116981413 shareholder s equity reviewer

STOCKHOLDERS’ EQUITY

PROBLEM NO. 1

Alcoy Corporation’s post-closing trial balance at December 31, 2006 was as follows:

Alcoy Corporation Post-Closing Trial Balance

December 31, 2006

Debit Credit Accounts payable P 495,000Accounts receivable P 963,000Reserve for depreciation 360,000Reserve for doubtful accounts 54,000Premium on common stock 1,800,000Gain on sale of treasury stock 450,000Bonds payable 720,000Building and equipment 1,980,000Cash 396,000Cash dividends payable on preferred stock 7,200Common stock (P1 par value) 270,000Inventories 1,116,000Land 684,000Available-for-sale securities at fair value 513,000Trading securities at fair value 387,000Net unrealized loss on available-for-sale

securities 45,000Preferred stock (P50 par value) 900,000Prepaid expenses 72,000Donated capital 800,000Stock warrants outstanding 208,000Retained earnings 415,800Treasury stock – common, at cost 324,000 Totals P6,480,000 P6,480,000

At December 31, 2006, Alcoy had the following number of common and preferred shares:

Common Preferred Authorized 900,000 90,000Issued 270,000 18,000Outstanding 252,000 18,000

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The dividends on preferred stocks are P0.40 cumulative. In addition, the preferred stock has a preference in liquidation of P50 per share.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:

1. Additional paid-in capitala. P3,213,000 c. P3,050,000b. P3,258,000 d. P2,600,000

2. Total contributed capitala. P4,428,000 c. P3,770,000b. P4,220,000 d. P1,170,000

3. Unappropriated retained earningsa. P415,800 c. P91,800b. P739,800 d. P37,800

4. Total stockholders’ equitya. P4,266,800 c. P4,888,800b. P4,519,800 d. P4,474,800

PROBLEM NO. 2

Your audit client, Argao, Inc., is a public enterprise whose shares are traded in the over-the-counter market. At December 31, 2005, Argao had 3,000,000 authorized shares of P10 par value common stock, of which 1,000,000 shares were issued and outstanding. The stockholders’ equity accounts at December 31, 2005 had a following balances.

Common stock P10,000,000Additional paid-in capital 3,750,000Retained earnings 3,250,000

Transactions during 2006 and other information relating to the stockholders’ equity accounts were as follows:

On January 2, 2006, Argao issued at P54 per share, 50,000 shares of P50 par value, 9% cumulative convertible preferred stock. Each share of preferred stock is convertible into two shares of common stock. Argao had 300,000 authorized shares of preferred stock. The preferred stock has a liquidation value equal to its par value.

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On February 1, 2006, Argao reacquired 10,000 shares of its common stock for P16 per share.

On April 30, 2006, Argao sold 250,000 shares (previously unissued) of P10 par value common stock to the public at P17 per share.

On June 15, 2006, Argao declared a cash dividend of P1 per share of common stock, payable on July 15, 2006, to stockholders of record on July 1, 2006.

On November 10, 2006, Argao sold 5,000 shares of treasury stock for P21 per share.

On December 15, 2006, Argao declared the yearly cash dividend on preferred stock, payable on January 15, 2007, to stockholders of record on December 31, 2006.

On January 20, 2007, before the books were closed for 2006, Argao became aware that the ending inventories at December 31, 2005 were understated by P150,000 (after tax effect on 2005 net income was P90,000). The appropriate correction entry was recorded the same day.

After correcting the beginning inventory, net income for 2006 was P2,250,00.

QUESTIONS:



2. Unappropriated retained earningsa. P4,125,000 c. P4,045,000b. P4,035,000 d. P3,955,000

3. Treasury stocka. P160,000 c. P55,000b. P 80,000 d. P50,000

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5. Book value per share of common stocka. P17.89 c. P17.71b. P17.82 d. P15.41

PROBLEM NO. 3

The stockholders’ equity section of the Asturias Inc. showed the following data on December 31, 2005: Common stock, P3 par, 300,000 shares authorized, 250,000 shares issued and outstanding, P750,000; Paid-in capital in excess of par, P7,050,000; Additional paid-in capital from stock options, P150,000; Retained earnings, P480,000. The stock options were granted to key executives and provided them the right to acquire 30,000 shares of common stock at P35 per share. Each option has a fair value of P5 at the time the options were granted.

The following transactions occurred during 2006:

Feb. 1 Key executives exercised 4,500 options outstanding at December 31, 2005. The market price per share was P44 at this time.

Apr. 1 The company issued bonds of P2,000,000 at par, giving each P1,000 bond a detachable warrant enabling the holder to purchase two shares of stock at P40 each for a 1-year period. The bonds would sell at P996 per P1,000 bond without the warrant.

July 1 The company issued rights to stockholders (one right on each share, exercisable within a 30-day period) permitting holders to acquire one share at P40 with every 10 rights submitted. All but 6,000 rights were exercised on July 31, and the additional stock was issued.

Oct. 1 All warrants issued in connection with the bonds on April 1 were exercised.

Dec. 1 The market price per share dropped to P33 and options came due. Because the market price was below the option price, no remaining options were exercised.

Dec. 31 Net income for 2006 was P250,500.

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QUESTIONS:


1. Common stocka. P777,300 c. P833,850b. P848,700 d. P850,050

2. Total additional paid-in capitala. P7,522,200 c. P8,219,650b. P8,402,800 d. P8,419,450

3. Total contributed capitala. P8,299,500 c. P9,269,500b. P9,053,500 d. P9,251,500

4. Retained earningsa. P580,500 c. P730,500b. P858,000 d. P654,150

5. Total stockholders’ equitya. P10,000,000 c. P9,030,000b. P 9,784,000 d. P9,982,000

PROBLEM NO. 4

Balamban Corporation was authorized at the beginning of 2004 with 540,000 authorized shares of P100, par value common stock. At December 31, 2004, the stockholders’ equity section of Balamban was as follows:

Common stock, par value P100 per share; authorized 540,000 shares; issued 54,000 shares P5,400,000

Additional paid-in capital 540,000Retained earnings 810,000Total stockholders’ equity P6,750,000

On May 10, 2005, Balamban issued 90,000 shares of its common stock for P10,800,000. A 5% stock dividend was declared on September 30, 2005 and issued on November 10, 2005 to stockholders of record on October 31, 2005. Market value of common stock was P110 per share on

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declaration date. The net income of Balamban for the year ended December 31, 2005 was P855,000.

During 2006, Balamban had the following transactions;

Feb. 15 Balamban reacquired 5,400 shares of its common stock for P95 per share.

May 15 Balamban sold 2,700 shares of its treasury stock for P120 per share.

Jun 30 Issued to stockholders one stock right for each share held to purchase two additional shares of common stock for P125 per share. The rights expire on December 31, 2006.

Aug. 15 45,000 stock rights were exercised when the market value of common stock was P130 per share.

Sep. 30 72,000 stock rights were exercised when the market value of the common stock was P140 per share.

Dec. 01 Balamban declared a cash dividend of P2 per share payable on January 15, 2007 to stockholders of record on December 31, 2006.

Dec. 15 Balamban retired 1,800 shares of its treasury stock and reverted them to an unused basis. On this date, the market value of the common stock was P150 per share.

Dec. 31 Net income for 2006 was P900,000.

QUESTIONS:


1. Common stocka. P38,520,000 c. P38,340,000b. P26,640,000 d. P38,250,000


3. Retained earnings

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a. P1,080,000 c. P1,017,000b. P1,002,600 d. P1,008,000

4. Treasury stocka. P18,000 c. P85,500b. P90,000 d. P 0

PROBLEM NO. 5

Bogo Corporation began operations on January 1, 2006. The company was authorized to issue 60,000 shares of P10 par value common stock and 120,000 shares of 10%, P100 par value convertible preferred stock.

In connection with your audit of the company’s financial statements, you noted the following transactions involving stockholders’ equity during 2006:

Jan. 1 Issued 1,500 shares of common stock to the corporation promoters in exchange for equipment valued at P510,000 and services valued at P210,000. The property costs P270,000 3 years ago and was carried on the promoters’ books at P150,000.

Jan. 31 Issued 30,000 shares of convertible preferred stock at P150 per share. Each share can be converted to five shares of common stock. The corporation paid P225,000 to an agent for selling the shares.

Feb. 15 Sold 9,000 shares of common stock at P390 per share. The corporation paid issue costs of P75,000.

May 30 Received subscriptions for 12,000 shares of common stock at P450 per share.

Aug. 30 Issued 2,100 shares of common stock and 4,200 shares of preferred stock in exchanged for a building with a fair market value of P1,530,000. The building was originally purchased for P1,140,000 by the investors and has a book value of P660,000. In addition, 1,800 shares of common stock were sold for P720,000 cash.

Nov. 15 Payments in full for half of the subscriptions and partial payments for the rest of the subscriptions were received.

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Total cash received was P4,200,000. Shares of stock were issued for the fully paid subscriptions. The balance is collectible next year.

Dec. 1 Declared a cash dividend of P10 per share on preferred stock, payable on December 31 to stockholders of record on December 15, and P20 per share cash dividend on common stock, payable on January 15, 2007 to stockholders of record on December 15.

Dec. 31 Paid the preferred stock dividend.

Net income for the first year of operations was P1,800,000.

QUESTIONS:


1. Common stocka. P204,000 c. P264,000b. P144,000 d. P186,000

2. Paid-in capital in excess of par value of preferred stocka. P1,500,000 c. P1,275,000b. P1,545,000 d. P1,860,000

3. Paid-in capital in excess of par value of common stocka. P 8,211,000 c. P11,121,000b. P10,851,000 d. P10,032,000

4. Retained earningsa. P1,050,000 c. P 930,000b. P1,170,000 d. P1,458,000


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PROBLEM NO. 6

The Borbon Corporation has requested you to audit its financial statements for the year 2006. During your audit, Borbon presented to you its balance sheet as of December 31, 2005 containing the following capital section:

Preferred stock P10 par; 60,000 shares authorized and issued, of which 6,000 are treasury shares costing P90,000 and shown as an asset P 600,000

Common stock, par value P4; 600,000 shares authorized, of which 450,000 are issued and

outstanding1,800,000

Additional paid in capital (P5 per share on preferred stock issued in 2000) 300,000

Allowance for doubtful accounts receivable 12,000Reserve for depreciation 840,000Reserve for fire insurance 198,000Retained earnings 2,250,000Total stockholders’ equity P6,000,000

Additional information:

1) Of the preferred stock, 3,000 shares were sold for P18 per share on August 30, 2006. Borbon credited the proceeds to the Preferred Stock account. The treasury shares as of December 31, 2005 were acquired in one purchase in 2005.

2) The preferred stock carries an annual dividend of P1 per share. The dividend is cumulative. As of December 31, 2005, unpaid cumulative dividends amounted to P5 per share. The entire accumulation was liquidated in June, 2006, by issuing to the preferred stockholders 54,000 shares of common stock.

3) A cash dividend of P1 per share was declared on December 1, 2006 to preferred stockholders of record December 15, 2006. The dividend is payable on January 15, 2007.

4) At December 31, 2006, the Allowance for Doubtful Accounts Receivable and Reserve for Depreciation had balances of P25,000 and P1,050,000, respectively.

5) On March 1, 2006, the Reserve for Fire Insurance was increased by P60,000; Retained Earnings was debited.

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6) On December 31, 2006, the Reserve for Fire Insurance was decreased by P30,000, which represents the carrying value of a machine destroyed by fire on that date. Estimated fire cleanup costs of P6,000 does not appear on the records.

7) The December 31, 2005 Retained Earnings consists of the following:

Donated land from a stockholder(Market value on date of donation) P450,000

Gains from treasury stock transactions 51,000Earnings retained in business 1,749,000

P2,250,000

8) Net income for the year ended December 31, 2006 was P1,297,500 per company’s records.

QUESTIONS:

Based on the above and the result of your audit, determine the adjusted balances of the following as of December 31, 2006. (Disregard tax implications)

1. Total Additional paid-in capitala. P414,000 c. P810,000b. P804,000 d. P864,000

2. Retained earnings - Appropriateda. P258,000 c. P228,000b. P303,000 d. P 0

3. Retained earnings - Unappropriateda. P2,677,500 c. P2,578,500b. P2,626,500 d. P2,623,500

4. Treasury stocka. P45,000 c. P36,000b. P90,000 d. P 0


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PROBLEM NO. 7

The stockholders equity of Cordova Corporation showed the following data on December 31, 2005:

12% preferred stock, P30 par, 135,000 shares issued and outstanding P4,050,000

Common stock, P50 par, 180,000 shares issuedand outstanding 9,000,000

Premium on preferred stock 1,080,000Premium on common stock 3,240,000Retained earnings 1,395,000

The 2006 transactions of the company affecting its stockholders’ equity are summarized chronologically as follows:

1. Issued 27,000 shares of preferred stock at P40.

2. Issued 94,500 shares of common stock at P70.

3. Retired 5,400 shares of preferred stock at P45.

4. Purchased 13,500 shares of its common stock at P80.

5. Split common stock two for one (par value reduce to P25).

6. Reissued 13,500 shares of treasury stock – common at P50.

7. Stockholders donated to the company 9,000 shares of common stock when shares had a market price of P52. One half of these shares were subsequently issued for P54.

8. Dividends were paid at the end of the calendar year on the common stock at P2 per share and on the preferred stock at the preferred rate.

9. Net income for the year was P2,520,000.

QUESTIONS:


1. Preferred stocka. P4,617,000 c. P4,968,000b. P4,698,000 d. P4,860,000

2. Common stock

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a. P15,615,000 c. P13,968,000b. P13,500,000 d. P13,725,000


4. Unappropriated retained earningsa. P1,749,240 c. P1,711,440b. P2,251,440 d. P1,684,440


PROBLEM NO. 8

You were able to gather the following information in connection with your audit of the stockholders’ equity section of the balance sheet of Liloan, Inc. The company is a manufacturer of school and office equipment. As of December 31, 2005, the stockholder’s equity of the company is presented below:

Cumulative preferred stock (P15 par value; 100,000 shares authorized, 12,000 shares issued and outstanding) P 180,000

Common stock (P10 par value; 1,000,000 shares authorized, 330,000 shares issued and outstanding

3,300,000

Retained earnings 1,866 ,000 P5,346,000

Liloan’s capital stock transactions during 2006 were as follows:

a. On January 31, 24,000 preferred shares were issued in exchange for land with a fair value of P300,000. Six months ago, 2,000 shares of Liloan’s preferred stock were exchanged “over the counter” for P14 per share.

b. On February 14, 13,500 shares of common stock were sold to Ms. P. Saway at P25 per share.

c. On December 14, Liloan purchased dissident stockholder Saway’s 13,500 shares at P27 per share. The shares are to be held as

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treasury shares. (Saway violently opposed Liloan’ business strategy and Liloan’s management decided to eliminate her interest.)

d. On December 20, Liloan contracted with Ms. Buti for the sale of 30,000 previously unissued shares at P25 per share to be issued when the purchase price is fully paid. At December 31, only P585,000 had been paid. Buti agreed to pay the balance on or before January 31, 2007.

e. On December 31, Liloan retired 12,000 preferred shares at P18 per share.

f. A cash dividend of P2 per share was declared on the preferred shares on October 15, and paid on November 15.

g. A cash dividend of P1.50 per share was declared on December 15, and payable on January 15, 2007.

h. Liloan’s net income for the year 2006 was P750,000.

QUESTIONS:


1. Preferred stocka. P360,000 c. P264,000b. P300,000 d. P324,000

2. Common stocka. P3,435,000 c. P3,735,000b. P4,020,000 d. P3,637,500

3. Additional paid-in capitala. P592,500 c. P625,500b. P202,500 d. P142,500

4. Total retained earningsa. P1,977,000 c. P2,013,000b. P1,648,500 d. P2,037,000


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PROBLEM NO. 9

In connection with your audit of the Poro Company, you were asked to prepare comparative data from the company’s inception to the present. The following were gathered during your audit:

a. Poro Company’s charter became effective on January 2, 2002, when 80,000 shares of P10 common and 40,000 shares of 5% cumulative, nonparticipating, preferred stock were issued. The common stock was sold at P12 per share and the preferred stock was sold at its par value of P100 per share.

b. Poro was unable to pay preferred dividends at the end of its first year. The owners of the preferred stock agreed to accept 2 shares of common stock for every 50 shares of preferred stock owned in discharge of the preferred dividends due on December 31, 2002. The shares were issued on January 2, 2003. The fair market value was P30 per share for common on the date of issue.

c. Poro Company acquired all outstanding stock of Pos Corporation on May 1, 2004, in exchange for 40,000 shares of Poro common stock.

d. Poro split its common stock 3 for 2 on January 1, 2005, and 2 for 1 on January 1, 2006.

e. Poro offered to convert 20% of the preferred stock to common stock on the basis of 2 shares of common for 1 share of preferred. The offer was accepted, and the conversion was made on July 1, 2006.

f. No cash dividends were declared on common stock until December 31, 2004. Cash dividends per share on common stock were declared and paid as follows:

July 1 December 312004 - P4.002005 P3.00 P5.002006 P2.50 P2.00

QUESTIONS:

Based on the above and the result of your audit, determine the following:

1. Outstanding number of common shares as of December 31, 2006

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a. 364,800 c. 372,800b. 684,800 d. 380,800

2. Outstanding number of preferred shares as of December 31, 2006a. 40,000 c. 32,000b. 24,000 d. 96,000

3. Amount of cash dividends declared and paid to common stockholders for the year 2005a. P972,800 c. P1,459,200b. P608,000 d. P1,981,440

4. Amount of cash dividends declared and paid to common stockholders for the year 2006a. P3,911,040 c. P1,713,600b. P3,041,600 d. P1,673,600

PROBLEM NO. 10

You were able to gather the following information in connection with your audit of Sogod Corporation:

On January 1, 2004, Sogod Corporation granted stock options to officers and key employees for the purchase of 30,000 shares of the company’s P10 par value common stock at P25 per share. The options are exercisable within a 5-year period beginning January 1, 2006, by grantees still in the employ of the company, and expiring December 31, 2010. The service period for this award is 2 years. The fair value option pricing model determined total compensation expense to be P525,000. The stock was selling at P35 at the time the options were granted.

On April 1, 2005, 3,000 options were terminated when the employees resigned from the company. The market value of common stock was P35 per share on this date.

On March 31, 2006, 18,000 option shares were exercised when the market value of common stock was P40 per share.

QUESTIONS:


1. Compensation expense for 2004a. P525,000 c. P236,250

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b. P262,500 d. P150,000

2. Net compensation expense for 2005a. P262,500 c. P120,000b. P210,000 d. P150,000

3. The exercise of the 18,000 options will result in a credit to APIC-excess over par ofa. P585,000 c. P270,000b. P620,000 d. P450,000

4. APIC from stock options as of December 31, 2006a. P 0 c. P472,500b. P90,000 d. P157,500

PROBLEM NO. 7On December 31, 2011, La Cost Company's financial statements showed the following balances related to its securities accounts:

Trading securities P1,477,500Available-for-sale securities (AFS) 1,180,000

La Cost's securities portfolio on December 31, 2011, was made up of the following securities:

Security 10,000 YeyeBonel Corp.shares8,000 TotoyBibo

Inc. shares10% Mayniladlad

bonds

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Classification

Trading

Trading

Trading

Available forsale

Available

Cost

750,000

550,000

250,000

590,000

490,000

Fair Value

762,500

528,250

186,750

630,000

550,000

10,000 BulaklakInc. shares 20,000 JumboInc. shares

During 2012, the following transactions took place:Mar. 1 Purchased 3,000 additional shares of

YeyeBonel Corp. for P229,500, classified as held for trading.

Apr. 15 Sold 4,000 shares of TotoyBibo Inc. for P69 per share.

May 4 Sold 4,000 shares of Bulaklak Inc. for P62 pershare. Oct. 30 Purchased 15,000 shares of Pasaway Co. forP832,500, classified as held for trading.

The fair values of the shares and bonds on December 31, 2012, are as follows:

YeyeBonel Corp. shares P76.60 per share

TotoyBibo Inc. shares P68.50 per share

Pasaway Co. shares P55.25 per share

Mayniladlad water bonds P205,550

Bulaklak Inc. shares P61.00 per share

Jumbo Unlimited Inc. sharesP27.00 per share

QUESTIONS:


31.Gain or loss on sale of 4,000 TotoyBibo Inc. shares on April 15, 2012a. P1,000 gain c. P 1,875gainb.. P1,000 loss d. P 1,875 loss

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32.Net realized gain or loss on sale of 4,000 Bulaklak Inc. shares on May 4, 2012a. P12,000 gain c. P12,000 lossb. P 4,000 gain d. P 4,000 loss

33.Carrying amount of Trading Securities as of December 31, 2012a. P2,337,000 c. P2,304,100b. P2,287,800 d. P2,297,400

34.Carrying amount of Available for Sale Securities as of December 31, 2012a. P844,000 c. P906,000b. P806,000 d. P944,000

35.In 2012, what amount of unrealized gain or loss should be shown as component of income and equity?

Income Equitya. P28,725 gain P62,000 gainb. P28,725gain P22,000 lossc. P32,900 loss P122,000 lossd. P39,600 gain P78.000 gain

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116981413 shareholder s equity reviewer

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