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Audit of SHE

The document describes stock transactions that occurred for two companies, Argao Inc. and Balamban Corporation, throughout 2006. It provides details on stock issuances, repurchases, dividends declared and paid, treasury stock transactions, and net income amounts. Based on the information provided and audit results, the questions ask to determine amounts for additional paid-in capital, retained earnings, treasury stock, total stockholders' equity, and book value per share as of December 31, 2006 for each company.

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182 views

Audit of SHE

The document describes stock transactions that occurred for two companies, Argao Inc. and Balamban Corporation, throughout 2006. It provides details on stock issuances, repurchases, dividends declared and paid, treasury stock transactions, and net income amounts. Based on the information provided and audit results, the questions ask to determine amounts for additional paid-in capital, retained earnings, treasury stock, total stockholders' equity, and book value per share as of December 31, 2006 for each company.

Uploaded by

Chi Viray
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem 1

Your audit client, Argao, Inc., is a public enterprise whose shares are traded in the over-the-counter
market. At December 31, 2005, Argao had 3,000,000 authorized shares of P10 par value common
stock, of which 1,000,000 shares were issued and outstanding. The stockholders’ equity accounts at
December 31, 2005 had a following balances.
Common stock P10,000,000
Additional paid-in capital 3,750,000
Retained earnings 3,250,000

Transactions during 2006 and other information relating to the stockholders’ equity accounts were
as follows:

 On January 2, 2006, Argao issued at P54 per share, 50,000 shares of P50 par value, 9%
cumulative convertible preferred stock. Each share of preferred stock is convertible into two
shares of common stock. Argao had 300,000 authorized shares of preferred stock. The preferred
stock has a liquidation value equal to its par value.

 On February 1, 2006, Argao reacquired 10,000 shares of its common stock for P16 per share.

 On April 30, 2006, Argao sold 250,000 shares (previously unissued) of P10 par value common
stock to the public at P17 per share.

 On June 15, 2006, Argao declared a cash dividend of P1 per share of common stock, payable on
July 15, 2006, to stockholders of record on July 1, 2006.

 On November 10, 2006, Argao sold 5,000 shares of treasury stock for P21 per share.

 On December 15, 2006, Argao declared the yearly cash dividend on preferred stock, payable on
January 15, 2007, to stockholders of record on December 31, 2006.

 On January 20, 2007, before the books were closed for 2006, Argao became aware that the ending
inventories at December 31, 2005 were understated by P150,000 (after tax effect on 2005 net
income was P90,000). The appropriate correction entry was recorded the same day.

 After correcting the beginning inventory, net income for 2006 was P2,250,00.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:

1. Additional paid-in capital


a. P5,700,000 c. P5,500,000
b. P5,525,000 d. P5,725,000

2. Unappropriated retained earnings


a. P4,125,000 c. P4,045,000
b. P4,035,000 d. P3,955,000

3. Treasury stock
a. P160,000 c. P55,000
b. P 80,000 d. P50,000

4. Total stockholders’ equity


a. P22,190,000 c. P24,690,000
b. P24,770,000 d. P24,840,000
5. Book value per share of common stock
a. P17.89 c. P17.71
b. P17.82 d. P15.41

Problem 2

Balamban Corporation was authorized at the beginning of 2004 with 540,000 authorized shares of
P100, par value common stock. At December 31, 2004, the stockholders’ equity section of Balamban
was as follows:
Common stock, par value P100 per share; authorized
540,000 shares; issued 54,000 shares P5,400,000
Additional paid-in capital 540,000
Retained earnings 810,000
Total stockholders’ equity P6,750,000

On May 10, 2005, Balamban issued 90,000 shares of its common stock for P10,800,000. A 5% stock
dividend was declared on September 30, 2005 and issued on November 10, 2005 to stockholders of
record on October 31, 2005. Market value of common stock was P110 per share on declaration date.
The net income of Balamban for the year ended December 31, 2005 was P855,000.

During 2006, Balamban had the following transactions;

Feb. 15 Balamban reacquired 5,400 shares of its common stock for


P95 per share.

May 15 Balamban sold 2,700 shares of its treasury stock for P120 per
share.

Jun 30 Issued to stockholders one stock right for each share held to
purchase two additional shares of common stock for P125 per
share. The rights expire on December 31, 2006.

Aug. 15 45,000 stock rights were exercised when the market value of
common stock was P130 per share.

Sep. 30 72,000 stock rights were exercised when the market value of
the common stock was P140 per share.

Dec. 01 Balamban declared a cash dividend of P2 per share payable on


January 15, 2007 to stockholders of record on December 31,
2006.

Dec. 15 Balamban retired 1,800 shares of its treasury stock and


reverted them to an unused basis. On this date, the market
value of the common stock was P150 per share.

Dec. 31 Net income for 2006 was P900,000.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:

1. Common stock
a. P38,520,000 c. P38,340,000
b. P26,640,000 d. P38,250,000

2. Additional paid-in capital


a. P8,329,500 c. P5,413,500
b. P8,338,500 d. P8,266,500

3. Retained earnings
a. P1,080,000 c. P1,017,000
b. P1,002,600 d. P1,008,000

4. Treasury stock
a. P18,000 c. P85,500
b. P90,000 d. P 0

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