ReSA The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 AUDITINGPROBLEMS IRENEO/ESPENILLA FINANCING CYCLE: AUDIT OF STOCKHOLDERS’ EQUITY {OBLEM 1: A partial list of the accounts and ending account balances taken from the post-closing trial balance of Alpha Corporation on December 31, 2016 is shown below: 1. Accumulated profits - unappropriated 450,000 2. Bonds payable 220,000 3. Ordinary shares subscribed 50,000 4. Long-term investment in shares 210,000 5. Share premium on ordinary shares 460,000 6. Premium on bonds payable 30,000 7. Ordinary shares 400,000 B. Preference shares subscribed ’ 45,000 9. Share premium on preference shares 412,000 10. Preference shares 300,000 LL. Share premium from treacury stock transactions 24,000 12. Share dividends distributable - Preference Share 410,000 13. Additional paid-in capital - bond conversion option 15,000 14. Accumulated unrealized holding gain on financial asset at fair value through other comprehensive income/losses. 90,000 15, Accumulated revaluation surplus/reserves 120,000 16. Accumulated remeasurement loss on accumulated profits obligation and plan assets 35,000 17. Accumulated foreign exchange translation gain 56,000 18, Share dividends distributable - Ordinary Share 25,000 19. Accumulated hedging losses through other comprehensive income/losses, 22,000 20. Ordinary share options outstanding 15,000 21. Ordinary share warrants outstanding 5,000 22: Subscription receivable from ordinary shares ~ current 10,000 23. Subscription receivable from preference shares ~ noncurrent 5,000 24, Treasury shares, 2,000 ordinary shares at cost 40,000 25. Accumulated profits - appropriated for treasury shares 140,000 26. Accumulated profits ~ appropriated for plant expansion 100,000 27. Accumulated profits - appropriated for payment of loans 50,000 28. Share Premium from bond conversion privilege 30/000, Further investigation revealed the following information. '2. Ordinary share has P10 par value per share. 90,000 shares are authorized, 40,000 shares are Issued and outstanding, 5,000 shares have been subscribed at price of P28 per share, b. Preference share has no par value but with a stated value of PSO par value, 8,000 shares are ‘authorized, 6,000 shares are issued and outstanding, 900 shares have been subscribed at price of P70 per share. Each share is cumulative convertible into five ordinary shares, and pays 2.7% annual dividend. Dividends are not in arrears. Required: Determine the adjusted balance of the following as of December 31, 2016: ‘Total additional paid-in capital Total contributed capital Total stockholders’ equity Total legal capital from ordinary shares Total legal capital from preference shares PROBLEM 2: You were assigned to aucit the shareholders’ equity of Walker Corp. for the year ended December 31, 2016. Walker Corp. was incorporated in early 2015 when it was authorized by SEC to ‘ssve 500,000 ordinary shares (P100 par) and 250,000 preference shares (P50 par). The following schedule reflects the company’s capital balances af of December 31, 2015: ‘Ordinary shares, 50,000 shares issued during the company's 7,500,000 incorporation at P150 per share. Preference shares, 20,000 shares issued on June 30, 2015 in exchange of 41,200,000 + a building with a fair market value of P1,200,000.ReSA: The Review School of Accountancy Page 2 of 10 Retained earnings, which is the company’s net income in 2015 5,540,000_ Total shareholders’ equity Pi4/240,000 Your inquiries and investigation revealed the following transactions which occurred in 2016: ‘3. On January 5, the company issued 10,090 ordinary shares to employees as compensation. The shares are currently selling on this date at P165 per share, b. On March 10, the company issued 10,000 ordinary shares and 10,000 preference shares for @ total lump sum of P2,800,000. On this date, ordinary shares are quoted in the market at P175 per share while preference shares are quoted at P75 per share. On uly 1, the company issued 15,000 ordinary shares with a 3 year- P2,000,000, 12% face value bonds for a total consideration of P5,000,000.. The bonds which pay semi-annual interest every January 1 and July 1, are currently quoted at 110 while the ordinary shares are quoted in the market at P180 per share. 4. On August 1, 20,000 preference shares were subscribed by several subscribers at P80 per share. 25% of the subscriptions were collected up front with the balance to be paid after 3 months. &. On October 31, receivables for the 15,000 shares subscribed on August 1 were fully collected, thus the corresponding shares were issued. The subscribers of the remaining shares defaulted, 28 a result, the company offered the remaining shares in an auction. The company paid P15,000 in auction related expenses. ‘On November 25, the company selected the highest bidder for 4,000 shares, thus the amount ‘due was collected. The remaining shares were issued. 9. The company registered an adjusted net income in 2016 at P4,$30,000, lowing transactions transpired in 2017: Fh. On January 15, the company issued 5,000 ordinary shares to the company’s outside legal Counsel. The shares are currentiy’selling on this date at P180 per share. The fair market value of the legal services received on this date is P8S0,000. 1. On February 5, the company issued 10,000 ordinary shares to its creditors as a payment of its ‘outstanding loan of P2,250,000; inclusive of interest of P50,000. The shares ate currently selling ‘on this date at P200 per share. This payment was a resuit of a debt restructuring agreement entered by the company with the creditor. 3, On March 5, the company issued 3,000 ordinary shares to its creditors as a settlement of the company’s outstanding liabilities of 525,000, which is inclusive of interest payable of P15,000 in compliance with the original terms of the debt. ‘The shares are currently selling on this date ‘at P175 per share, Based on the information above, determine the adjusted balances of the following Ordinary Shares, December 31, 2016 and 2017 Preference Shares, December 31, 2016 ‘Share premium in excess of par ~ Ordinary Shares December 31, 2016 and 2017 ‘Share premium in excess of par — Preference Shares, Cecember 31, 2016 ‘Additional Paid-in Capital, December 31, 2016 Contributed Capital, December 31, 2016 Stockholders’ Equity, December 31, 2015 ogaune PROBLEM 3:You were assigned to audit the shareholders’ equity of Glory Inc. for the year ended December 31, 2016. Glory Corp. was incorporated in early 2015 when it was authorized by SEC to sue 500,000 ordinary shares (P10 par) and 100,000 convertible preference shares (P20 par), The folawing schedule reflects the company's capital balances as of December 31, 2015: Ordinary shares, 100,000 shares Issued during the company’s 1,400,000 incorporation in exchange of a land with a fair value of P1.4M. Preference shares, 50,000 share issued duning the company's 2,500,000 incorporation at PSO per share. Each preference share Is convertible to four ordinary shares. Retained earnings, which és the company’s net income in 2015 $340,000 Total sh seholders’ equity TB5840,000- Your inqu’ .es and Investigation revealed the following transactions, which occurred in 2016: ‘On January 15, the company reacquired 20,000 ordinary shares (from the 2015 issue) at P22 per share and reverted them ta treasury since it intends to reissue the same. b. On February 11, the company reissued 4,000 treasury shares at P28 per share. c. On March 5, the company reissued 6,000 treasury shares at P19 per share. On April 1, the company retired 5,000 treesury shares, ———z00 &ReSA: The Review Schoo! of Accountancy Page 3 of 10 ce €. On May 12, 20,000 preference shares were converted to ordinary shares. f. On dune 9, 15,000 shares were sudscribed for a total amount of P175,000. 9. On July 4, a 2 for 1 share split was effected for the ordinary share, h. On August 8, the company reissued 3,000 treasury shares at PB per share, 1. The company issued 4,000 ordinary shares for P11 per share, ‘The company registered an adjustee! net come in 2016 at PB30,000. smpute for the adyusted balances of the following as of December 31, 2016: Ordinary Shares Preference Shares ‘Share premium - Ordinary shares Share premium ~ Preference shares ‘Share premium ~ Treasury shares Total additional paid-in capital ‘Total contributed capital Total stockholders’ equity PROBLEM .4: XL.Co. issued 2,000 shares uf P20 par preference shares with 1,000 detachable warrants for a total price of 240,000, The warrants enable the holder to purchase 1,000 ordinary shares of P10 par at P40 per share. Immediately after the issuance of the share, th warrants are selling at P20 per Warrant and the market value of the preference without the warrants 1s P90. Required: Determine the following: 1 2 i The amount to be assigned to the share warrants “The amount fo be credited to share premium in excess of par if 60% of the warrants are exercised ‘The effect of the expiration of the remaining warrants to the total Share Premium PROBLEMS: Global Co. had the following selected information in its December 31, 2015 Stockholders’ Equity: 10% Preference shares, P100 par value, $0,000 shares authorized, 10,000 shares issued and outstanding 1,000,000 Ordinary shares, P50 par value, 100,000 shares authorized, '50,000 shares issued, 5,000 shares reacquired at P75 per share 2,500,000 ‘Share premium on preference shares 250,000 Share premium on ordinary shares 250,000 ‘Accumulated profits 2,350,000 ‘Transactions in 2016 are as follows: ‘a. On January 2, the company issued 4,000, F1,000 10% bonds payable with detachable warrants, ‘One warrant is attached to each P1,000 bord. The bonds which pay semi-annual interest every Sune 30 and December 31 were issued at total lump-sum price of P4,200,000. On the date of issuance, the bonds were quoted at 101 without the warrants while each warrant can be sold in the market at P25. Five warrants surrendered together with P7S exercise price entitle the holder to acquire one ordinary share. Warrants can be exercised 2 years from the date of the issuance, b. On April 15, stock rights were issued to ordinary shareholders. Ten stock rights plus P6O per share entitle the holder to acquire one additional ordinary share, On June 1, 80% of the warrants issued with the bonds were exercised, d. On August 15, all but 6,000 stock rights were exercised by the ordinary shareholders. fe. Adjusted net income for the year amounted to 1,350,000. ‘Based on the information above, answer the following: i ‘AUDITING PROBLEMS - BATCH 36> ‘What is the correct amount to be allocated to the ordinary share warrants as a result of the transaction on January 2? What ste cred tothe share premium account asa result ofthe exercise ofthe stock warrants fon June 17 ‘What is the credit to the share premiuin account as a result of the exercise of the stock rights on we te 1e stock rights ‘What is the correct balance of the ordinary shares accounts as of Occember 31, 20167 ‘What isthe total Additional paid in capita’ as of December 31, 2016? ‘What is the total stockholders’ equity as of December 31, 2016?