DE LA SALLE LIPA
College of Business, Economics, Accountancy and Management
Accountancy and Accounting Information Systems Department
Intermediate Accounting Two
Assignment # 4 Shareholder’s Equity Part 2
Directions: Read the problems below. Give what is required. Must be handwritten. Show
solutions in good form.
Problem 1:
I. A Co, a public company whose shares are traded in the over-the-counter market, had the
following shareholders’ equity account balances on December 31, 200A:
Ordinary share P 7,875,000
Share premium 15,750,000
Retained Earnings 16,445,000
Treasury shares-Ordinary 750,000
Transactions during 200B and other information relating to the shareholder’s equity accounts
were as follows:
A. A Co. had 4,000,000 authorized shares of P5 par value ordinary; 1,575,000 shares were
issued, of which 75,000 were held in treasury.
B. A Co. owned 15,000 shares of D, Inc. ordinary share purchased one year ago for P
600,000. The D Inc.’s shares were included in A Co.’s short term financial assets at fair
value through profit or loss portfolio. On March 5, 200B A Co. declared a property
dividend of one share of D Inc.’s ordinary share for every 100 shares of A CO.’s ordinary
shares held by a shareholder of record on April 16,200B. The market price of D Inc.’s
share on March 5, 200B, was P 60 per share. The property dividend was distributed on
April 29, 200B.
C. ON October 27, 200B, A Coo. Declared a 2-for-1 share split on its ordinary and reduced
the par value per share accordingly. A Co.’s shareholders received one additional share
for each share of A Co’s ordinary share held. The laws in A Co’s state of incorporation
protect treasury share from dilution.
D. Net income for 200B was P 2,400,000.
Required:
1. How much dividends are paid on ordinary shareholder?
2. How many ordinary shares are outstanding as of December 31, 200B?
3. How much is the balance of the issued ordinary shares as of December 31, 200B?
4. How much is the share premium on December 31, 200B?
5. How much is the balance of the retained earnings as of December 31,200B?
6. How much is the balance of the total shareholder’s equity as of December 31,200B?
Problem 2:
Bennett Company paid cash dividends totalling P 150,000 in 20x0 and P 75,000 in 20x1. In
20x2, Bennett intends to pay cash dividends of P 800,000.
Requirements: Compute the amount of cash dividends per share to be received by ordinary
shareholders in 20x2 under each of the following assumptions. Treat each case independently.
There were no dividends in arrears as of January 1, 20x0.
a. 25,000 shares of ordinary; 100,000 shares of 6%, P 50 par cumulative preference
b. 25,000 shares of ordinary; 50,000 shares of 6%, P 50 par noncumulative preference
c. 25,000 shares of ordinary; 70,000 shares of 6%, P 100 par cumulative preference
Problem 3:
During 20x2, the following transactions related to the capital share of the ABC Corp occurred:
Jan 7 Declared a P .75 cash dividends on 150,000 shares of preference shares.
Feb 7 Paid dividends on preference shares
March 4 Declared a P 0.50 cash dividend on 200,000 ordinary shares with P 20 par
value.
March 18 Paid dividends on ordinary shares
June 30 Split ordinary shares 4 for 1.
July 9 Purchased 12,000 shares of ABC Corp’ own ordinary shares at P 32 per
share; acquisition recorded at cost
Sept 10 Declared a cash dividend of P .40 per share on ordinary shares outstanding
Sept 18 Paid dividends on ordinary shares.
Required: Provide the entries to record the above transactions.
Problem 4:
The board of directors of Lilo and Stitch Co. decided that the company should undergo a quasi-
reorganization effective on December 31, 20x2. On that date the company determined the
following asset values:
Carrying Amount Fair Value
Machinery P 40,000 P 40,000
Building 300,000 175,000
Equipment 95,000 80,000
P 435,000 P 295,000
The shareholders’ equity section at December 31, 20x2 is presented below:
Ordinary shares, P 25 par, 25,000 shares issued and outstanding P 625,000
Ordinary Share Premium 250,000
Retained Earnings (deficit) (225,000)
Total P 650,000
The quasi-reorganization is to be accomplished by reducing the par value of the shares to P 20
per share.
Requirements:
a. Prepare the journal entry required to adjust the assets
b. Prepare the journal entry to record the recapitalization
c. Prepare the journal entry to record the elimination of the deficit.
Inputs from Intermediate Accounting by Zeus Vernon Millan and by Nenita Robles/ Patricia Empleo.