SHAREHOLDER’S EQUITY PRACTICE SETS

RECAPITALIZATION – Share Split

JPIA Corp. has an Authorized shares of 150,000 with outstanding shares of 100,000 at par value of P10 per
share. Upon the meeting of its Board of Directors (which includes its President, VP for Finance and VP for
Audit), they decided to restructure its capital by implementing a 5 for 2 share-split.

1. How many is the outstanding shares?

2. How much is the par value of JPIA Corp. as a result of share split?

TREASURY SHARES

At the start of 2020, Oh-Han-Byeol Company which was authorized to issue 400,000, P 8 par value ordinary
shares has 300,000 ordinary shares issued and outstanding. The shares were originally issued for P 10.80
each. The retained earnings amounted to P 6,500,000. During 2020, Oh-Han-Byeol entered into the
following transaction: February, acquired 90,000 of its own shares for P 1,057,500; May, it sold 36,000
treasury shares for P12.40. August, it sold 28,000 treasury shares for P 11.50; October, retired remaining
shares. Net Income for 2018 is P 450,000.

REQUIRED:

1. What is the gain/loss reported in the 2020 income statement from the sale of treasury shares?
2. How much is the Retained Earnings during the year?
3. Assume that Oh-Han-Byeol declared 10% cash dividends for the year, how much is the cash
dividends payable for the year and its corresponding Retained Earnings balance?

CONTRIBUTED CAPITAL

The following information is provided by Park Ho-Young at the end of the year, December 31, 2023.

Retained Earnings P350,000

Preference share capital, 5%, P50 par P1,000,000
Share Issuance Cost P25,000
Share Premium – Ordinary Shares ?
Share Premium – Preference Shares P10,000
Ordinary Share Capital, P10 par P3,000,000
Cumulative Translation Loss P 200,000
Subscribed Share Capital P2,000,000
Treasury Shares, P10 cost P 50,000
Subscription Receivable P1,000,000
Share Premium – Treasury Shares P 5,000

REQUIRED:

How much is the Share Premium - Ordinary shares if the total contributed capital is P6,000,000?
SHARE PREMIUM

Pewds Corp. based on the articles of incorporation, is authorized to issue 300,000 shares with par value
of P2. The corporation has the following transactions during the year:

(a) Issued 60,000 shares at P30 per share which is for cash.
(b) Issued 750 shares, selling at P35 per share to lawyers for services in connection with the
organization of the corporation. The fair value of legal service was P27,000.
(c) Issued 900 shares, valued at P30,000 to the employees instead of paying them in cash.
(d) Issued 37,500 shares in exchange for a building which is valued at P885,000 and land valued at
P240,000. It is noted that the building was originally acquired by the investor for P750,000 and
has P300,000 accumulated depreciation. The original acquisition of the land was for P90,000.
(e) Issued 19,500 shares at P38 per share.
(f) Issued 12,000 shares at P45 per share.

How much is the share premium that should be recorded in the statement of financial position of Pewds
Corp.?

SHARES ISSUED AND OUTSTANDING

Jimmy Donaldson recently incorporated its Mr. Beast Burger Co. by which it has an authorized share of
300,000 at P20 par value of which 130,000 was issued during the year for P35. However, due to conflicts
with one of the investors, the corporation reacquired 12,500 of the shares at P40. The investors also
donated 50,000 of the shares during the year. The 5,000 shares reacquired were reissued for P42.

After considering all the transactions, the entity had a 4 for 2 share-split and subsequently issued another
23,000 shares for P15.

REQUIRED:

1. How many are the shares issued?

2. How many are the shares outstanding?
3. Assuming that the entity declared P1.50 dividends for the year, how much would be deducted
from the retained earnings account?

COMPUTATION OF TOTAL SHAREHOLDER’S EQUITY

Cowsep Inc. is authorized to issue 200,000 of P10 par value ordinary shares and 60,000 of 6% preference
shares which has a par value of P100 per share. The following transactions happened during 2022:

(a) 50,000 shares were issued for P650,000 and 20,000 preference shares for machinery which had a
fair value of P2,600,000. The fair value of the shares during the transaction of preference share is
at P150.
(b) Subscriptions for 9,000 ordinary shares have been taken, and 40% of the subscription price of P18
per share has been collected.
(c) The entity reacquired 2,000 of its ordinary share at a cost of P12.

The post-closing retained earnings balance at December 31, 2022, is P420,000.

What is Cowsep’s total shareholder’s at the end of the year?

RIGHTS ISSUE/SHARE WARRANTS

SEB (Salva,Esperas,Borjal) Corp. wants to raise its working capital. After a thorough analysis, the entity
issued stock rights to its 50,000 existing preference shares with par value of P30. With such rights, the
existing shareholders have the right to purchase 5 ordinary shares for every 1 preference shares.

The entity also decided to issue 10,000 preference shares with detachable warrants. The preference
shares which include the warrants sells for P120. The warrants enable the holder to purchase 3 shares
of P10 par ordinary shares at P40 per share for every 5 preference shares.

1. Assuming that immediately, after the issuance of the shares, the share warrants are selling at P10
per share while the market value of preference shares without the warrants is P90. At what
assigned amount is the share warrants recorded?
2. Assuming that only the market value of the preference shares in ITEM NUMBER 1 is given. At
what assigned amount is the share warrants recorded?
3. Assuming that only the fair value of the ordinary shares is given at P65. At what assigned amount
is the share warrants recorded?
4. Considering the answer in ITEM NUMBER 1, only 75% of the share warrants are exercised and the
remaining expired. What are the journal entries that should be recorded for the exercised and
unexercised warrants?

VARIOUS SHAREHOLDERS’ EQUITY TRANSACTIONS (With emphasis to Retained Earnings)

The shareholders’ equity section of Caparros Corp. in the statement of financial position as of
December 31, 2022 is as follows:

Ordinary Share Capital (P5 par, 250,000 shares authorized,

137,500 issued and outstanding) P 687,500
Share Premium 275,000
Total paid-in capital P 962,500
Unappropriated Retained Earnings P 667,500
Appropriated Retained Earnings 250,000
Total Retained Earnings 917,500
Total Shareholder’s Equity P 1,880,000

Caparros Corp. had the following shareholders’ equity transactions during 2023:

Jan. 15 Completed the building renovation for which P250,000 of retained earnings had been
restricted. Paid the contractor P242,500, all of which is capitalized
Mar. 3 Issued 50,000 ordinary shares for P8 per share
May 18 Declared cash dividend of P1.50 per share to be paid on July 31, 2023, to shareholders of
record on June 30, 2023
June 19 Approved additional building renovation to be funded internally. The estimated cost of
the project is P200,000 and retained earnings are to be restricted for that amount.
July 31 Payment of Dividends.
Dec. 31 Declared a property dividend to be paid on January 10, 2024, to shareholders of record
on January 5, 2024. The dividend consists of equipment with a carrying value of P150,000.
The equipment’s fair value as of this date is P157,500.
 Dec. 31 Net income for the year is P442,500

REQUIRED:

Determine the balance of the following at December 31, 2023:

1. Ordinary Share Capital

2. Share Premium
3. Unappropriated Retained Earnings
4. Total Shareholder’s Equity

RETAINED EARNINGS

A. The following information has been taken from the ledger accounts of Dames Corporation:

Total accumulated profits since incorporation P 3,200,000

Total Cash dividends paid 150,000
Carrying amount of the company’s investment from Revilla Inc. which is
declared as property dividend 600,000
Proceeds from sale of donated shares 150,500
Total value of share dividends distributed 420,000
Gains on treasury share transactions 375,000
Unamortized premium on bonds payable 413,200
Appropriation for contingencies 700,000

REQUIRED: How much is the balance of the unappropriated retained earnings?

B. KACHING Inc.’s retained earnings balance showed an amount worth P150,000. The Net Income for
2020 was P85,000 and dividends of P60,000 were declared and paid during 2020. KACHING’s
accountant discovered that net income for 2019 had been understated by P25,000 due to an error in
recording the depreciation expense.

REQUIRED: How much is the retained earnings at the end of 2019?

SHARE DIVIDENDS

The equity accounts of Shooting Stars Corporation as of June 30, 2030 revealed the following:

Ordinary Stocks, P10 par, 150,000 shares authorized, 60,000 shares issued P 600,000
and outstanding
Additional Paid-in Capital 140,000
Accumulated Profits 750,000

During that date, the ordinary stocks are selling at P20

REQUIRED:

Prepare necessary entries in the following INDEPENDENT CASES.

a. A 15% stock dividend is declared and issued.

 b. A 20% stock dividend is declared and issued.
c. A 4 for 1 stock split is declared and issued.
d. A 5% dividend was declared and paid.

EQUITY TRANSACTIONS WITH DIVIDENDS

PALABAN Co. has been paying regular quarterly dividends to its shareholders. The following equity
transactions are shown in the company’s books:

Jan. 1 Ordinary shares with P2 par have been issued (1,600,000 shares outstanding; 3,000,000
shares authorized)
Feb. 15 Issued 100,000 new shares at P5
Mar. 31 Paid quarterly dividends of P2,550,000
May 13 P 2,000,000 of P1,000 bonds were converted to ordinary shares at the rate of 100 shares
per P1,000 bond.
Jun. 16 Issued an 11% stock dividend.
30 Paid quarterly dividends. The dividend per share is the same as that paid in the first
quarter.
There are no more equity transactions after June 30.

1. What is the amount of dividend per share that PALABAN Co. paid on March 31?
2. What amount of dividend that PALABAN Co. will have to pay in the third quarter in the third
quarter in order to pay the same dividend rate as that paid in previous quarters?
3. What is the total amount of dividends to be paid during the current year?

COMPUTATION OF EQUITY ACCOUNT BALANCES

OHPPR (One Hundred Percent Passing Rate) Corp. reported the following amounts in its shareholder’s
equity of its December 31, 2020, statement of financial position:

Preference shares, 10%, P10 par (100,000 shares authorized, 20,000 shares
issued) P 200,000
Ordinary shares, P5 par (50,000 shares authorized, 10,000 shares issued) 150,000
Share Premium – Preference shares 50,000
Share Premium – Ordinary shares 46,000
Retained Earnings 600,000
Total Shareholder’s Equity 946,000

The following transactions occurred during 2021:

1. Paid the annual 2020 P1 per share dividend on preference shares and P0.50 per share dividend
on ordinary shares. These dividends had been declared on December 31, 2019.
2. Purchased 2,000 shares of its own outstanding ordinary shares for P20 per share.
3. Reissued 700 treasury shares for equipment valued at P25,000 with carrying value of P15,000.
4. Issued 5,000 preference shares at P15 per share.
5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares were selling
for P12 per share.
 6. Issued stock dividend.
7. Declared the annual 2020 P1 per share dividend on preference shares and the P 0.50 per share
dividend on ordinary shares. These dividends are payable in 2021.
8. Appropriated retained earnings for plant expansion, P300,000
9. Appropriated retained earnings for treasury shares.

The net income for the year was P470,000.

REQUIRED: Determine the balance of the following accounts:

1. Preference Shares
2. Ordinary Shares
3. TOTAL Share Premium
4. Treasury Shares
5. Unappropriated Retained Earnings

----------------------------------END OF PRACTICE SETS--------------------------------

“My grace is sufficient for you, for my power is made perfect in weakness.” -2 Corinthians 12:9
GOOD LUCK AND GOD BLESS QUALIFIERS OF 2022! #Manifesting

Sources/References:

Valix, C. T., Peralta, J. F., & Valix, C. A. M. (2020). Intermediate Accounting (2020 Edition, Vol. 2). GIC
Enterprises & Co., Inc.
Roque, G. (2019). CPA Examination Reviewer: Auditing Problems (2018-2019 Edition). GIC Enterprises &
Co., Inc.
Calamba Review Center Laguna. (n.d.). Financial Accounting and Reporting Quizzers.