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AP Equity 1

The stockholders' equity section of Asturias Inc. showed common stock of P750,000, paid-in capital of P7,050,000, additional paid-in capital from stock options of P150,000, and retained earnings of P480,000 as of December 31, 2005. During 2006, key executives exercised stock options, the company issued bonds with detachable warrants, issued stock rights to shareholders, and all warrants were exercised. Net income for 2006 was P250,500. As of December 31, 2006, common stock was P850,050, additional paid-in capital was P8,419,450, contributed capital was P9,269,500, retained earnings was P730,

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211 views3 pages

AP Equity 1

The stockholders' equity section of Asturias Inc. showed common stock of P750,000, paid-in capital of P7,050,000, additional paid-in capital from stock options of P150,000, and retained earnings of P480,000 as of December 31, 2005. During 2006, key executives exercised stock options, the company issued bonds with detachable warrants, issued stock rights to shareholders, and all warrants were exercised. Net income for 2006 was P250,500. As of December 31, 2006, common stock was P850,050, additional paid-in capital was P8,419,450, contributed capital was P9,269,500, retained earnings was P730,

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Mark Michael Legaspi
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© © All Rights Reserved
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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.

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

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

2. Total additional paid-in capital

1
a. P7,522,200 c. P8,219,650
b. P8,402,800 d. P8,419,450

3. Total contributed capital


a. P8,299,500 c. P9,269,500
b. P9,053,500 d. P9,251,500

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

5. Total stockholders’ equity


a. P10,000,000 c. P9,030,000
b. P 9,784,000 d. P9,982,000

Suggested Solution:

Questions No. 1 to 5
Common stock P 850,050 (1)
Additional paid in capital 8,419,450 (2)
Contributed capital 9,269,500 (3)
Retained earnings 730,500 (4)
Total SHE, 12/31/06 P10,000,000 (5)
Note: Follow the same approach in Problem no. 2.
Journal entries affecting the stockholders equity accounts during 2006:
2/1 Cash (4,500 options x P35) P 157,500
APIC-stock options (4,500 x P5) 22,500
Common stock (4,500 shares x P3) P 13,500
APIC - excess over par 166,500

4/1 Cash P2,000,000


Bond discount [P2,000,000-(2,000xP996)] 8,000
Bonds payable P2,000,000
APIC-stock warrants 8,000

7/1 Memorandum: Issued rights to shareholders permitting holder to


acquire for a 30-day period one share at P40 with every 10 rights
submitted - a maximum of 25,450 shares (254,500 shares ÷ 10).

7/31 Cash {[25,450 - (6,000/10)] x P40} P 994,000


Common stock (24,850 shares x P3) P 74,550
APIC - excess over par 919,450

2
10/1 Cash (2,000 x 2 x P40) P 160,000
APIC-stock warrants 8,000
Common stock (2,000 shares x 2 x P3) P 12,000
APIC - excess over par 156,000

12/1 APIC-stock options [P150,000-(4,500xP5)] P 127,500


APIC - expired stock options P 127,500

12/31 Income summary P 250,500


Retained earnings P250,500

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