Wall, Inc. is a public enterprise whose shares are traded in the over-the-counter market.

At
December 31, 2020, Wall had 6,000,000 authorized shares of P10 par value ordinary shares, of
which 2,000,000 shares were issued and outstanding. The shareholder’s equity accounts at
December 31, 2020 had the following balances.

Ordinary shares 20,000,000

Share premium 7,500,000
Retained earnings 6,470,000

Transactions during 2021 and other information relating to the shareholders’ equity accounts
were as follows:
a) On January 5, 2021, Wall issued at P54 per share, 100,000 shares of P50 par value, 9%
cumulative convertible preference shares. Each share of preference share is convertible
at the option of the holder into two ordinary shares. Wall had 600,000 authorized
preference shares.
b) On February 1, 2021, Wall reacquired 20,000 of its ordinary shares for P16 per share. Wall
uses the cost method to account for treasury shares.
c) On April 30, 2021, Wall sold 500,000 shares (previously unissued) of P10 par value
ordinary shares to the public at P17 per share.
d) On June 18, 2021, Wall declared a cash dividend of P1 per ordinary share, payable on July
12, 2021, to shareholders of record on July 1, 2021.
e) On November 10, 2021, Wall sold 10,000 treasury shares of P21 per share.
f) On December 14, 2021, Wall declared the yearly cash dividend on preference shares,
payable on January 14, 2022, to shareholders of record on December 31, 2021.
g) On January 20, 2022, before the books were closed for 2021, Wall became aware that the
ending inventories at December 31, 2020, were understated by P300,000 (the after-tax
effect on 2020 net income was P210,000). The appropriate correcting entry was recorded
the same day.
h) After correcting the beginning inventory, net income for 2021 was P4,500,000.

1. The Retained Earnings balance as of January 1, 2021 is

a. 6,680,000
2. The Retained Earnings balance as of December 31, 2021 is
a. 8,250,000
3. The total share premium as of December 31, 2021 is
a. 11,450,000
4. The total shareholders’ equity as of December 31, 2021 is
a. 49,540,000
CitiMotors Corp., organized on June 1, 2020 was authorized to issue shares as follows:
• 800,000 shares of 9% preference shares, convertible, P100 par
• 2,500,000 ordinary shares, P2.5 stated value

During the remainder of the fiscal year ended May 31, 2021, the following transactions were
completed in the order given:

• 300,000 shares of preference shares were subscribed for at P105, and 900,000 ordinary
shares were subscribed for at P26. Both subscriptions were payable 30% upon subscription,
the balance in one payment.
• The second subscription payment was received, except one subscriber for 60,000 ordinary
shares defaulted payment. The full amount paid by this subscriber was returned, and all of
the fully paid shares was issued.
• 150,000 ordinary shares were reacquired by purchase at P28.
• Each preference share was converted into four ordinary shares.
• The treasury share was exchanged for machinery with a fair market value of P4,300,000.
• There was a 2-for-1 share split, and the stated value of the new ordinary share is P1.25.
• Net income was P830,000

Based on the above and the result of your audit, determine the following balances as of May 31,
2021:

1. Ordinary share capital

a. 5,100,000
2. Total share premium
a. 48,340,000
3. Total contributed capital
a. 53,440,000
4. Total shareholders’ equity
a. 54,270,000
Bernadette Co. began operations on January 1, 2021. Authorized were 100,000 ordinary shares
of P50 par value and 50,000 convertible preference shares of 10% P50 par value. The following
transactions involving shareholders’ equity occurred during the first year of operations.
Jan 1. Issued 10,000 ordinary shares in the corporation promoters in exchange for property
valued at P1,250,000 and services valued at P250,000. The property had cost the
promoters P900,000 three years before and was carried on the promoter’s books at
P750,000.
Feb 22. Issued 15,000 preference shares at a price of P60 per share. Each share can be
converted to five ordinary shares. The entity paid P25,000 to an agent for selling the
shares.
Mar 10. Sold 25,000 ordinary shares for P130 per share. Issue costs were P100,000.
April 10. 20,000 ordinary shares were sold under share subscriptions at P175 per share. No share
certificates are issued until a subscription contract is paid in full. No cash is received.
July 15. Exchange 12,000 ordinary shares and 20,000 preference shares for a building with a fair
value of P3,500,000. The building was originally purchased for P3,250,000 by the owner
and has a book value of P2,400,000. In addition, 10,000 ordinary shares were sold for
P1,500,000 in cash.
Aug 1. Received payments in full for half of the shares subscriptions and partial payment on the
rest of the subscriptions. Total cash received was P2,250,000. Share certificates were
issued for the subscriptions paid in full.
Aug 31. Received notice from holders of share subscriptions for 5,000 shares that they would
not pay further on the subscriptions because the price of the share had fallen to P95 per
share. The amount still due on those contracts was P750,000. Amount previously paid
on the contracts are forfeited according to the agreement.
Dec 31. Net income for the first year of operations was P1,500,000.

1. Ordinary share capital

a. 3,350,000
2. Share premium ordinary
a. 6,975,000
3. Share premium preference
a. 825,000
4. Subscriptions receivable
a. 500,000
5. Total shareholders’ equity
a. 14,275,000
Melissa Corporation granted share options to its employees with a fair value of P4,500,000 on
January 1, 2020. The options vest in three years and the options were exercisable starting
January 1, 2023 until December 31, 2023.

On December 31, 2020, it was estimated that 5% of employees will leave the entity during the
vesting period. This estimate was revised to 6% during the year 2021. On December 31, 2022,
employees’ record indicates that 90% of them remained in the employ of the company and
became entitled to the options.

1. What would be the expense charged during the year ending December 31, 2020?
a. 1,425,000
2. What would be the expense charged during the year December 31, 2021?
a. 1,395,000
Jane Company has granted 200 share appreciation rights to each of its 300 employees on
January 1, 2020. The rights are due to vest on December 31, 2021, with payment being made
on December 31, 2022. During the year 2020, the company estimated that all options would
vest, although only 90% of the options actually vested.

Share prices are as follows:

January 1, 2020 20
December 31, 2020 24
December 31, 2021 27
December 31, 2022 30
1. What liability will be recorded on December 31, 2020 as a result of the share
appreciation rights?
a. 120,000
2. How much compensation expense should be recorded for the year ended December 31,
2021?
a. 258,000
On January 1, 2020, Dan Corporation granted an employee an option to purchase 3,000 shares
of Dan’s P5 par value ordinary share at P20 each. The option became exercisable on December
31, 2022. The option was exercised on January 10, 2023.

The market prices of Dan’s share capital were as follows:

January 1, 2020 30
December 31, 2020 50
January 10, 2023 45

The company cannot reliably determine the fair value of the share option, so it decided to use
the intrinsic value method.

For the year 2020, how much should Dan recognize as compensation expense?

a. 30,000
The Powerpoint Corporation has two classes of share capital outstanding: 9% P20 par Preference
and P70 par Ordinary. During the fiscal year ending December 31, 2020, the company had the
following equity transactions in chronological order:

Balances of the accounts in the shareholders’ equity section of the December 31, 2019 statement
of financial position were:

Dividends were paid at the end of the fiscal year on the ordinary share at P1.20 per share and on
the preference at the preference rate. Profit for the year was P850,000.

1. How much should be the amount of preference share capital to be shown on the
December 31, 2020 statement of financial position?
a. 1,160,000
2. How much should be the amount of ordinary share capital to be shown on the December
31, 2020 statement of financial position?
a. 9,450,000
3. The retirement of the 2,000 preference shares would decrease the share premium –
preference by
a. 16,000
4. After the split, the par value per share of the ordinary share capital
a. Was reduced by 35
5. What is the total cost of the remaining treasury shares?
a. 200,000
The shareholders’ equity of May Company revealed the following on June 30, 2020:

How much is the legal capital of the company?

a. 760,000
Jade Company showed the following shareholders’ equity on January 1, 2020:

All of the outstanding and treasury shares were originally issued in 2018 for P11 per share. The
treasury shares are reacquired on March 31, 2019.

During 2020, the following events or transactions occurred relating to shareholders’ equity:
a) February 12 – Issued 400,000 shares for P12.50 per share.
b) June 15 – Declared a cash dividend of P0.20 per share to shareholders of record on April 1
and payable on April 15. This was the first dividend ever declared.
c) September 20 – The president retired. Jade purchased from the retiring president
100,000 shares for P13.00 per share which was equal to market value on this date. These
shares were cancelled.
d) December 15 – Declared a cash dividend of P0.20 per share to shareholders of record on
January 2, 2021 and payable on January 15, 2021.
e) At December 31, Jade is being sued by two separate parties for patent infringement. The
management and outside legal counsel share the following opinion regarding these suits:

1. The issuance of 400,000 shares on February 12 caused share premium to increase by

a. 4,600,000
2. The retirement of 100,000 shares on September 20 caused share premium to decrease
by
a. 1,000,000
3. Jade wants to appropriate retained earnings for all loss contingencies that are not
properly accruable by a charge to expense. How much loss should be appropriated by a
charge to unappropriated retained earnings?
a. 400,000
4. How much cash dividends should be charged against unappropriated retained earnings
in 2020?
a. 700,000
5. How much should be shown in the notes to financial statements as restrictions on
retained earnings because of acquisition of treasury shares?
a. 900,000
Marinduque Company’s post-closing trial balance at December 31, 2020 appears as follows:

The dividend on cumulative preference share capital is 10%. The preference share has a
liquidation value of P50. What is the total shareholders’ equity on December 31, 2020?
a. 21,500,000