Trust in the Lord with all your heart and lean not on your own understanding 

2 points each question with solution.

Problem 1

At the beginning of the current year, REBEL Company issued 10,000 ordinary shares of P20
par value and 20,000 convertible preference shares of P20 par value for a total of P800,000.

At this date, the ordinary share was selling for P36 and the convertible preference share was
selling for P27.

a. What amount of the proceeds should be allocated to the preference shares?

b. What amount of the proceeds should be allocated to the ordinary shares?
c. What is the share premium from the issuance of preference shares?
d. What is the share premium from the issuance of ordinary shares?

Problem 2

At the beginning of current year, Ashe Company was organized with authorized capital of
100,000 shares of P200 par value.

January 10 Issued 25,000 shares at P220 a share

March 25 Issued 1,000 shares for legal services when the fair value was P240 a share

September 30 Issued 5,000 shares for a tract of land when the fair value was P260 a share

a. What amount should be reported as share capital?

b. What amount should be reported for share premium?

Problem 3

At the beginning of current year, HAPPY Co. was organized and authorized to issue 100,000
shares with P50 par value

During the current year, the entity had the following transactions relating to shareholders’ equity:

 Issued 10,000 shares at P70 per share

 Issued 20,000 shares at P80 per share
 Reported net income of P1,000,000
 Paid dividends of P200,000
 Purchased 3,000 treasury shares at P100 per share
 a. What is the total shareholders’ equity at year-end?
b. What is the contributed capital at year-end?

Problem 4

Jason Company was organized at the beginning of current year with 100,000 authorized shares
of P100 par value. The following transactions occurred during the year:

January 15 Sold 30,000 shares at P150 per share

February 14 Issued 2,000 shares for legal services with a fair value of P250,000. The shares
on this date are quoted at P140 per share.

March 27 Purchased 5,000 treasury shares at a cost of P120 per share

October 31 Issued P5,000,000 convertible bonds at 120. The bonds are quoted at 98 without
the conversion feature.

November 5 Declared a 2-for-1 share split when the market value of the share was P160.

December 15 Sold 20,000 shares at P75 per share

December 31 Net income for the year was P2,000,000

a. What amount should be reported as share capital at year-end?

b. What amount should be reported as share premium at year-end?
c. What is the total shareholders’ equity at year-end?

Problem 5

BESH Company provided the following data at year-end:

12% Preference share capital, 20,000 shares, P100 par value 2,000,000

14% Preference share capital, 10,000 shares, P300 par value 3,000,000

Ordinary share capital, 50,000 shares, P100 par value 5,000,000

Retained earnings 2,240,000

Share premium 1,500,000

The 12% preference share is cumulative and participating. The 14% preference share is
noncumulative and participating. Dividends are in arrears in 3 years.

a. What is the book value per ordinary share?

 b. What is the book value per share of 12% Preference share?
c. What is the book value per share of 14% Preference share?

Problem 6

SHEPHERD Co. reported the following balances on December 31, 2018.

12% nonparticipating, noncumulative 1,000,000

preference share capital, par value of
P100,10,000 shares
10% fully participating, cumulative preference 2,500,000
share capital, par value of P100, 25,000
shares
Ordinary share capital, par value of P100, 7,500,000
75,000 shares

The entity plans to declare cash dividends. It has not paid a cash or stock dividend before.

There has been no change in the capital balances since the entity started operations five years
ago.

The entity reported the following net income and loss for the five years of operations:

2014 1,500,000 loss

2015 1,000,000 loss
2016 500,000 loss
2017 1,750,000 income
2018 6,250,000 income

If the maximum amount available for dividend on December 31, 2018 is declared and paid, what
amount should be distributed to

a. 12% Preference shareholders?

b. 10% Preference shareholders?
c. Ordinary shareholders?

Problem 7

BRITISH Co. provided the following shareholders’ equity at year-end:

Share capital, P30 par, 100,000 shares authorized and outstanding 3,000,000

Share premium 1,500,000

Retained earnings (deficit) (2,100,000)

The entity put into effect a quasi-reorganization by reducing the par value of the share to P5 and
eliminating the deficit against share premium.

Immediately after the quasi-reorganization, what amount should be reported as share

premium?

Problem 8

At the beginning of current year, Ruby Co. had 700,000 ordinary shares authorized and 300,000
shares outstanding.

January 31 Declared 10% share dividend

June 30 Purchased 100,000 shares

August 1 Reissued 50,000 shares

November 30 Declared 2-for-1 share split

How many ordinary shares are outstanding at year-end?