CHAPTER 8

Organization and Formation of a Corporation

E 8-1
a. Memorandum entry method
Jan. 1 Authorized to issue 250,000 shares of 10% preference share capital with a par value of
P100.

1 Authorized to issue 500,000 shares of ordinary share capital with a stated value of P20.

1 Cash 9,375,000
Preference Share Capital (62,500 x P100) 6,250,000
Ordinary Share Capital (125,000 x P20) 2,500,000
Ordinary Share Capital in Excess of Stated Value 625,000

May 1 Cash 3,000,000

Preference Share Capital (25,000 x P100) 2,500,000
Preference Share Premium 500,000

Dec. 1 Cash 600,000

Ordinary Share Capital (25,000 x P20) 500,000
Ordinary Share Capital in Excess of Stated Value 100,000

b. Journal entry method

Jan. 1 Unissued Preference Share Capital 25,000,000
Authorized Preference Share Capital 25,000,000

1 Unissued Ordinary Share Capital 10,000,000

Authorized Ordinary Share Capital 10,000,000

1 Cash 9,375,000
Unissued Preference Share Capital 6,250,000
Unissued Ordinary Share Capital 2,500,000
Ordinary Share Capital in Excess of Stated Value 625,000

May 1 Cash 3,000,000

Unissued Preference Share Capital 2,500,000
Preference Share Premium 500,000

Dec. 1 Cash 600,000

Unissued Ordinary Share Capital 500,000
Ordinary Share Capital in Excess of Stated Value 100,000
APC – Chapter 8 (2007 edition) page 2

E 8-2
a. Memorandum entry method
Apr. 1 Authorized to issue 500,000 shares of ordinary share capital with a par value of P20.

1 Cash 7,200,000
Ordinary Share Capital (200,000 x P20) 4,000,000
Ordinary Share Premium 3,200,000

25 Pre-Operating Expenses 150,000

Ordinary Share Capital (5,000 x P20) 100,000

Ordinary Share Premium 50,000

May 28 Equipment 400,000
Ordinary Share Capital (15,000 x P20) 300,000
Ordinary Share Premium 100,000

b. Journal entry method

Mar. 1 Unissued Ordinary Share Capital 10,000,000
Authorized Ordinary Share Capital 10,000,000

1 Cash 7,200,000
Unissued Ordinary Share Capital 4,000,000
Ordinary Share Premium 3,200,000

25 Pre-Operating Expenses 150,000

Unissued Ordinary Share Capital 100,000
Ordinary Share Premium 50,000

Apr. 28 Equipment 400,000

Unissued Ordinary Share Capital 300,000
Ordinary Share Premium 100,000

E 8-3
1. Authorized to issue 500,000 shares of ordinary share capital with a par value of P20

Cash 6,250,000
Ordinary Share Capital (250,000 x P20) 5,000,000
Ordinary Share Premium (250,000 x P5) 1,250,000

2. Authorized to issue 500,000 shares of Ordinary Share Capital with a stated value of P15.

Cash 6,250,000
Ordinary Share Capital (250,000 x P15) 3,750,000
Ordinary Share Capital in Excess of Stated Value 2,500,000

3. Authorized to issue 500,000 shares of no-par and no stated value Ordinary Share Capital.
Cash 6,250,000
Ordinary Share Capital (250,000 x P25) 6,250,000
APC – Chapter 8 (2007 edition) page 3

E 8-4
Authorized to issue 500,000 shares of ordinary share capital with a stated value of P20.

a. Cash 2,500,000
Ordinary Share Capital (125,000 x P20) 2,500,000

b. Pre-Operating Expenses 150,000

Ordinary Share Capital (2,500 x P20) 50,000
Ordinary Share Capital in Excess of Stated Value 100,000
Note: shares issued should be 2,500 and NOT 25,000

c. Pre-Operating Expenses
Ordinary Share Capital (2,000 x P20) 50,000 40,000
Ordinary Share Capital in Excess of Stated Value 10,000

d. Land 300,000
Ordinary Share Capital (10,000 x P20) 200,000
Ordinary Share Capital in Excess of Stated Value 100,000

e. Cash (50,000 x P24) 1,200,000

Ordinary Share Capital (50,000 x P20) 1,000,000
Ordinary Share Capital in Excess of Stated Value 200,000

E 8-5
June 1 OSC Subscription Receivable (35,000 x P50) 1,750,000
OSC Subscribed (35,000 x P20) 700,000
Ordinary Share Premium (35,000 x P30) 1,050,000

1 Cash (P1,750,000 x 60%) 1,050,000

OSC Subscription Receivable 1,050,000

Sept. 8 Cash 700,000

OCS Subscription Receivable 700,000

8 OSC Subscribed 700,000

Ordinary Share Capital 700,000

E 8-6
July 1 Cash 3,125,000
Ordinary Share Capital (125,000 x P10) 1,250,000
Preference Share Capital (12,500 x P100) 1,250,000
Ordinary Share Capital in Excess of Stated Value 625,000

8 Pre-Operating Expenses (1,250 x P120) 150,000

Preference Share Capital (1,250 x P100) 125,000

Preference Share Premium (1,250 x P20) 25,000

12 OSC Subscription Receivable (75,000 x P20) 1,500,000
OSC Subscribed (75,000 x P10) 750,000
Ordinary Share Capital in Excess of Stated Value 750,000
APC – Chapter 8 (2007 edition) page 4

12 Cash 900,000
OSC Subscription Receivable 900,000
P1,500,000 x 60% = P900,000

July 21 Merchandise Inventory 10,000

Land 150,000
Building 100,000
Equipment 20,000
Ordinary Share Capital (20,000 x P10) 200,000
Ordinary Share Capital in Excess of Stated Value 80,000

30 Cash (P1,500,000 – P900,000) 600,000

OSC Subscription Receivable 600,000

30 OSC Subscribed 750,000

Ordinary Share Capital 750,000

E 8-7
Sept. 1 OSC Subscription Receivable (125,000 x P30) 3,750,000
OC Subscribed (125,000 x P20) 2,500,000
Ordinary Share Premium (125,000 x P10) 1,250,000

1 Cash (P3,750,000 x 40%) 1,500,000

OSC Subscription Receivable 1,500,000

8 Land 750,000
Ordinary Share Capital (25,000 x P20) 500,000
Ordinary Share Premium 250,000

10 Cash 750,000
OSC Subscription Receivable 750,000
P2,200,000 / 3 = P750,000

20 Cash 750,000
OSC Subscription Receivable 750,000

30 Cash 750,000
OSC Subscription Receivable 750,000

30 OSC Subscribed 2,500,000

Ordinary Share Capital 2,500,000

E 8- 8
a. OSC Subscription Receivable (125,000 x P25) 3,125,000
OSC Subscribed (125,000 x P10) 1,250,000

Ordinary Share Capital in Excess of Stated Value 1,875,000

Cash (P3,125,000 x 60%) 1,875,000
OSC Subscription Receivable 1,875,000
APC – Chapter 8 (2007 edition) page 10

TM 29
1. Corporation 11. Outstanding share capital
2. Incorporation 12. Delinquent subscriber
3. Domestic corporation 13. 25%
4. Incorporators 14. 25%
5. Pre-operating costs/organization costs 15. Paid-in capital in excess of stated value
6. Stated value 16. P5.00
7. Ordinary share capital 17. 50 years
8. Preference share capital 18. Stock certificate
9. Par value 19. Receivable from highest bidder

10 Ordinary share capital 20. Goodwill

TM 30
1. C 5. C 9. A 13. C 17. D
2. C 6. A 10. B 14. B 18. A
3. D 7. B 11. B 15. C 19. C
4. C 8. D 12. C 16. B 20. D

TM 31
Problems

A. 1. P50,000 P60,000 (total) – P10,000 (land) = P50,000

2. P55 P2,750,000 / 50,000 sh = P55
3. 500,000 sh P5,000,000 / P10 = 500,000 sh
4. P15 P7,500,000 / 500,000 sh = P15
5. P50,000 P550,000 – (10,000 sh x P50) = P50,000

B. 1. P100 / 325 sh P42,250/P130 = 325 shares; P32,500/325 sh = P100

2. P70,000 P120,000 – (1,000 x P50) = P70,000
3. P50,000
4. P2,460,000 (24,000 sh x P60) + (6,000 sh x P120) + (2,000 sh x P150)
5. P64,000 8,000 sh x P8 = P64,000

C.
1. 57,600 sh P2,880,000 / P50
2. 272,000 sh P2,720,000 / P10
3. 28,800 sh P1,440,000 / P50
4. 56,000 sh P560,000 / P10
5. P55 (P4,320,000 + P432,000) / (57,600 + 28,800) = P55
6. P12 (P3,280,000 + P656,000) / (272,000 + 568,000) = P12
7. P25 P720,000 / 28,800 = P25
8. P5.50 P12 – (P364,000/56,000)