Answer to PROBLEM 5:
Statement 1: The number of issued shares at year-end is 440,000.
Statement 2: The number of outstanding shares at year-end is 438,000
a. Only Statement 1 is correct. c. Both statements are correct.
b. Only Statement 2 is correct. d. Both statements are incorrect.
Statement 1: The total amount of share premium to be reported at year-end is P1,710,000.
Statement 2: The total amount of shareholders’ equity to be reported at year-end is P8,140,000.
a. Only Statement 1 is correct. c. Both statements are correct.
b. Only Statement 2 is correct. d. Both statements are incorrect.
Journal Entries
Jan. 1: Sold 80,000 shares at P60 Cash (80k x 60) 4,800,000
per share. Share Capital (80k x 50) 4,000,000
Share Premium 800,000
May 1: Reacquired 4,000 treasury Treasury Shares (4k x 65) 260,000
shares at P65 per share. Cash 260,000
Jul. 1: Approved a share split of 5 Issued = 80k x 5 = 400k shares @new par = P10 (50÷5)
for 1. TS = 4k x 5 = 20k shares @new cost = P13 (65÷5)
Oct. 31: Issued a 10% share Since small share, use FV if higher than par (P25 > P10)
dividend when the market value
of a share is P25. Retained Earnings (400k-20k x 10% x 25) 950,000
Share Div. Payable (400k-20k x 10% x 10) 380,000
Share Premium 570,000
Dec. 31: Reissued all of the Cash (20k x P30) 600,000
treasury shares at P30. Treasury Shares (20k x P13) 260,000
Share Premium – Treasury Shares 340,000
Dec. 31: Net income for the year Income Summary 3,000,000
was P3,000,000. Retained Earnings 3,000,000
Number of Shares:
Issued TS
Jan 1 80,000
May 1 4,000
Before share split 80,000 4,000
Jul 1 split x5 x5
After share split 400,000 20,000
Oct 31 (400k-20k)x10% 38,000
After share dividend 438,000 20,000
Dec 31 (20,000)
Balance as of Dec 31 438,000 0
Share Capital = 4M = 4,000,000
Share Premium = 800k + 570k = 1,370,000
Treasury Shares = 260k – 260k =0
Retained Earnings = (950k) + 3M = 2,050,000
Share Dividends Payable = 380k = 380,000
Share Premium – Treasury Shares = 340k = 340,000
Total Shareholders’ Equity 8,140,000
Answer to PROBLEM 6:
Journal Entries
a) Issue of 5,000 preference Cash (5k x P140) 700,000
shares at P140 per share SC-PS (5k x P100) 500,000
SP-PS 200,000
b) Issue of 20,000 ordinary Cash (20k x P70) 1,400,000
shares at P70 per share SC-OS (20k x P10) 200,000
SP-OS 1,200,000
c) Retirement of 1,000 SC-PS (1k x P100) 100,000
preference shares at P150 SP-PS (1k x P40) 40,000
per share RE 10,000
Cash (1k x P150) 150,000
d) Purchase of 5,000 ordinary TS (5k x P80) 400,000
shares of treasury at P80 Cash 400,000
per share
e) Share split, ordinary share 2 Issued = 100k + 20k = 120k x 2 = 240,000 shares @new par P5 (P10 ÷ 2)
for 1. TS = 5k x 2 = 10,000 treasury shares @new cost P40 (P80 ÷ 2)
f) Reissue of 5,000 shares of Cash (5k x P50) 250,000
treasury at P50 per share. TS (5k x P40) 200,000
SP-TS 50,000
g) Net income for the year, I/S 3,000,000
P3,000,000. RE 3,000,000
h) Payment of dividend on RE (235k* x P10) 2,350,000
ordinary shares at P10 per Cash** 2,350,000
share.
*Outstanding OS = 240,000 – (10,000 – 5,000) = 235,000
**Directly credited to cash since dividend was immediately paid
i) Payment of dividend on RE (34k* x P100 x 10%) 340,000
preference shares at the Cash** 340,000
preference rate.
*Remaining PS = 30,000 + 5,000 – 1,000 = 34,000
**Directly credited to cash since dividend was immediately paid
j) Declaration of 25% bonus RE (235k x 25% x P5) 293,750
issue on ordinary shares. SDP 293,750
Since large bonus issue, retained earnings is debited at an amount equivalent to
additional shares at par value.
10% Preference share capital, 30,000 shares, P100 par: 3M + 500k – 100k = 3,400,000
Ordinary share capital, 100,000 shares, P10 par: 1M + 200k = 1,200,000
Share premium – Preference: 1.2M + 200k – 40k = 1,360,000
Share premium – Ordinary: 4M + 1.2M = 5,200,000
Retained earnings: 5M – 10k + 3M – 2.35M – 340k – 293,750 = 5,006,250
Treasury shares: 400k – 200k = (200,000)
Share premium – Treasury: 50,000 = 50,000
Share dividends payable 293,750 = 293,750
Total shareholders’ equity: 16,310,000