AUDIT OF EQUITY ACCOUNTS

Use the following information for questions 1 to 5:

The shareholders’ equity account of Alex Corporation, after its initial year of operation in 2018 shows the following:
Date Particulars Debit Credit
Jan. 01 Issued 6,000 shares at par of P 100 in
Exchange for real property with a
Market value of P 800,000; authorized
20,000 shares 600,000
Jan. 15 Sold 8,000 shares at P 120 960,000
Mar. 10 Purchased 800 Alex shares at P 150 120,000
May 15 Loss on sale of machinery 40,000
June 10 Sold 400 treasury shares 68,000
Dec. 31 Cash dividends declared payable
January 15, 2019 80,000
Dec. 31 Profit for the year 316,000
Answer the following:
1. The adjusted share capital as of December 31, 2018 is:
a. 1,360,000 c. 1,400,000
b. 1,560,000 d. 1,340,000

2. The total share premium as of December 31, 2018 is:

a. 360,000 c. 368,000
b. 160,000 d. 168,000

3. The unappropriated retained earnings as of December 31, 2018 is:

a. 196,000 c. 136,000
b. 156,000 d. 144,000

4. The adjusted balance of the shareholders’ equity on December 31, 2018 is:
a. 1,944,000 c. 1,744,000
b. 1,704,000 d. 1,904,000

5. The book value per share of Alex Corp’s stock on December 31, 2018 was:
a. 140.00 c. 128.20
b. 132.22 d. 125.29

Use the following information for questions 6 to 10:

Your audit client, Amay Corp., is a public entity whose shares are traded in the over-the-counter market. At December 31, 2017,
Amay had 3,000,000 authorized, P 10 par value, ordinary shares, of which 1,000,000 shares were issued and outstanding. The
equity accounts at December 31, 2017 had the following balances:
Ordinary share capital 10,000,000
Share premium 3,750,000
Retained earnings 3,250,000
Transactions during 2018 and other information relating to the equity accounts were as follows:
 On January 02, 2018, Amay issued at P 54 per share, 50,000 shares of P 50 par value, 9% cumulative convertible
preference shares. Each preference share is convertible into two ordinary shares. Amay had 300,000 authorized
shares of preference shares. The preference share has a liquidation value equal to its par value.
 On February 01, 2018, Amay reacquired 10,000 ordinary shares for P 16 per share.
 On April 30, 2018, Amay sold 250,000, P 10 par value, ordinary shares (previously unissued) to the public at P 17 per
share.
 On June 15, 2018, Amay declared a cash dividend of P 1 per share on ordinary shares, payable on July 15, 2018, to
shareholders of record on July 01, 2018.
 On November 10, 2018, Amay sold 5,000 treasury shares for P 21 per share.
 On December 15, 2018, Amay declared the yearly cash dividend on preference share, payable on January 15, 2019,
to shareholders of record on December 31, 2018.
 On January 20, 2019, before the books were closed for 2018, Amay became aware that the ending inventories at
December 31, 2017 were understated by P 150,000 (after tax effect on 2017 profit was P 90,000). The appropriate
correction entry was recorded the same day.
 After correcting the beginning inventory, profit for 2018 was P 2,250,000.
Determine the following as of December 31, 2018:
6. Share premium:
a. 5,700,000 c. 5,500,000
b. 5,525,000 d. 5,725,000

7. Unappropriated retained earnings:

a. 4,125,000 c. 4,045,000
b. 4,035,000 d. 3,955,000

8. Treasury shares:
a. 160,000 c. 55,000
b. 80,000 d. 50,000

9. Total equity:
a. 22,190,000 c. 24,690,000
b. 24,770,000 d. 24,840,000

10. Book value per share of ordinary:

a. 17.89 c. 17.71
b. 17.82 d. 15.41
Use the following information for questions 11 to 15:
Buloy Corporation began operations on January 01, 2018. The company was authorized to issue 60,000, P 10 par value,
ordinary shares and 120,000 shares of 10%, P 100 par value convertible preference shares. In connection with your audit of the
company’s financial statements, you noted the following transactions involving shareholders’ equity during 2018:
Jan. 01 Issued 1,500 ordinary shares to the corporation promoters in exchange for equipment valued at P 510,000
and services valued at P 210,000. The property costs P 270,000 3 years ago and was carried on the
promoters’ books at P 150,000.
Jan. 31 Issued 30,000 convertible preference shares at P 150 per share. Each share can be converted to five
ordinary shares. The corporation paid P 225,000 to an agent for selling the shares.
Feb. 15 Sold 9,000 ordinary shares at P 390 per share. The corporation paid issue costs of P
75,000.
May 30 Received subscriptions for 12,000 ordinary shares at P 450 per share.
Aug. 30 Issued 2,100 ordinary shares and 4,200 preference shares in exchange for a building
with a fair market value of P 1,530,000. The building was originally purchased for P
1,140,000 by the investors and has a book value of P 660,000. In addition, 1,800
ordinary shares were sold for P 720,000 cash.
Nov. 15 Payments in full for half of the subscriptions and partial payments for the rest of the
subscriptions were received. Total cash received was P 4,200,000. Shares of stock
were issued for the fully paid subscriptions. The balance is collectible next year.
Dec. 01 Declared a cash dividend of P 10 per share on preference shares, payable on December
31 to shareholders of record on December 15 and P 20 per share cash dividend on ordinary shares, payable
on January 15, 2019 to shareholders of record on December 15.
Dec. 31 Paid the preference share dividend.
Profit for the first year of operations was P 1,800,000.
Determine the following as of December 31, 2018:
11. Ordinary share capital:
a. 204,000 c. 264,000
b. 144,000 d. 186,000

12. Share premium – preference:

a. 1,500,000 c. 1,275,000
b. 1,545,000 d. 1,860,000

13. Share premium – ordinary:

a. 8,211,000 c. 11,121,000
b. 10,851,000 d. 10,032,000

14. Retained earnings:

a. 1,050,000 c. 930,000
b. 1,170,000 d. 1,458,000

15. Total shareholders’ equity:

a. 17,295,000 c. 15,810,000
b. 16,950,000 d. 17,010,000

Use the following information for questions 16 to 20:

The shareholders’ equity of Conie Corporation showed the following data on December 31, 2017:
12% Preference share capital, P 30 par, 135,000 shares issued and outstanding 4,050,000
Ordinary share capital, P 50 par, 180,000 shares Issued and outstanding 9,000,000
Share premium – preference 1,080,000
Share premium – ordinary 3,240,000
Retained earnings 1,395,000
The 2018 transactions of the company affecting its shareholders’ equity are summarized chronologically as follows:
 Issued 27,000 preference shares at P 40
 Issued 94,500 ordinary shares at P 70
 Retired 5,400 preference shares at P 45.
 Purchased 13,500 ordinary shares at P 80.
 Split ordinary share two for one (par value reduced to P25)
 Reissued 13,500 treasury shares at P 50.
 Shareholders donated to the company 9,000 ordinary shares when shares had a market price of P 52. One half of
these shares were subseququently issued for P 54.
 Dividends were paid at the end of the calendar year on the ordinary shares at P 2 per share and on the preference
shares at the preference rate.
 Profit for the year was P 2,520,000.

Determine the following as of December 31, 2018:

16. Preference share capital:
a. 4,617,000 c. 4,968,000
b. 4,698,000 d. 4,860,000

17. Ordinary share capital:

a. 15,615,000 c. 13,968,000
b. 13,500,000 d. 13,725,000

18. Share premium:

a. 6,777,000 c. 6,679,800
b. 6,858,000 d. 6,814,800

19. Unappropriated retained earnings:

a. 1,749,240 c. 1,711,440
b. 2,251,440 d. 1,684,440

20. Total shareholders’ equity:

a. 26,949,240 c. 26,958,960
b. 26,922,240 d. 26,940,240

Use the following information for questions 21 to 24:

Cam Corporation’s statement of financial position as of December 31, 2017:
Share capital, P 10 par value, authorized
1,500,000 shares, issued and outstanding 900,000 shares 9,000,000
Share premium 750,000
Retained earnings 2,700,000

Transactions during 2018 and other information relating to the equity accounts were as follows:
 On January 26, Cam reacquired 75,000 ordinary shares for P 11 per share.
 On April 04, Cam sold 45,000 treasury shares for P 14 per share.
 On June 01, Cam declared a cash dividend of P 1 per share, payable on July 15, 2018 to shareholders of record on
July 01, 2018.
 On August 15, each shareholder was issued one right for each share held to purchase two additional shares for P 12
per share. The rights expire on October 31, 2018.
 On September 30, 150,000 rights were exercised when the market value of the share was P 12.50 per share.
 On November 02, Cam declared a two for one share split up and changed the par value of the share from P 10 to P 5
per share. On November 20, shares were issued for the share split.
 On December 05, 60,000 shares were issued in exchange for a secondhand equipment. It originally cost P 600,000,
was carried by the previous owner at a carrying amount of P 300,000 and was recently appraised at P 390,000.
 Profit for 2018 was P 720,000.
Determine the following as of December 31, 2018:
21. Share capital:
a. 12,600,000 c. 10,800,000
b. 10,050,000 d. 12,300,000

22. Share premium:

a. 1,485,000 c. 1,575,000
b. 3,825,000 d. 1,275,000

23. Unappropriated retained earnings:

a. 2,550,000 c. 2,422,500
b. 2,220,000 d. 2,190,000

24. Total equity:

a. 16,425,000 c. 14,295,000
b. 16,095,000 d. 16,065,000

Use the following information for questions 25 to 28:

Bambi Corporation was authorized at the beginning of 2017 with 540,000, P 100 par value, ordinary shares. At December 31,
2017, the equity section of Bambi was as follows:
Share capital, par value, P 100 per share, authorized
540,000 shares, issued 54,000 shares 5,400,000
Share premium 540,000
Retained earnings 810,000
Total equity 6,750,000
===========
On May 10, 2018, Bambi issued 90,000 ordinary shares for P 10,800,000. A 5% share dividend was declared on September 30,
2018 and issued on November 10, 2018 to shareholders of record on October 31, 2018. Market value of ordinary share was P
110 per share on declaration date. The profit of Bambi for the year ended December 31, 2018 was P 855,000.

During 2019, Bambi had the following transactions:

Feb. 15 Bambi reacquired 5,400 ordinary shares for P 95 per share.
May 15 Bambi sold 2,700 treasury shares for P 120 per share.
June 30 Issued to shareholders one right for each share held to purchase two additional ordinary shares for P 125 per
share. The rights expire on December 31, 2019.
Aug 15 45,000 rights were exercised when the market value of ordinary share was P 130 per share.
Sept 30 72,000 rights were exercised when the market value of the ordinary share was P 140 per share.
Dec. 01 Bambi declared a cash dividend of P 2 per share payable on January 15, 2020 to shareholders of record on
December 31, 2019.
Dec. 15 Bambi retired 1,800 treasury shares. On this date, the market value of the ordinary share was P 150 per
share.
Dec. 31 Profit for 2019 was P 900,000.
Determine the following as of December 31, 2019:
25. Share capital:
a. 38,520,000 c. 38,340,000
b. 26,640,000 d. 38,250,000

26. Share premium:

a. 8,329,500 c. 5,413,500
b. 8,338,500 d. 8,266,500

27. Retained earnings:

a. 1,080,000 c. 1,017,000
b. 1,002,600 d. 1,008,000

28. Treasury shares:

a. 18,000 c. 85,500
b. 90,000 d. 0
Use the following information for questions 29 to 33:
In connection with your audit of the Calma Corporation, you were able to obtain the following information pertaining to the
corporation’s equity accounts. Calma has 32,000, P 2 par value, ordinary shares authorized. Only 75% of these shares have
been issued, and of the shares issued, only 22,000 are outstanding. On December 31, 2017, the shareholders’ equity section
revealed that the balance in Share premium – ordinary was P 832,000 and the Retained earnings balance was P 220,000. The
treasury shares were purchased at an average price of P 37.50.

During 2018, Calma had the following transactions:

Jan. 15 Calma issued, at P 55 per share, 1,600 shares of P 50 par, 5% cumulative preference shares, 4,000 shares
are authorized.
Feb. 01 Calma sold 3,000 newly issued ordinary shares at P 42 per share.
Mar. 15 Calma declared a cash dividend on ordinary shares of P 0.15 per share, payable on April 30 to all
shareholders of record on April 01.
April 15 Calma reacquired 400 ordinary shares for P43 per share. Employees exercised 2,000 share options granted
in 2017. When the options were granted, each option entitled the employees to purchase 1 ordinary share for
P 50 per share. The share price on the date of grant was also P 50 per share. Calma issued new shares to
the employees.
May 01 Calma declared a 10% share dividend to be distributed on June 01 to stockholders of record on May 07. The
market price of the ordinary share was P 50 per share on May 01.
May 31 Calma sold 300 treasury shares reacquired on April 15 and an additional 400 shares costing P 15,000 that
had been on hand since the beginning of the year. The selling price was P 57 per share.
Sept 15 The semi annual cash dividend on ordinary shares was declared, amounting to P 0.15 per share. Calma also
declared the yearly dividend on preference shares. Both are payable on October 15 to shareholders of record
on October 01.
Profit for 2018 was P 100,000.

Determine the balances of the following as of December 31, 2018:

29. Preference share capital:
a. 86,000 c. 80,000
b. 90,000 d. 84,000

30. Ordinary share capital:

a. 63,320 c. 183,320
b. 23,320 d. 58,000

31. Share premium:

a. 1,175,680 c. 1,195,680
b. 1,068,000 d. 1,099,680

32. Treasury shares:

a. 64,300 c. 92,200
b. 77,200 d. 75,000

33. Total retained earnings:

a. 74,756 c. 183,250
b. 99,756 d. 174,756

Use the following information for questions 34 to 38:

You were able to gather the following information in connection with your audit of the shareholders’ equity section of the balance
sheet of Ling. Inc. The company is a manufacturer of school and office equipment. As of December 31, 2018, the shareholders’
equity of the company is presented below:
Cumulative preference share capital
(P 15 par value, 100,000 shares authorized,
12,000 shares issued and outstanding) 180,000
Ordinary share capital
(P 10 par value, 1,000,000 shares authorized,
330,000 shares issued and outstanding) 3,300,000
Retained earnings 1,866,000
5,346,000
============
Ling’s capital stock transactions during 2018 were as follows:
 On January 31, 24,000 preference shares were issued in exchange for land with a fair value of P 300,000. Six
months ago, 2,000 shares of Ling’s preference shares were exchanged “over the counter” for P 14 per share.
 On February 14, 13,500 ordinary shares were sold to Ms. Wang at P 25 per share.
 On December 14, Ling purchased dissident shareholder Ms. Wang’s 13,500 shares at P 27 per share. The shares
are to be held as treasury shares. (Wang violently opposed Ling’s business strategy and Ling’s management decided
to eliminate her interest)
 On December 20, Ling contracted with Ms. Butipa for the sale of 30,000 previously unissued ordinary shares at P 25
per share to be issued when the purchase price is fully paid. At December 31, only P 585,000 had been paid. Butipa
agreed to pay the balance on or before January 31, 2018.
 On December 31, Ling retired 12,000 preference shares at P 18 per share.
 A cash dividend of P 2 per share was declared on the preference shares on October 15, and paid on November 15.
 A cash dividend of P 1.50 per ordinary share was declared on December 15, and payable on January 15, 2018.
 Ling’s profit for the year 2018 was P 750,000.

34. Preference share capital:

a. 360,000 b. 300,000 c. 264,000 d. 324,000

35. Ordinary share capital:

a. 3,435,000 b. 4,020,000 c. 3,735,000 d. 3,637,500

36. Share premium:

a. 592,500 b. 202,500 c. 625,500 d. 142,500

37. Total retained earnings:

a. 1,977,000 b. 1,648,500 c. 2,013,000 d. 2,037,000
38. Total shareholders’ equity:
a. 6,171,000 b. 6,036,000 c. 6,396,000 d 6,336,000
Use the following information for questions 39 to 42:
The shareholders’ equity section of Ronda Corporation’s balance sheet as of December 31, 2018 is as follows:
Shareholders’ Equity
Share capital, P 5 par value, authorized,
2,000,000 shares, issued, 400,000 shares 2,000,000
Share premium 850,000
Retained earnings 3,000,000
5,850,000
============
The following events occurred during 2018:
Jan. 05 10,000 shares were sold for P 9 per share.
Jan. 16 Declared a cash dividend of P 0.40 per share, payable February 15 to shareholders of record on February 05.
Feb. 10 40,000 shares were sold for P 11 per share.
Mar 01 A 40% share dividend was declared and issued. Market value per share is currently P 15/
Apr 01 A two for one split was carried out. The par value of the share was to be reduced to P 2.50 per share. Market
value to March 31 was P 18 per share.
July 01 A 10% share dividend was declared and issued. Market value is currently P 10 per share.
Aug 01 A cash dividend of P 0.40 per share was declared, payable on September 01 to shareholders of record on
August 21.
Dec. 31 Profit for 2018 was P 1,880,000.
Answer the following:
39. The number of shares issued and outstanding as of December 31, 2018 is:
a. 2,079,000 b. 1,386,000 c. 1,188,000 d. 346,500

40. The balance of share capital as of December 31, 2018 is:

a. 3,465,000 b. 3,780,000 c. 3,228,750 d. 3,622,500

41. The balance of share premium as of December 31, 2018 is:

a. 2,075,000 b. 2,547,500 c. 1,760,000 d. 3,695,000

42. The balance of retained earnings as of December 31, 2014 is:

a. 381,600 b. 3,362,400 c. 1,094,400 d. 2,001,600

- end -