SHAREHOLDERS' EQUITY PROBLEMS

STRAIGHT PROBLEM 2010, 18,000 ordinary shares were issued and

outstanding. These shares had been issued at P24.
The following data were compiled prior to preparing the
During 2010, the company entered into the following
statement of financial position of the Conviction
transactions:
Corporation.
Jan. 16 - Issued 1,300 ordinary shares at P25 per
Authorized share capital, P100 par value P4,000,000 share.
Cash dividends payable 160,000 Mar. 21 - Exchanged 12,000 ordinary shares for a
Donated capital 800,000 building. The ordinary shares were selling at
Gain on sale of treasury shares 80,000 P27 per share.
Net unrealized loss on available for sale 96,000 May 7 - Reacquired 500 ordinary shares at P26 per
securities share to be held in treasury.
Premium on share capital 320,000 July 1 - Accepted subscriptions to 1,000 ordinary
Premium on bonds payable 240,000 shares at P28 per share. The contract called
Reserve for bond sinking fund 400,000 for 10% down payment with the balance due
Reserve for depreciation 600,000 on December 1.
Revaluation increment on property 800,000 Sept. 20 - Sold 500 treasury shares at P29 per share.
Retained earnings, unappropriated 720,000 Dec. 1 - Collected the balance due on July 1
Subscribe share capital 480,000 subscriptions and issued the shares.
Subscriptions receivables 120,000
Total contributed capital for December 31, 2010 is
Share warrants outstanding 200,000
a. P615,000 c. P613,500
Treasury shares, at cost 144,000
b. P818,000 d. P816,500
Unissued share capital 800,000
4. The following balances are shown in the shareholders'
REQUIRED:
equity of tamarind company on December 31, 2009:
Compute for the following: Preference share capital, P10 par,
1. Total share premium 3,200,000 100,000 shares P1,000,000
2. Contributed capital 4,960,000 Ordinary share capital, P10 par,
3. Appropriated retained earnings 544,000 576,000 500,000 shares, 5,000,000
unapp Share premium - preference 50,000
4. Total shareholders’ equity 6,640,000 Share premium – ordinary 200,000
5. Legal capital 3,680,000 Retained earnings 100,000
During 2010, the following transactions pertaining to
MULTIPLE CHOICE PROBLEMS the shareholders' equity were completed:
 Retirement of 5,000 preference shares at P11 per
1. Dayron Co. had 8,000 ordinary shares outstanding in share.
January 2010. The company distributed a 15% share  Purchase of 5,000 ordinary shares at P12 per
dividend in March and a 10% share dividend in June share.
2010. After acquiring 1,000 treasury shares in July 1,  Share split, ordinary, 2 for 1.
the company split its shares 4 for 1 in December 2010.  Reissue of 2,000 treasury shares at P8 per share.
How many ordinary shares are outstanding as of  Profit for 2010, P300,000.
December 31, 2010? The total shareholders' equity on December 31, 2010
a. 36,480 c. 49,800 is
b. 48,800 d. 35,480 a. P6,556,000 c. P6,350,000
b. P6,551,000 d. P6,251,000
2. Helu Corporation was organized on January 1, 2010,
with an authorization of 1,000,000 ordinary shares 5. The December 31, 2009 condensed balance sheet of
with a par value of P5 per share. Ambani Services, an individual proprietorship, follows:
During 2010, the corporation had the following equity Current assets P140,000
transactions: Equipment (net) 130,000
Jan. 4 - Issued 200,000 shares @ P5 per share. P270,000
April 8 - Issued 100,000 shares @ P7 per share. Liabilities P 70,000
June 9 - Issued 30,000 shares @ P10 per share Mukesh Ambani, Capital 200,000
July 29 - Purchased 50,000 shares @ P4 per P270,000
share.
Dec. 31 - Sold 50,000 shares held in treasury @ P8 Fair values at December 31, 2009 are as follows:
per share. Current assets P160,000
What should be the total Share Premium as of Equipment 210,000
December 31, 2010? Liabilities 70,000
a. P400,000 c. P500,000 On January 2, 2010, Ambani Services was incorporated
b. P450,000 d. P550,000 with 5,000, P10 par value, ordinary shares issued.
How much should be credited to share premium?
3. The N Corporation is authorized to issue 100,000 a. P320,000 c. P230,000
ordinary shares, P17 par value. At the beginning of b. P250,000 d. P200,000

Page 1 of 3
 shares were issued was P15. The warrants expire on
6. On December 1, 2010, Gates Corp. received a December 31, 2011. The proceeds to be allocated to
donation of 2,000 shares of its P5 par value ordinary the preference shares on December 31, 2010 is
shares from a shareholder. On that date, the share’s a. P25,000,000 c. P21,000,000
fair value was P35 per share. The share was originally b. P22,000,000 d. P20,000,000
issued for P25 per share. By what amount would this
donation cause total shareholders’ equity to decrease? 10. Entity B issued (written) a call option that gives the
a. P70,000 c. P20,000 holder the right to purchase 10,000 shares of the
b. P50,000 d. P 0 entity for a fixed price of P100 per share. If the
proceeds from issuing the call option is P90,000, the
Use the following information for the next two questions. entity’s equity should increase by
a. P1,000,000 c. P90,000
On March 1, 2010, Mall Company issued 60,000, P50 par
b. P1,090,000 d. P 0
value, ordinary shares and 20,000, P100 par value,
preference shares for a total consideration of P7,500,000.
11. Entity C purchased a call option that gives the entity
At this date, the ordinary share was selling for P100 per
the right to repurchase 1,000 shares of the entity for a
share and the preference share was selling for P150 per
fixed price of P100 per share. If the price for
share.
purchasing the call option is P9,000, the entity’s equity
7. What amount of the proceeds should be allocated to should decrease by
the preference shares? a. P100,000 c. P9,000
a. P2,000,000 c. P1,875,000 b. P190,000 d. P 0
b. P2,500,000 d. P3,000,000
12. On January 1, 2010, Entity D enters into a forward
8. What amount of the proceeds should be allocated to contract that requires the entity to repurchase 1,000
the preference shares, if the shares are redeemable at shares for P60,000 on December 31, 2010. No
the option of the holder after 5 years? consideration is paid or received at the inception of the
a. P2,000,000 c. P1,875,000 contract. The market interest rate is 10% on January
b. P2,500,000 d. P3,000,000 1, 2010 and 12% on December 31, 2010. The forward
contract decreased Entity D’s equity on January 1,
9. On December 31, 2010, Palau Company issued 2010 by
200,000 shares of P100 par, 10% cumulative a. P60,000 c. P53,574
preference shares for P25,000,000. One detachable b. P54,546 d. P 0
warrant was attached to each preference share issued.
Each warrant gives the holder the right to purchase
one ordinary share, P50 par value, for P100. The - now do the DIY drill -
market value of the warrant after the preference

DO-IT-YOURSELF (DIY) DRILL

1. The equity section of Buffett Company revealed the
On July 15, 2009, it issued 10,000 shares at P23 per
following information on December 31, 2010:
share. On October 15, 2009, the Beauty Corp. paid to
Preference share capital, P100 par P5,000,000 the majority shareholder the sum of P80,000 for a
Share premium-preference shares 2,000,000 certain parcel of land; and issued 5,000 ordinary
Ordinary share capital, P50 3,200,000 shares for the building on the land. The land was
Share premium-ordinary shares 500,000 appraised at P130,000. The building has a cost of
Subscribed ordinary share capital 800,000 P150,000 and its depreciated value is P90,000. It was
Retained earnings-appropriated 250,000 appraised at P120,000.
Unrealized loss on available for sale
securities 600,000 On April 15, 2010, the corporation purchased 5,000 of
Subscription receivable-ordinary its own ordinary shares for P100,000. On June 15,
shares 400,000 2010, 2,000 of the treasury shares were sold at P24
Retained earnings- unappropriated 3,500,000 per share.
Treasury shares-ordinary 1,000,000 How much is the total share premium of Beauty Corp.
How much is the contributed capital of Buffett on June 30, 2010?
Company as of December 31, 2010? a. P108,000 c. P 58,000
a. P10,100,000 c. P11,100,000 b. P 88,000 d. P100,000
b. P11,500,000 d. P10,500,000

3. ATC Company issued all of its outstanding shares for

P150 in 2008. On January 10, 2009, ATC acquired
100,000 treasury shares at P120 per share. ATC
2. On July 1, 2009, the Beauty Corporation was reissued 50,000 treasury shares for P7,500,000 on
registered with the SEC. Its authorized share capital June 30, 2010 and retired the rest on December 31,
consists of 100,000 ordinary shares with par value 2010. ATC’s equity accounts as at December 31, 2009
P20.00 per share. follow:

Page 2 of 3
 Share capital, P100 par value P150,000,000
Share premium 75,000,000 5. Anil Company was organized on January 1, 2008. On
Retained earnings 25,000,000 that date it issued 500,000, P10 par value, ordinary
Total P250,000,000 shares at P15 per share. During the period January 1,
2008 through December 31, 2010, Anil reported profit
What shall be the balance of share capital account on
of P3,000,000 and paid cash dividends of P500,000.
December 31, 2010?
On January 5, 2010, Anil purchased 50,000 ordinary
a. P140,000,000 c. P145,000,000
shares at P20 per share. On December 31, 2010,
b. P144,000,000 d. P150,000,000
45,000 treasury shares were sold at P30 per share and
retired the remaining treasury shares. What is the
4. The capital accounts of Kamprad, Inc. on December
total shareholders’ equity on December 31, 2010?
31, 2009, were as follows:
a. P10,350,000 c. P10,250,000
Preference share capital, b. P10,850,000 d. P10,500,000
20,000 shares, P20 par P 400,000
Share premium - preference 160,000 6. Pudtol Corporation was organized on January 3, 2010.
Ordinary share capital, Pudtol was authorized to issue 50,000 ordinary shares
50,000 shares, P80 par 4,000,000 with a par value of P10 per share. On January 4,
Share premium – ordinary 600,000 Pudtol issued 30,000 ordinary shares at P25 per share.
Retained earnings 360,000 On July 15, Pudtol issued an additional 10,000 shares
at P20 per share. Pudtol reported income of P33,000
During the year ending December 31, 2010, the
during 2010. In addition, Pudtol declared a dividend of
following summarizes the transactions affecting the
P.50 per share on December 31, 2010. The amount
shareholders’ equity
reported on Pudtol Corporation's December 31, 2010,
April 30 - 1,000 preference shares were retired at P25 balance sheet as shareholders' equity was
per share. a. P400,000 c. P550,000
June 15 - 2,000 treasury shares, ordinary, were b. P950,000 d. P963,000
purchased at P85 per share
June 30 - A two-for-one ordinary share split was 7. Tekka Corporation was incorporated on June 1, 2010
declared. with an authorized 200,000, no-par, ordinary shares,
July 31 - 800 treasury shares were reissued at P50 per stated value P10 and 10,000, 9% par value P30,
share. preference shares. Transactions affecting company’s
Dec. 31 – Profit for 2010 was P300,000. equity as of July 31, 2010 were as follows:
What was the total share premium on December 31, June 1 50,000 ordinary shares were issued at
2010? P10.
a. P760,000 c. P755,000 June 5 Assets with a total appraised value of
b. P766,000 d. P761,000 P600,000 were acquired in exchange for
50,000 ordinary shares.
June 15 Subscriptions were received for 100,000
ordinary shares at P15 and for 5,000
preference shares at P35.
June 25 Payments in full for the ordinary and
preference shares subscribed June 15
were received and the corresponding
shares were issued.
The total shareholders’ equity as of July 31, 2010 is
a. P2,875,000 c. P2,750,000
b. P2,300,000 d. P2,775,000

Page 3 of 3