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AP Equity 3

The document provides information about the issuance of common and preferred stock by Poro Company from its inception in 2002 to 2006. It also includes details about stock splits, acquisitions, conversions and cash dividends declared. Based on analyzing this information, the outstanding number of common shares as of December 31, 2006 was 380,800. The outstanding number of preferred shares was 32,000. The amount of cash dividends declared and paid to common stockholders for 2005 was P1,459,200. For 2006, the amount of cash dividends declared and paid to common stockholders was P1,673,600.

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Mark Michael Legaspi
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702 views2 pages

AP Equity 3

The document provides information about the issuance of common and preferred stock by Poro Company from its inception in 2002 to 2006. It also includes details about stock splits, acquisitions, conversions and cash dividends declared. Based on analyzing this information, the outstanding number of common shares as of December 31, 2006 was 380,800. The outstanding number of preferred shares was 32,000. The amount of cash dividends declared and paid to common stockholders for 2005 was P1,459,200. For 2006, the amount of cash dividends declared and paid to common stockholders was P1,673,600.

Uploaded by

Mark Michael Legaspi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

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 31
2004 - P4.00
2005 P3.00 P5.00
2006 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


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

2. Outstanding number of preferred shares as of December 31, 2006

1
a. 40,000 c. 32,000
b. 24,000 d. 96,000

3. Amount of cash dividends declared and paid to common stockholders


for the year 2005
a. P972,800 c. P1,459,200
b. P608,000 d. P1,981,440

4. Amount of cash dividends declared and paid to common stockholders


for the year 2006
a. P3,911,040 c. P1,713,600
b. P3,041,600 d. P1,673,600

Suggested Solution:

Question Nos. 1 and 2


Common Preferred
Jan. 02, 2002 80,000 40,000
Jan. 02, 2003 Common issued to preferred
shareholders (40,000/50 x 2) 1,600       
Dec. 31, 2003 81,600 40,000
May 01, 2004 Acquisition of Pos Corp. 40,000       
Dec. 31, 2004 121,600 40,000
Jan. 01, 2005 3:2 Common stock split
[(121,600 x 3/2) - 121,600] 60,800       
Dec. 31, 2005 182,400 40,000
Jan. 01, 2006 2:1 Common stock split 182,400
Jul. 01, 2006 Conversion of preferred
(40,000 x 20% x 2) 16,000 (8,000)
Dec. 31, 2006 380,800 32,000

Question No. 3
Dividends declared, 7/1/05 (182,400 x P3.00) P 547,200
Dividends declared, 12/31/05 (182,400 x P5.00) 912,000
Cash dividends to common in 2005 P1,459,200

Question No. 4
Dividends declared, 7/1/06 (364,800 x P2.50) P 912,000
Dividends declared, 12/31/06 (380,800 x P2.00) 761,600
Cash dividends to common in 2006 P1,673,600

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