Exercise Problem 2 - Shareholder's Equity

UNIVERSAL COLLEGES OF PARANAQUE INC.
COLLEGE OF BUSINESS AND ACCOUNTANCY

FINANCIAL ACCOUNTING AND REPORTING 2
SHAREHOLDER’S EQUITY
CLASSROOM DISCUSSION 2:
HANDOUT
1. ON DECEMBER 31, 2013, PAC COMPANY CANCELED 5,000 SHARES OF P25 PAR VALYE HELD IN TREASURY AT
AN AVERAGE AT COST P130 PER SHARE. BEFORE RECORDING, THE CANCELATION OF THE TREASURY SHARES,
THE ENTITY HAD THE FOLLOWING BALANCES;
SHARE CAPITAL ISSUED ORIGINALLY AT P30 PER SHARE 625,000

SHARE PREMIUM 750,000
RETAINED EARNINGS 900,000
TREASURY SHARES, AT COST 650,000
ON DECEMBER 31, 2013, WHAT IS THE SHARE CAPITAL OUTSTANDING?
A. 0
B. 250,000
C. 500,000
D. 625,000
2. POLAR COMPANY ISSUED 20,000 NEW P100 ORDINARY SHARES AT A FAIR VALUE OF P 180 EACH. THE ENTITY
INCURRED PROFESSIONAL FEE OF P400,000 AND INTERNAL MANAGEMENT TIME OF P300,00 IN MANAGING
THE PROCESS IN RELATION TO THE SHARE ISSUE. WHAT IS THE INCREASE IN EQUITY AS A RESULT OF THE
ISSUANCE OF SHARES?
a. 3,200,000
b. 3,320,000
c. 2,900,000
d. 2,970,000
3. DAYRON COMPANY HAD 80,000 ORDINARY SHARES OUTSTANDING IN JANUARY 2013. THE ENTITY
DISTRIBUTED A 15% STOCK DIVIDEND IN MARCH AND A 10% STOCK DIVIDEND IN JUNE. AFTER ACQUIRING
10,000 SHARES OF TREASURY IN JULY, THE ENTITY SPLIT THE SHARE 4 FOR 1 IN DECEMBER. HOW MANAY
ORDINARY SHARES ARE OUTSTANDING ON DECEMBER 31, 2013?
a. 364,800
b. 488,000
c. 498,000
d. 451,500
4. RUDD COMPANY HAD 700,000 ORDINARY SHARES AUTHORIZED AND 300,000 SHARES OUTSTANDING ON
JANUARY 1, 2013.
i. JANUARY 31 – DECLARED 10% STOCK DIVIDENDS
ii. JUNE 30 – PURCHASED 100,000 SHARES
iii. AUGUST 1 – REISSUED 50,000 SHARES
iv. NOVEMBER 30 – DECLARED 2-FOR-1 STOCK SPLIT
ON DECEMBER 31, 2013, HOW MANY ORDINARY SHARES ARE OUTSTANDING?

A. 560,000
B. 600,000
C. 630,000
D. 660,000
5. POWER CORPORATION DECLARED A PROPERTY DIVIDEND OF 10 MERALCO SHARES FOR ONE POWER SHARED
HELD. POWER SHARE HAS A PAR VALUE OF P50 AND A MARKET VALUE OF P100. THE MERALCO SHARES WERE
ORIGINALLY PURCHASED AT P10 PER SHARE. ITS FAIR MARKET VALUE ON DECLARATION WAS P20 AND ON
DISTRIBUTION DATE WAS P25. DIVIDENDS SHOULD BE RECORDED AT.
a. P25
b. P100
c. P10
d. P20
6. PRETTY CORPORATION DECLARED A 10% STOCK DIVIDEND. PAR VALUE OF ITS STOCK IS P100 WHILE THE
FAIR MARKET VALUE AT DECLATION DATE WAS P150 AND AT DISTRIBUTION DATE WAS P175. RETAINED
EARNINGS SHOULD BE DEBITED FOR.
a. 150
b. 100
c. 175
d. 15
7. New Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is
recorded, credits are made to
a. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.
b. Common Stock $14,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
d. Common Stock $10,000 and Retained Earnings $4,000.
(Provide an entry)
8. Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and
7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of
$260,000. The proceeds allocated to the preferred stock is.
a. $232,917
b. $162,500
c. $141,818
d. $118,182
9. Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and
$312,000. The proceeds allocated to the common stock is
a. $32,500
b. $141,818
c. $162,500
d. $170,182
10. Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and
$312,000. The proceeds allocated to the common stock is
a. $32,500
b. $141,818
c. $162,500
d. $170,182
11. Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative
preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute
to the common stockholders?
a. $114,000.
b. $126,000.
c. $177,000.
d. None.
12. Gibbs Corporation owned 20,000 shares of Oliver Corporation’s $5 par value common stock. These shares were
purchased in 2009 for $240,000. On September 15, 2013, Gibbs declared a property dividend of one share of
Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $21
per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result
from this property dividend?
a. $162,000
b. $378,000
c. $108,000
d. $216,000
13. Melvern’s Corporation has an investment in 10,000 shares of Wallace Company common stock with a cost of
$436,000. These shares are used in a property dividend to stockholders of Melvern’s. The property dividend is
declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair
value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this
property dividend on retained earnings is a reduction of
a. $680,000.
b. $660,000.
c. $630,000.
d. $436,000.
14. Hernandez Company has 490,000 shares of $10 par value common stock outstanding. During the year,
Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months
later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year
retained earnings decreased by
a. $1,739,500.
b. $735,000.
c. $269,500.
d. $245,000.
15. On June 30, 2012, when Ermler Co.'s stock was selling at $65 per share, its equity accounts were as follows:
Common stock (par value $50; 80,000 shares issued) $4,000,000

Paid-in capital in excess of par 600,000 Retained earnings 4,200,000
If a 100% stock dividend were declared and distributed, common stock would be:
a. $4,000,000.
b. $4,600,000.
c. $8,000,000.
d. $8,800,000.
END OF THE PROBLEM

Exercise Problem 2 - Shareholder's Equity

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Exercise Problem 2 - Shareholder's Equity

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UNIVERSAL COLLEGES OF PARANAQUE INC.

COLLEGE OF BUSINESS AND ACCOUNTANCY

SHARE CAPITAL ISSUED ORIGINALLY AT P30 PER SHARE 625,000

ON DECEMBER 31, 2013, WHAT IS THE SHARE CAPITAL OUTSTANDING?

ON DECEMBER 31, 2013, HOW MANY ORDINARY SHARES ARE OUTSTANDING?

Common stock (par value $50; 80,000 shares issued) $4,000,000

END OF THE PROBLEM

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