
post-closing trial balance of Alpha Corporation on December 31,2014 is
shown as follows:

Accumulated profits unappropriated 410,000

Bonds payable 220,000
Ordinary shares subscribed 50,000
Long term investments in equity securities 210,000
Additional paid-in capital on OS 460,000
Premium on bonds payable 30,000
Authorized OS at P10 par value 900,000
Preference shares subscribed 45,000
Additional paid-in capital on PS 112,000
Authorized PS at P50 par value 400,000
Gain on sale of Treasury shares 4,000
Unrealized increase in value of securities
Available for sale 3,000
OS warrants outstanding 20,000
Unissued OS 500,000
Unissued PS 100,000
Cash dividends payable- PS 50,000
Donated capital 25,000
Reserve for bond sinking fund 220,000
Reserve for depreciation 150,000
Revaluation increment in properties 100,000
Subscription receivable-PS(long term) 15,000
Subscription receivable-OS(long term) 20,000

Compute for the total stockholders equity.

SOLUTION:
Authorized OS at P10 par value 900,000
DOMALAON, LORIE JAE E. May 21, 2017
ACT 123
Unissued OS (500,000)
Authorized PS at P50 par value 400,000
Unissued PS (100,000)
Ordinary shares subscribed, net 30,000
Preference shares subscribed, net 30,000
Paid-in Capital 621,000
Unrealized increase in value 3,000
Revaluation increment in properties 100,000
Accumulated profits unappropriated 410,000
Reserve for bond sinking fund 220,000
TOTAL STOCKHOLDERS EQUITY P 2,114,000

Problem 8
The stockholders equity of the Beta as of December 31,2013 was as follows:
Common stock, P10 par, authorized 300,000 shares;
250,000 shares issued and outstanding 2,500,000
Paid in capital in excess of par 3,750,000
Retained earnings 1,800,000

On june 1,2014, Beta required 40,000 shares of its common stock at P40 per
share. The following transactions occurred in 2014 with regard these shares:
July 1 sold 15,000 treasury shares at P45
July 15 2 for 1 share split
August 15 sold 34,000 treasury shares at P15
September 1 retired 2,000 shares
Determine the correct balance of Common Stock.
SOLUTION:
Unadjusted balance 2,500,000
September 1 (10,000)
Adjusted Balance P 2,490,000

HARD

Problem 9
Nevada Square Company has the following selected accounts in its
shareholders equity section as of December 31, 2014:
Preference shares, P100 par, 10% cumulative,
100,000 shares issued and outstanding
P10,000,000
ordinary shares, P20 par, 1,000,000 shares authorized
700,000 shares issued and outstanding 14,000,000
share premium 8,000,000
Accumulated profits 30,000,000
DOMALAON, LORIE JAE E. May 21, 2017
ACT 123
There are no dividends in arrears on the preference shares. During 2015, the
following transactions occurred:
a. The board of directors declared a cash dividend totaling to
P2,800,000 to be paid to preference and ordinary shareholder. Later
a share dividend of 100,000 ordinary shares were declared on OS.
The market value of OS is P68 per share on the date the share
dividends were declared.
b. Sometime after the above dividends were declared and settled, the
board of directors declared as property dividends one shares of its
investment in Bingo Corp. stocks being held by the company as
financial asset at fair market value through profit or losses for every
two OS outstanding. Bingo Corp. stocks were originally purchased
by the company at P12 per share and have a carrying value based
on there fair value as per the last balance sheet date at P20 per
share. Bingo Corp. shares were selling at P24 when the property
dividends were declared and were selling at P25 when the property
dividends were settled. The company had a total of 600,000 shares
of Bingo Corp. shares.
What is the correct debit to the accumulated profits as a result of the stock
dividends declared in item a?
SOLUTION:
100,000 X 68 = P6,800,000

Problem 10
In your audit of Sports Inc. for the calendar year ended December 31,2015,
you discovered the following charges to the companys Retained Earnings
account:
Balance, January 1 P7,800,000
Unrealized holding loss on FVOCI (400,000)
Inventory fire loss (150,000)
Impairment loss on PPE (750,000)
15% stock dividends (100,000 outstanding @100 par)
(1,500,000)
loss on sale of equipment (200,000)
correction of a prior period error (1,500,000)
loss on retirement of OS as treasury
(1,050,000)
gain on sale of OS as excess over par
1,000,000
what is the net adjustment to the retained earnings account for the
declaration of the stock dividends?
SOLUTION:
Debit to RE, per books 1,500,000
Debit to RE, per audit (100,000 X 15%) 110 1,650,000
Adjustment to RE (150,000)