2016 Vol 2 CH 3 Answers

Chapter
3 – Shareholders’ Equity
Chapter 3 – Shareholders’ Equity

3-‐1.
• Cash (20,000 x 500) 10,000,000
Ordinary share capital 10,000,000

• Legal expense/Professional fees 150,000
Ordinary share capital (250 x 500) 125,000
Share premium -‐ ordinary 25,000

• Land 5,000,000
Building 3,000,000
Ordinary share capital (12,500 x 500) 6,250,000
Share premium -‐ ordinary 1,750,000

• Cash (6,500 x 550) 3,575,000

• Cash (20,000 x 550 x 25%) 2,750,000
Subscription receivable – ordinary (11M x 75%) 8,250,000
Subscribed ordinary share (20,000 x 500) 10,000,000
Share premium – ordinary 1,000,000

• Cash 4,950,000
Subscription receivable – ordinary 4,950,000
12,000 shares x 550 x 75%

• Subscribed ordinary share 6,000,000
12,000 shares x 500

3-‐2.
a. Cash (10,000 x 200) 2,000,000

Share premium-‐ordinary 60,000
Cash 60,000

b. Land (3,500 x 560) 1,960,000
Ordinary share capital (3,500 x 200) 700,000

c. Cash 18,000,000
Preference share capital (5,000 x 500) 2,500,000
Share premium – preference 2,000,000
MV: Pref – 5,000 x 800=4M
Ord – 100,000 x 120 = 12M
Allocation:
Pref: 18M x 4/16 = 4.5M
Ord: 18M x 12/16 = 13.5M
Page 30
d. Cash 150,000
Subscription receivable 450,000
Subscribed ordinary share 500,000
Share premium – ordinary 100,000

e. Land 5,000,000
Cash 40,000
Donated capital 4,960,000

3-‐3.
Contributed capital
10% Preference share capital, cumulative and non-‐participating, P100 par
30,000 shares authorized; 12,000 shares issued and outstanding P1,200,000
Ordinary share capital, P10 par, 100,000 shares authorized, 40,000 shares
issued, 39,000 shares outstanding 400,000
Share premium – preference 300,000
Share premium –ordinary 140,000
Total contributed capital P2,040,000
Retained earnings
Appropriated for treasury share P 18,000
Unappropriated 332,000 350,000
Treasury shares, 1,000 ordinary shares, at cost ( 18,000)
Total shareholders’ equity P2,372,000

The total amount of P2,372,000 may also be obtained without necessarily preparing the
shareholders’ equity in good format (if not required) as follows:

Issue of 30,000 ordinary shares P 380,000
Issue of preference shares in exchange of equipment 1,500,000
Subscriptions for 10,000 ordinary shares at 16 160,000
Purchase of 1,000 treasury shares at 18 (18,000)
Retained earnings 350,000
Total shareholders’ equity, December 31, 2013 P 2,372,000

3-‐4.
(a)
(1) Treasury shares 140,000
Cash 140,000

(2) Cash 60,000
Treasury shares 56,000
Paid in capital from treasury share 4,000

(3) Cash 65,000
Paid in capital from treasury shares 4,000

(4) Ordinary share capital 10,000

Page 31
(b) Total shareholders’ equity, December 31, 2014 P2,200,000

(1) Purchase of treasury shares (10,000 x 14) (140,000)
(2) Sale of treasury shares (4,000 x 15) 60,000
(3) Sale of treasury shares (5,000 x 13) 65,000
Profit for the year 280,000
Dividends declared (200,000)
Total shareholders’ equity, December 31, 2015 P2,265,000

The total shareholders’ equity may also be obtained by determining the balance of the
shareholders’ equity accounts, as follows:
Ordinary share capital, P10 par (99,000 shares issued and outstanding)P 990,000
Retained Earnings 978,000
Total shareholders’ equity P2,265,000
3-‐5.
(a) Preference share capital (4,000 x 20) 80,000
Share premium – preference (4,000 x 1.60) 6,400
PIC from retirement of preference shares 2,400
Cash (4,000 x 21) 84,000

(b) Preference share capital (4,000 x 20) 80,000
Cash (4,000 x 26) 104,000

Average preference share premium per share: 160,000/100,000 shares = 1.60
3-‐6.
(a) Preference share capital (10,000 x 20) 200,000

(b) Preference share capital (10,000 x 20) 200,000
3-‐7.
(a) Retained earnings (10,000 shares x P20) 200,000
Share dividends distributable 100,000

Ordinary share capital 100,000

(b) Retained earnings (30,000 x 10) 300,000


(c) Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par previously issued
and outstanding.

Page 32
3-‐8.
Capital structure:
Preference Ordinary
Number of shares outstanding 20,000 250,000
Total par value P2,000,000 P2,500,000

(a) Preference share is non-‐cumulative and non-‐participating
2013 Preference Ordinary
Current preference dividends (9% x 2,000,000 = P0
180,000; dividends declared were P150,000 only. P 150,000
Dividend per share P7.50 P0

Current preference dividends (9% x 2,000,000) P 180,000
Excess (240,000 – 180,000) P80,000
Dividend per share P9.00 P0.32

Current preference dividends (9% x 2,000,000) P 180,000
Excess (540,000 – 180,000) P360,000

(b) Preference share is cumulative and non-‐participating.
Current on preference is P180,000 P150,000
Arrears, end (P180,000 – 150,000 = 30,000) P0
Dividend per share P7.50 P0

Arrears, beginning P 30,000
Current year 180,000
Total P210,000 P210,000
Excess to ordinary = 260,000 – 210,000 P50,000


Current year P180,000
Excess – to ordinary = 540,000 – 180,000 P360,000

(c) Preference share is cumulative and fully participating

Current dividends:
9% x 2,000,000 = P180,000 P 150,000 P0
Arrears, end = 180,000 – 150,000 = 30,000
Dividend per share P 7.50 P0

Page 33

Arrears, beginning P 30,000
Current on preference 180,000 P 210,000
To ordinary: initial limit 9% x P2,500,000
= P225,000, but remaining is only P50,000
Total dividends P210,000 P50,000
Dividend per share P10.50 P 0.20

Current dividends:
9% x 2,000,000 P 180,000
9% x 2,500,000 P 225,000
Excess: P135,000 x 2.0/4.5 60,000
135,000 x 2.5/4.5 75,000
Total P240,000 P300,000

3-‐9.
Capital structure:
Preference Ordinary
Number of shares outstanding 20,000 250,000
Total par value P2,000,000 P2,500,000

(a) Preference is participating up to 14% (Additional 5%)
Preference Ordinary
Arrears, January 1 P 50,000
Current dividends:
9% x P2,000,000 180,000
9% x P2,500,000 P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which is less than
the limit of additional 5%; therefore full excess is
prorated.
P155,000 x 2M/4.5M 68,889
P155,000 x 2.5M/4.5M 86,111
Total P298,889 P311,111

(b) Preference is participating up to 12% (Additional 3%)
Preference Ordinary
Arrears, January 1 P 50,000
Current dividends:
9% x P2,000,000 180,000
9% x P2,500,000 P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which exceeds the
additional limit of 3%; therefore, additional
dividend to preference is limited to 3%; entire
remainder goes to ordinary 60,000
3% x P2,000,000
P155,000 – 60,000 95,000
Total P290,000 P320,000

Page 34
3-‐10.
50% x 100,000 x 10 = 500,000

Fractional share warrants outstanding 50,000

Fractional share warrants outstanding 50,000
Ordinary share capital (80% x 50,000) 40,000
PIC from unexercised fractional share warrants 10,000

3-‐11. 2015
Oct. 31
Financial assets at FV through profit or loss 10,000
Unrealized gain on financial assets at FVPL 10,000
10,000 shares x (15 – 14)

Property dividends payable 150,000
10,000 shares x 15

Unrealized gain on financial assets at FVPL 20,000
10,000 shares x (17 – 15)


2016
Feb. 28

Gain on disposal of financial assets at FVPL 30,000
3-‐12.
2015
Oct. 1 Depreciation expense 33,750
Accumulated depreciation – equipment 33,750
450,000/10 x 9/12


Assets held for distribution 180,000
Accumulated depreciation – equipment 270,000
Equipment 450,000
Cost P450,000
Acc. Deprn 450,000/10 x 6 270,000
Carrying value P180,000
FV (amount is higher) P190,000
Page 35
Dec. 31 Impairment loss 20,000

180,000 – 160,000 = 20,000

190,000 – 160,000 = 30,000 decrease

2016
Jan. 31 Retained earnings 15,000
175,000 – 160,000 = 15,000 increase

Gain on disposal of assets 15,000

3-‐13.

(a) Number of preference shares issued and outstanding 26,000
(b) Number of ordinary shares issued 200,000
Number of ordinary shares outstanding (200,000 – 12,000) 188,000
(c) Cost of remaining treasury shares acquired by purchase P400,000
(d) Amount of total dividends
(26,000 shares x P200 x 12%) + (188,000 x P1) P812,000
(e) Total shareholders’ equity, December 31, 2015 P16,294,000

Total Preference Ordinary Treasury shares
shareholders’ shares shares Number of
equity issued issued Shares Cost
12/31/14 balances P16,500,000 30,000 100,000
2015 transactions:
a) 4,000 x 280 (1,120,000) (4,000)
b) 8,000 x 80 (640,000) 8,000 P640,000
c) 2:1 share split 100,000 8,000
d) 6,000 x 45 270,000 (6,000) (240,000)*
e) 4,000 x 46 4,000
f) 2,000 x 48 96,000 (2,000)
g) Dividends (812,000)
h) Profit 2,000,000
12/31/15 balances P16,294,000 26,000 200,000 12,000 P400,000
*P640,000 x 6,000/16,000 = 240,000

3-‐14.
(a)
2015
June 15 Cash 6,000,000

Sept. 30 Retained earnings (80,000 x 5% x 110) 440,000
Share dividends distributable (4,000x100) 400,000
Page 36
Nov. 10 Share dividends distributable 400,000


Dec. 31 Income summary 1,175,000
Retained earnings 1,175,000

2016
Mar. 1 Treasury share (3,000 x 95) 285,000
Cash 285,000

May 1 Cash (1,500 x 120) 180,000
Treasury share (1,500 x 95) 142,500
Pain in capital from treasury shares 37,500

Aug. 10 Issued 82,500 rights to shareholders
entitling holders to purchase 2 additional
shares for P125 per share.

Sept. 15 Cash (15,000 x 2 x 125) 3,750,000

Oct. 31 Cash (40,000 x 2 x 125) 10,000,000

Dec. 10 Retained earnings 962,500
Dividends payable (192,500 x 5) 962,500

Dec. 20 Ordinary share capital (1,000 x 100) 100,000
Share premium – ordinary (1,000 x 10)* 10,000
Treasury share 95,000
*Share premium per share
300,000/30,000 = 10

Dec. 31 Income summary 1,200,000

(b)
Shareholders’ Equity
Ordinary share capital, P100 par, 193,000 shares
issued; 500 shares in the treasury P19,300,000
Treasury shares (47,500)

Page 37
3-‐15.
(a) Total lump sum price is P147,000 (1,500 x 98), allocated as follows:

Securities Market value Allocation Allocated Price
Preference 90 147,000 x 90/100 132,300
Warrant 10 147,000 x 10/100 14,700

Entry Cash 147,000
Preference share capital (1,500 x 30) 45,000
Share premium – preference 87,300
Share warrants outstanding 14,700

(b) Cash (600 x 40) 24,000
Share warrants outstanding 11,760

3-‐16.
(a) Value of each option P8
Number of shares granted x 30,000
Total value assigned to share options P240,000
Required service period ÷ 3years
Annual compensation expense P 80,000

(b)
2015
Jan. 1 Memo: Granted share options to selected senior
employees for the purchase of 30,000 ordinary
shares at P35 per share, from January 1, 2018 to
December 31, 2019.

Dec. 31 Compensation expense 80,000
Share options outstanding 80,000

2016
30,000 x 8 x 1/3

2017

2018
Dec. 31 Share options outstanding (28,000 x 8) 224,000
Cash (28,000 x 35) 980,000
3-‐17.
2015
Jan. 2 Memo: granted 50,000 share options to certain officers for the purchase of the
company’s P100 par ordinary shares at P280 per share.

(45,000 x 30) ÷ 3 years

Page 38
2016
June Memo: 6,000 share options were cancelled.

(50,000-‐6,000) x 30 x 2/3 = 880,000
880,000 – 450,000 = 430,000
2017
August Memo: 1,500 share options were cancelled.

Total accrued compensation expense
(44,000 – 1,500) x 30 1,275,000
Less: previously accrued 880,000
Compensation expense-‐2017 395,000

2018
Cash (42,500 x 280) 11,900,000
Share options outstanding (42,500 x 30) 1,275,000

3-‐18.
(a) Compensation expense
2015 Estimated options to vest
200 – 10 – 15 = 175 employees x 100 options) 17,500
Fair value of option P32
Estimated total fair value of options to vest P560,000
Compensation expense for the year (560,000 x 1/3) 186,667

2016 Estimated options to vest
200 – 10 – 12 – 5 = 173 employees x 100 options) 17,300
Estimated total fair value of options to vest P553,600
Compensation expense for the years 2015 and 2016
553,600 x 2/3 = P369,067
Compensation expense previously recognized 186,667
Compensation expense for the year P182,400

2017 Number of options that vested (200 – 10 – 12 – 8) 17,000
Total compensation expense (2015-‐2017) P544,000
Compensation expense previously recognized 369,067
Compensation expense for the year P174,933

(b)
2015
Jan. 1 Granted 100 share options to each of its 200 employees to buy P100 par
ordinary share at P220 per share. The options are exercisable starting
January 1, 2011 provided that the employees are still in the service.
Options expire on December 31, 2012.

Page 39
2016

2017

2018 Cash (140 x 100 x 220) 3,080,000
Share options outstanding (14,000 x 32) 448,000
Share Premium -‐ ordinary 728,000

2019 Cash (10 x 100 x 220) 220,000
Share options outstanding (1,000 x 32) 32,000

Share options outstanding (20 x 100 x 32) 64,000
PIC from forfeited share options 64,000
3-‐19. (a)
2015
Jan. 1 Memo: Granted 10,000 share options for the purchase of P100 par ordinary shares
at P120 per share. The options vest once the market price of ordinary shares
reached P200, up to December 31, 2017. Options expire at the end of 2018.

(10,000 x 20) / 3 years

2016
(10,000 x 20) -‐ 66,667

2017 Cash (10,000 x 120) 1,200,000
(b)
2015
Jan. 1 Memo: Granted 10,000 share options for the purchase of P100 par ordinary shares
at P120 per share. The options vest once the market price of ordinary shares
reached P200. Options expire at the end of 2018.

(10,000 x 20) / 3 years

2016

2017
Page 40

2018 Cash (8,000 x 120) 960,000
Share options outstanding (80% x 200,000) 160,000

Share options outstanding (20% x 200,000) 40,000

(c) If the stock price reached P200 by June 2018, the same entries will be made for year
2015 through 2017, as given in (b) The recorded share options, however, will be
cancelled at the end of 2018, as the options already expire.

2018
Dec. 31 Share options outstanding 200,000

3-‐20. (a)
2015
Jan. 1 Granted 80 share options to each of 400 employees for the purchase of P100
par ordinary shares at P140 per share. Options shall vest in 2015 if earnings
increase by 15% or at the end of 2016 if average annual earnings for 2015 and
2016 increased by an average of 12%.

400 x 80 x 22 = 704,000
704,000/2 = 352,000
2016

2017 Cash (32,000 x 140) 4,480,000

(b) The full amount of P704,000 is recognized as compensation expense since
the options vest already in 2015.
3-‐21.
2015
Jan. 1 Memo: Issued to its CEO share options for the purchase of ordinary shares at a
strike price of P50. The options are exercisable beginning January 1, 2018 and
expire on December 31, 2019. The number of share options will be based on the
level of sales for 2017.

15,000 sh x 30 x 1/3
2016
Share Options Outstanding 150,000
15,000 sh x 30 x 2/3 300,000
Compensation expense 150,000
Page 41
2017
18,000 sh x 30 x 3/3 540,000

3-‐22. (a)
2015
Share appreciation rights payable 66,667
10,000 x (140 – 120) x 1/3

2016
10,000 x (150 – 120) x 2/3 = 200,000
200,000 – 66,667 = 133,333
2017
10,000 x (165 – 120) = 450,000
450,000 –200,000 = 250,000

(b) (1) Assuming that the rights were exercised on January 1, 2018, when the market price
is P165.

2018
Jan. 1 Share appreciation rights payable 450,000
Cash 450,000

(b) (2) Assuming that the rights were exercised on December 31, 2018, when the market
price is P172.

2018
Dec. 31 Share appreciation rights payable 450,000
Compensation expense 10,000 (172 – 165) 70,000
Cash 10,000 x (172-‐120) 520,000

3-‐23. (a) Liability at December 31, 2015 P 89,333
December 31, 2016 P208,000
December 31, 2017 P394,000

2015
10,000 x 26.80 x 1/3
2016
10,000 x 31.20 x 2/3 = 208,000
208,000 – 89,333 = 118,667

2017
10,000 x 39.40 = 394,000
394,000 –208,000 = 186,000
Page 42
2018 Share appreciation rights payable 394,000

Cash 10,000 x (165-‐120) 450,000

3-‐24.
(a) Fair value of the equity alternative
4,000 shares x 150 600,000
Fair value of debt component
3,600 shares x 158 568,800
Fair value of equity component 1/1/15 31,200

(b) 2015: 3,600 x 160=576,000; 576,000/3 192,000
31,200/3 10,400
Total compensation expense 202,400

2016: 3,600 x 165 x 2/3 = 396,000
396,000 – 192,000 204,000
31,200/3 10,400

2017: 3,600 x 168 = 604,800
604,800 – 396,000 208,800
31,200/3 10,400

2018: 2,700 x (172-‐168) 10,800
(c)
2015
Jan. 1 Granted each of the four executives the right to choose either 1,000 ordinary
shares or to receive cash payment equal to 900 shares, conditional upon the
completion of three years of service.


31 Compensation expense 214,400
2016
2017
Cash 151,200
PIC from unexercised share options 7,800
31,200 / 4 = 7,800
604,800 / 4 =151,200
2018
900 x 3 x (172 – 168)

Page 43

7,800 x 3 = 23,400
172 x 2,700 = 464,400
3-‐25.
Appropriated Unappropriated
RE, January 1, 2015 P 4,000,000 P9,000,000
2015 Transactions
(1) Understated 2014 depreciation, net of tax
200,000 x 70% (140,000)
(2) Dividends
On preference: 200,000 x P100 x 8% (1,600,000)
On ordinary: 300,000 x P5 (1,500,000)
(3) Retired preference shares at more than original
issue price 10,000 (150 – 130) (200,000)
(4) Release of appropriation for plant expansion (4,000,000) 4,000,000
(5) Small bonus issue (45,000/300,000 = 15%) bonus
45,000 x P150 (6,750,000)
(6) Appropriation for bond redemption 2,000,000 (2,000,000)
(7) Profit for the year _____________ 3,000,000
Balance, December 31, 2015 P2,000,000 P3,810,000
Total retained earnings,
(P2,000,000 unavailable for dividends) P5,810,000

3-‐26.
Retained earnings balance as of December 31, 2016
3,900,000 – 600,000 – 240,000 P 3,060,000
Total shareholders’ equity as of December 31, 2016
6,000,000 + 8,000,000 + 3,060,000 P17,060,000

(a) Preference Ordinary
Par value of preference share P6,000,000
Dividends in arrears (6,000,000 x 9% x 3 yrs.) 1,620,000
Excess to ordinary (17,060,000 – 7,620,000) P9,440,000
Total equity P7,620,000 P9,440,000
Divide by the number of shares outstanding 60,000 800,000
Book value per share P 127 P 11.80

(b) Preference Ordinary
Liquidation value (60,000 shares x P105) P6,300,000
Dividends in arrears (P6,000,000 x 9% x 3 yrs.) 1,620,000
Excess to ordinary (17,060,000 – 7,920,000) P9,140,000
Total equity P7,920,000 P9,140,000
Divide by the number of shares outstanding 60,000 800,000
Book value per share P132 P11.425

3-‐27.
Inventory 300,000

Page 44
Land 1,500,000
Buildings 1,875,000
Machinery and equipment 350,000
Accum. depreciation – buildings 875,000
Accum. depreciation – machinery & equipment 150,000
Revaluation surplus 3,700,000

Revaluation surplus 2,300,000

3-‐28.
(a) Retained earnings 400,000
Accumulated depreciation 75,000
Current assets 100,000
Building 375,000



Skinny Red Company
Statement of Financial Position

Current Assets P 400,000 Liabilities P1,000,000
Land 1,500,000 Ordinary Share 4,000,000
Building 4,625,000 Share Premium 600,000
Accumulated Depreciation ( 925,000) ______________
Total P5,600,000 Total P5,600,000

MULTIPLE CHOICE QUESTIONS

Theory

MC1 B MC13 A
MC2 C MC14 C
MC3 D MC15 C
MC4 D MC16 A
MC5 D MC17 A
MC6 C MC18 C
MC7 B MC19 E
MC8 B MC20 B
MC9 B MC21 B
MC10 C MC22 A
MC11 C MC23 C
MC12 C MC24 C

Page 45
Problems

MC25 C Cost of treasury shares sold (3,000 x P36) P108,000
Excess of reissue price over cost credited to share premium
3,000 x (50-‐36) P 42,000

MC26 C Preference share capital P230,000
Subscribed ordinary share 5,000
Total legal capital P760,000

MC27 D Amount allocated to preference shares (480,000 x 110/120) P440,000
Par value of preference shares (4,000 x P100) 400,000
Share premium – preference P 40,000

MC28 D

MC29 D Outstanding shares, July 1 (60,000 – 5,000) 55,000
Two-‐for-‐one share split x 2
Outstanding ordinary shares, December 31, 2015 110,000

MC30 D Issued ordinary shares, December 31, 2014 125,000
3-‐for-‐1 share split on November 1, 2015 x 3
Issued ordinary shares, December 31, 2015 375,000

MC31 C Issued ordinary shares 375,000
Treasury shares (25,000 – 13,000) x 3 = 36,000; 36,000 + 5,000 (41,000)
Outstanding ordinary shares 334,000

MC32 B Large bonus issue (1:1 or 100%) 600,000 x P5 P3,000,000

MC33 B Number of preference shares, December 31, 2014 60,000
Additional issue during the year 10,000
Preference shares reacquired and retired (2,000)
Number of preference shares, December 31, 2015 58,000
Par value per preference share P20
Preference share capital, December 31, 2015 P1,160,000

MC34 A Total number of ordinary shares issued (100,000 + 35,000) 135,000
Par value per ordinary share P70
Ordinary share capital, December 31, 2015 P2,450,000

MC35 B Average amount of share premium – preference (400,000/50,000) P8.00
Number of preference shares retired x 2,000
Decrease in share premium from retirement P16,000

MC36 C Par value of ordinary share before share split P70
2-‐for-‐1 share split ÷ 2
Par value or ordinary share after share split P35

MC37 B Remaining treasury shares (5,000 x 2) – 5,000 5,000
Cost per share after share split (80/2) x 40
Total cost of remaining treasury shares P200,000

MC38 B Fractional warrants issued (600 x 10) 6,000
Fractional warrants exercised (6,000 x 60%) 3,600
Fractional warrants expired (6,000 x 40%) 2,400
Page 46
MC39 D Interest expense for 2015 (100,000 x 10% x 9/12) P7,500

MC40 C Issue price of bonds with warrants P2,120,000
Issue price related to the bonds (2,000 x 1,040) 2,080,000
Issue price recorded as part of equity (warrants) P 40,000

MC41 B Amount of retained earnings to be capitalized (bonus issue) P945,000
Market value per share ÷ P70
Number of shares 13,500
Percentage of bonus issue (13,500/90,000) 15%
The answer could also be 21% computed as follows:
945,000/50 = 18,900; 18,900/90,000= 21% (Large
dividend). However, this is not among the choices.

MC42 D Preference dividends: 80,000 + (2M x 8%) P240,000
Ordinary dividends (300,000 – 240,000) P 60,000

MC43 D Total dividends for 2012 and 2015: (3,000,000 x 5% x 2 years) P300,000
Dividends paid in 2015 (100,000)
Dividends in arrears, end of 2015 (Note disclosure) P200,000

MC44 B Number of shares issued (110,000 + 10,000) x 2 220,000
Number of shares in the treasury
5,000 – 1,000 = 4,000; 4,000 x 2 8,000
Number of shares outstanding 212,000

MC45 A Preference Ordinary
Arrears P24,000
Current (400,000 x 12% 48,000 P24,000
Remainder 12,000 into 4:2 ratio 8,000 4,000
Total dividends P80,000 P28,000

MC46 A Retained earnings balance, December 31, 2015 before closing P8,000,000
10% bonus issue (10,000 x 70) (700,000)
Net loss for the year (1,200,000
Retained earnings balance, December 31, 2015 P6,100,000

MC47 A Par value per share after 5-‐for-‐2 split (15 x 2) / 5 P6.00

MC48 B Ordinary share dividend (25,000 x P40) P1,000,000
Preference share dividend (10% x 2.5M) 250,000
Total amount of dividends P1,250,000

MC49 C Issue of shares (40,000 x 105) P4,200,000
Purchase of its ordinary shares (600 x 110) (66,000)
Sale of treasury shares (400 x 95) 38,000
Profit 830,000
Dividends (200,000)

Page 47
MC50 C Total shareholders’ equity, December 31, 2014 P5,520,000

4/30 Retirement of preference shares (1,000 x 25) (25,000)
6/15 Purchase of treasury shares (2,000 x 85) (170,000)
6/30 2-‐for-‐1 split -‐
7/31 Reissue of treasury shares (800 x 50) 40,000
12/31 Profit for 2015 900,000

MC51 D Number of remaining treasury shares (2,000 x 2) – 800 3,200
Cost per share (85/2) P42.50
Cost of remaining treasury shares P136,000

MC52 A Fair value of the options (20,000 x P9) P180,000
Compensation expense per year (180,000/ 2) P 90,000
Compensation expense for 2015 (half year) 90,000 x ½ P 45,000

MC53 D Intrinsic value of options 3,000 x (50-‐20) P90,000
Compensation expense for 2015 (90,000 / 3 years) P30,000

MC54 C Fair value of options expected to vest (4.5M x 95%) P4,275,000
Compensation expense for 2015 (4,275,000/3 years) P1,425,000

MC55 B Fair value of options expected to vest (4.5M x 94%) P4,230,000
Compensation expense for 2015 and 2016 (4,230,000 x 2/3) P2,820,000
Less amount recognized in 2015 1,425,000
Compensation expense for 2016 P1,395,000

MC56 B Number of options expected to vest (200 x 300) 60,000
Share appreciation (24 -‐ 20) P4.00
Total liability for share appreciation P240,00
Vesting period ÷ 2 years
Amount recorded as liability for share appreciation rights P120,000

MC57 D Number of options that vested (90% x 60,000) 54,000
Share appreciation (27 – 20) P7.00
Total P378,000
Amount recognized in 2015 120,000
Compensation expense for 2016 P258,000

MC58 B Total shareholders’ equity P3,600,000
Liquidation value of preference shares (140 x 5,000 shares) 700,000
Equity related to ordinary shares P2,900,000
Number of ordinary shares ÷ 50,000
Book value per ordinary share P58.00

MC59 B Book value per ordinary share (3,150,000/ 50,000) P63.00

MC60 B Total shareholders’ equity P3,150,000
Equity related to preference shares:
Liquidation value (120 x 5,000 shares) 600,000
Number of ordinary shares ÷ 50,000
Book value per ordinary share P51.00

Page 48
MC61 C Total shareholders’ equity (including P1M of retained earnings) P13,500,000
Par value of preference shares (100 x 50,000) P5.0M
Dividends in arrears * 1.0M 6,000,000
Book value per ordinary share (7,500,000/750,000 sh) P10.00
*Cumulative dividend in arrears = 5M x 8% x 3 years = P1.2M
but dividends are limited to the extent of RE balance of P1M.

MC62 C Total shareholders’ equity (including P1M of retained earnings) P13,500,000
Liquidation value of preference shares (106 x 50,000) P5.3M
Dividends in arrears 1.0M 6,300,000
Book value per ordinary share (7,200,000/750,000 sh) P9.60

MC63 D Original contributed capital (200,000 x 22) P4,400,000
New par value of shares (200,000 x 15) 3,000,000
Additional paid in capital P1,400,000
Deficit to be eliminated 950,000
Additional paid in capital after the quasi-‐reorganization P 450,000

Page 49

2016 Vol 2 CH 3 Answers

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Chapter

Chapter 3 – Shareholders’ Equity

(b) Total shareholders’ equity, December 31, 2014 P2,200,000

2014 Preference Ordinary

Dec. 31 Impairment loss 20,000

Nov. 10 Share dividends distributable 400,000

2018 Share appreciation rights payable 394,000

Dec. 31 Share options outstanding 23,400

MC39 D Interest expense for 2015 (100,000 x 10% x 9/12) P7,500

MC50 C Total shareholders’ equity, December 31, 2014 P5,520,000

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