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Equity Exercises 1

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159 views3 pages

Equity Exercises 1

Uploaded by

alcazar rtu
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ANALYSIS OF VARIOUS EQUITY TRANSACTIONS

PRESENTED BELOW ARE FOUR (4) INDEPENDENT CASES RELATING TO THE AUDIT OF
SHAREHOLDER’S EQUITY. ANSWER THE QUESTION/S AT THE END OF EACH CASE.

I. The retained earnings account for CURDAPIA CO, shows the following (debits) and
credits:
Jan 1 Balance P 2,917,000
.
(a) Loss from fire (3,175)
(b) Goodwill impairment (322,00)
(c) Stock dividend (500,000)
(d) Loss on sale of equipment (175,500)
(e) Officer’s compensation related to income of
prior periods-accrual overlooked (2,104,000)
(f) Share premium-issuance 795,000
(g) Stock subscription defaults 37,250
(h) Gain on sale of treasury shares 147,000
(i) Gain on early retirement of bonds at less than
carrying value 81,000
(j) Gain on life insurance policy settlement 78,000
(k) Correction of prior-period error 30,500

1. What is the corrected amount of retained earnings?

II. KNADONG COMPANY began operations on January 1, 2022, by issuing at P15 per
share one-half of the 475,000 ordinary shares (P1 par value) that had been
authorized for issue. In Addition, Kandong has 250,000 6% preference shares (P5 par
value) authorized. During 2022, Kandong reported net income of P512,500 and
declared dividends of P118,750.

During 2023, Kandong completed the following transactions:


Jan. 10 Issued an additional 50,000 ordinary shares for P17 per share
Apr. 2 Issued 75,000 preference shares for P8 per share
July 21 Authorized the acquisition of a custom-made machine to be delivered
in January 2024. Kandong appropriated P147,500 of retained
earnings for the purchase of the machine
Oct. 25 Issued an additional 25,000 preference shares for P9 per share
Dec. 31 Reported P607,500 of net income and declared a dividend of
P317,500 to shareholders of record on January 31, 2024, to be paid
on February 4, 2024.

2. What is the total shareholder’s equity on December 31, 2023?

3. What is the unappropriated retained earnings balance on December 31, 2023?


III. BURDADO CO. is authorized to issue 300,000 of P2 par value ordinary shares. The
company has the following transactions:
(a) Issued 60,000 shares at P30 per share; received cash
(b) Issued 750 shares, selling at P35 per share, to lawyers for services in
connection with the organization of the corporation.
The value of the legal services was P27,000.
(c) Issued 900 shares, valued objectively at P30,000, to the employees instead
of paying them cash wages.
(d) Issued 37,500 shares in exchange for a building valued at P885,000 and
land valued at P240,000. (The building was originally acquired by the
investor for P750,000 and has P300,000 of accumulated depreciation; the
land was originally acquired for P90,000.)
(e) Received cash for 19,500 shares issued at P38 per share.
(f) Issued 12,000 shares at P45 per share; received cash.

4. The statement of financial position will report share premium of?

IV. TAKYO COMPANY has been playing regular quarterly dividends of P1.50 and wants to
pay the same amount in the third quarter of 2023. The following information relates
to the company’s equity:
Jan. 1 Shares outstanding, 400,000; P2 par (750,000 shares authorized)
Feb. 15 Issued 25,000 new shares at P10.50.
Mar. 31 Paid quarterly dividends of P1.50 per share.
May 12 Converted P1,000,000 of P1,000 bonds to ordinary shares at the
rate of 50 shares per P1,000 bond.
June 15 Issued an 11% stock dividend.
30 Paid quarterly dividends of P1.50 per share.

5. What is the total amount that Takyo will have to pay in dividends in the third
quarter in order to pay P1.50 per share?
6. What is the total amount of dividends to be distributed during the year assuming
no equity transactions occur after June 30?

ISSUANCE OF ORDINARY SHARES CAPITAL

The NEPAL COMPANY is authorized to issue 600,000 shares of P10 par value ordinary share
capital. Nepal's accounting year ends on December 31. The following transactions occurred
in 2023, the company’s first year of operations.

a. Issued 20,000 shares at P20 per share; received cash.


b. Issued 2,500 shares to attorneys for services in securing the corporate charter
and for preliminary legal costs of organizing the corporation. The value of the
services was P85,000.
c. Issued 300 shares, valued objectively at P15,000, to the employees instead of
paying them cash wages.
d. Issued 325,000 shares in exchange for a building valued at P3,000,000 and land
valued at P4,000,000. (The building was originally acquired by the investor for
P2,500,000 and has P1,000,000 of accumulated depreciation; the land was
originally acquired for P1,500,000.)

7. What is the ordinary share capital balance on December 31, 2023?


8. The amount of share premium to be reported on Nepal’s statement of financial
position at December 31, 2023, is?
9. The amount of organization expense to be charged against Nepal’s income for
2023 is

SHARE PREMIUM

The following are PAKISTAN COMPANY’S equity accounts at December 31, 2022:
Ordinary share capital, par value P10; authorized
200,000 shares; issued and outstanding
120,00 shares P 1,200,000
Share premium 180,000
Retained earnings 720,000

The following transactions occurred in 2023:


a. Acquired 8,000 ordinary shares of P144,000.
b. Sold 6,500 treasury shares at P20 per share
c. Retired the remaining treasury shares

10. What is the share premium balance on December 31, 2023?

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