Financial Accounting 2 Chapter 3 Solman

(1)

CHAPTER 3 SHAREHOLDERS’ EQUITY

PROBLEMS 3-1. (Budomo Company) Cash (20,000 x 300) 6,000,000 Ordinary share 6,000,000

Legal expense/Professional fees 90,000

Ordinary share (250 x 300) 75,000

Share premium - Ordinary 15,000

Land 1,000,000

Building 2,950,000

Ordinary share (12,500 x 300) 3,750,000

Cash (6,500 x 380) 2,470,000

Ordinary share (6,500 x 300) 1,950,000

3-2.

a. Cash (10,000 x 200) 2,000,000

Ordinary share (10,000 x 150) 1,500,000

Share premium-Ordinary 60,000

Cash 60,000

b. Land (3,500 x 560) 1,960,000

Ordinary share (3,500 x 200) 700,000

Share premium – Ordinary 1,260,000

c. Cash 18,000,000

Preference share 2,500,000

Ordinary share 10,000,000

Share premium – Preference 2,000,000

MV: Pref – 5,000 x 800=4M Ord – 100,000 x 120 = 12M Allocation: Pref: 18M x 4/16 = 4.5M Ord: 18M x 12/16 = 13.5M d. Subscription receivable 450,000 Cash 150,000

Subscribed ordinary share 500,000

Share premium – Ordinary 100,000

e. Land 5,000,000

Cash 40,000

(2)

Chapter 3 – Shareholders’ Equity

3-3. (Blazing Red Corporation)

Correction to the problem: RE balance on December 31, 2012, instead of 2010. Shareholders’ Equity

Contributed capital

10% Preference share, cumulative and non-participating, P100 par

30,000 shares authorized; 12,000 shares issued and outstanding P1,200,000 Ordinary share, P10 par, 100,000 shares authorized, 30,000 shares

issued, 29,000 shares outstanding 300,000

Subscribed ordinary share, 4,500 shares 45,000

Subscription receivable – Ordinary (43,200)

Share premium – Preference 275,000

Share premium –Ordinary 77,000

Total contributed capital P1,853,800

Retained earnings

Appropriated for treasury share P 15,000

Unappropriated 335,000 350,000

Treasury shares, 1,000 ordinary shares, at cost ( 15,000)

Total shareholders’ equity P2,188,800

The total amount of P2,048,800 may also be obtained without necessarily preparing the shareholders’ equity in good format (if not required) as follows:

Issue of 30,000 ordinary shares

P 350,000 Issue of preference shares in exchange of

equipment 1,475,000

Subscriptions for 4,500 ordinary shares at 16 72,000

Subscriptions receivable (60%) (43,200)

Purchase of 1,000 treasury shares at 15 (15,000)

Retained earnings 350,000

Total shareholders’ equity, December 31, 2012 2,188,800P 3-4. (Millennium Company) (a) (1) Treasury share 140,000 Cash 140,000 (2) Cash 60,000 Treasury share 56,000

Paid in capital from treasury chare 4,000

(3) Cash 65,000

Paid in capital from treasury share 4,000

Retained earnings 1,000 Treasury share 70,000 (4) Ordinary share 10,000 Share premium 3,000 Retained earnings 1,000 Treasury share 14,000 (b)

Total shareholders’ equity, December 31,

2011 P2,200,000

(1) Purchase of treasury share (10,000 x

(3)

(2) Sale of treasury share (4,000 x 15) 60,000 (3) Sale of treasury share (5,000 x 13) 65,000

Net income for the year 280,000

(4)

Dividends declared (200,000)

Total shareholders’ equity, December 31,

2012 P2,265,000

The total shareholders’ equity may also be obtained by determining the balance of

the shareholders’ equity accounts, as follows:

Ordinary Share, P10 par (99,000 shares issued and outstanding) P 990,000

Share Premium 297,000

Retained Earnings 978,000

Total shareholders’ equity

P2,265,00 0 3-5. (Consuelo Enterprises, Inc.)

(a) Preference share (4,000 x 20) 80,000 Share premium – Preference (4,000 x 1.60) 6,400

Cash (4,000 x 22) 88,000

(b)

Preference share (4,000 x

20) 80,000

Share premium – Preference (4,000 x 1.60) 6,400

Cash (4,000 x 26) 104,000

(c) Preference share (4,000 x 20) 80,000 Share premium – Preference (4,000 x 1.60) 6,400

Cash (4,000 x 20.50) 82,000

PIC from retirement of preference 4,400

Average preference share premium per share 160,000 / 100,000 shares = 1.60 3-6. (Concepcion Enterprises, Inc.)

(a) Preference share (3,000 x 20) 60,000

Share premium – Preference (3,000 x

1.60) 4,800

Ordinary share (3,000 x 30) 90,000

(b) Preference share (3,000 x 20) 60,000

Share premium – Preference (3,000 x

1.60) 4,800

Ordinary share (1,500 x 30) 45,000

Share premium – Ordinary share 19,800

3-7. (Red Stone Company)

(a) Retained Earnings ( 10,000 shares x P20) 200,000

Share Dividends Distributable 100,000

Share Premium 100,000 Share Dividends Distributable 100,000 Ordinary Share Capital 100,000 (b) Retained Earnings (30,000 x 10) 300,000

(5)

Share Dividends

Distributable 300,000

Ordinary Share

Capital 300,000

(6)

(3)

Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par previously issued and outstanding.

3-8. (Dark Red Company) Capital structure:

Preference Ordinary

Number of shares outstanding 20,000 250,000

Total par value P2,000,000 P2,500,000

(1)

Preference share is non-cumulative and non-participating

2011 Preference Ordinary

Current preference dividends (9% x 2,000,000 = P0 180,000; dividends declared were P150,000 only. P 150,000

Dividend per share P7,50 P0

Current preference dividends (9% x 2,000,000) P 180,000

Excess (240,000 – 180,000) P60,000

Dividend per share P9.00 P0.24

Current preference dividends (9% x 2,000,000) P 180,000

Excess (540,000 – 180,000) P360,000

(2)

Preference share is cumulative and non-participating.

Current on preference is P180,000 P150,000

Arrears, end (P180,000 – 150,000 = 30,000) P0

Dividend per share P7.50 P0

Arrears, beginning P 30,000

Current year 180,000

Total P210,000 P210,000

Excess to ordinary = 240,000 – 210,000 P30,000

Current year P180,000

Excess – to ordinary = 540,000 – 180,000 P360,000

(3)

Preference share is cumulative and fully participating

Current dividends:

9% x 2,000,000 = P180,000 P 150,000 P0

Arrears, end = 180,000 – 150,000 = 30,000

(7)

(8)

Arrears, beginning P30,000

Current on preference 180,000 P 210,000

To ordinary: initial limit 9% x P2,500,000

= P225,000, but remaining is only P30,000

Total dividends P210,000 P30,000

Dividend per share P10.50 P 0.12

2013 Preference Ordinary Current dividends: 9% x 2,000,000 P 180,000 9% x 2,500,000 P 225,000 Excess: P135,000 x 2.0/4.5 60,000 135,000 x 2.5/4.5 75,000 Total P240,000 P300,000

3-9. Additional information: Preference has P100 par value per share.

Capital structure:

Preference Ordinary

Number of shares outstanding 20,000 250,000

Total par value P2,000,000 P2,500,000

(a) Preference is participating up to 14%.

9% x P2,000,000 P180,000

9% x P2,500,000 P225,000

Excess divided by total par

155,000/4,500,000 = 3.44%, which is less than the limit of additional 5%; therefore full excess is prorated.

P155,000 x 2M/4.5M 68,889

P155,000 x 2.5M/4.5M 86,111

Total P248,889 P311,111

(b) Preference is participating up to 12%.

9% x P2,000,000 P180,000

9% x P2,500,000 P225,000

Excess divided by total par

155,000/4,500,000 = 3.44%, which exceeds the additional limit of 3%; therefore, additional to preference is

limited to 3%; remainder goes to ordinary 60,000 3% x P2,000,000

P155,000 – 60,000 95,000

Total P240,000 P320,000

(9)

3-10. (Red Mama Company)

50% x 100,000 x 10 = 500,000

Ordinary Shares 400,000

Fractional Share Warrants

Outstanding 100,000

Fractional Share Warrants Outstanding 100,000

Ordinary Share 80,000

PIC from Unexercised Fractional Share

Warrants 20,000

3-11 (Red Ball Corporation) October 31, 2012

Trading Securities 10,000

Unrealized Gain on Trading

Securities 10,000

10,000 shares x (15 – 14)

Property Dividends Payable 150,000

10,000 shares x 15 December 31, 2012

Unrealized Gain on Trading

10,000 shares x (17 – 15)

February 28, 2013

Gain on Disposal of Trading

3-12. (Red Chili Company)

10/1/12 Depreciation Expense 33,750

Accumulated Depreciation – Equipment 33,750

450,000/10 x 9/12

Property Dividends

Payable 190,000

Assets Held for Distribution 180,000

Accumulated Depreciation – Equipment 270,000 Property, Plant and

(10)

Cost P450,000 Acc. Deprn 450,000/10 x

6 270,000

Carrying value P180,000

(11)

FV(because it is higher) P190,000

12/31/12 Impairment Loss 20,000

Assets Held for

Distribution 20,000 180,000 – 160,000 = 20,000 Property Dividends Payable 30,000 Retained Earnings 30,000 190,000 – 160,000 = 30,000 decrease 1/31/13 Retained Earnings 15,000 Property Dividends Payable 15,000 175,000 – 160,000 = 15,000 increase

Assets Held for

Distribution 160,000

Gain on Disposal of

Assets 15,000

3-13. (Red Ribbon Corporation)

Preference Ordinary Treasury Share Shares Shares

Total SHE Issued Issued Shares Cost 12/31/11 Balances P16,500,000 30,000 100,000 2010 transactions: a) 4,000 x 280 (1,120,000) (4,000) b) 8,000 x 75 (600,000) 8,000 P600,000 c) 2:1 share split 100,000 8,000 d) 6,000 x 45 270,000 (6,000) (225,000)* e) 4,000 x 46 4,000 f) 2,000 x 48 96,000 (2,000) g) Profit 2,000,000 12/31/12 balances P7,146,000 26,000 200,000 12,000 P375,000 *P 60 0,0 00 x 6,0 00/ 16, 00 0 = 22 5,0 00 (a) Total shareh olders’ equity P17,146,000 (b) Numbe r of 26,000

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prefere nce shares issued and outstan ding (c) Numbe r of ordinar y shares issued 200,000 Numbe r of ordinar y shares outsta nding( 200,00 0 – 12,000) 188,000 (d) Cost of remaini ng treasur y shares P 375,000 3-14. (Red Heart Corporati on) 0 6/ 1 5/ 1 1 Cash 6,000,000 Ordin ary share 5,000,000 Shar e prem ium – Ordin ary 1,000,000 0 9/ 3 0/ 1 1 R e t ai n e d 440,000

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e a r ni n g s ( 8 0, 0 0 0 x 5 % x 1 1 0 ) Share divide nds distrib utable (4,000 x 100) 400,000 Shar e prem ium – Ordin ary 40,000 1 1/ 1 0/ 1 1 Share dividen ds distribu table 400,000 Ordin ary share 400,000 1 2/ 3 1/ 1 1 Income summar y 1,175,000 Retai ned earni ngs 1,175,000 31

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03/01/12 Treasury share (3,000 x 95) 285,000

Cash 285,000

05/01/12 Cash (1,500 x 120) 180,000

Treasury share (1,500 x 95) 142,500

PIC from treasury share 37,500

08/10/12 Issued 82,500 rights to shareholders entitling holders to purchase 2 additional

shares for P125 per share.

09/15/12 Cash (30,000 x 125) 3,750,000

Ordinary share (30,000 x 100) 3,000,000

10/31/12 Cash (80,000 x 125) 10,000,000

Ordinary share (80,000 x 100) 8,000,000

12/10/12 Retained earnings 962,500

Dividends payable (192,500 x 5) 962,500

12/20/12 Ordinary share (1,000 x 100) 100,000 Share premium – Ordinary (1,000 x

10)* 10,000

Paid in Capital from Treasury Shares 15,000

Treasury share 95,000

*Share premium per share 300,000/30,000 = 10

12/31/12 Income summary 1,200,000

Retained earnings 1,200,000

3-15. (Red Carpet Company)

(1)

Total lump sum price is P147,000 (1,500 x 98), allocated as follows: Securities Market value Allocation Allocated Price

Preference 90 147,000 x 90/100 132,300

Warrant 10 147,000 x 10/100 14,700

Entry Cash 147,000

Preference share (1,500 x 30) 45,000

Share premium – Preference 87,300

Share warrants outstanding 14,700

(b) Cash (600 x 40) 24,000

Share warrants outstanding 11,760

Ordinary

share 6,000

(15)

3-16. (Red Hot Company)

(a) Value of each option P8

Number of shares granted x 30,000

Total value assigned to share

options P240,000

Required service period  3years

Annual compensation expense P 80,000

(b) 1/1/12

Memo: Granted share options to selected

senior employees for the purchase of

30,000 ordinary shares at P50 per share,

from January 1 to December 31, 2015.

12/31/12 Compensation Expense 80,000 Share Options Outstanding 80,000 12/31/13 Compensation Expense 80,000 Share Options Outstanding 80,000 12/31/14 Compensation Expense 80,000 Share Options Outstanding 80,000

12/31/15 Share options outstanding 240,000

Cash (30,000 x 50) 1,500,000

Ordinary share (30,000 x

20) 600,000

Share premium - Ordinary 1,140,000

3-17. (Fire Red Company) 01/02/12

Memo: granted 40,000 share options to

certain officers for the purchase of the company’s P100 par ordinary shares at P430 per share. 12/31/12 Compensation expense 800,000 Share options outstanding 800,000 (40,000 x 80)  4 years 12/31/13 Compensation expense 800,000 Share options outstanding 800,000 (40,000 x 80)  4 years 2014

Memo: 8,000 share options were cancelled.

12/31/14 Compensation expense 440,000

Share options outstanding 440,000

Total accrued compensation expense

(34,000 x 80) x 3/4 2,040,000 Less: previously accrued 1,600,000 Compensation expense-2008 440,000

(16)

12/31/15 Compensation expense 680,000

(34,000 x 80) / 4

01/01/14 Cash (34,000 x 430) 14,620,000

Share options outstanding (34,000 x 80) 2,720,000 Ordinary shares (34,000 x

100) 3,400,000

(17)

3-18. (Red Fox Corporation)

(a) Compensation Expense 2012 200 – 10 – 15 = 175 employees x 100 options=17,500 17,500 x 32 = 560,000; 560,000 x 1/3 186,667 2013 200–10–12–5=173 employees x 100 options=17,300 17,300 x 32 x 2/3 = 369,067; 369,067 – 186,667 182,400 2014 200-10-12-8=170 employees x 100 options=17,000 17,000 x 32 = 544,000; 544,000 – 369,067 174,933 (b)

01/01/12 Granted 100 share options to each of its 200 employees to buy P100 par ordinary share at P220 per share. The options are

exercisable starting January 1, 2011 provided that the employees

are still in the service. Options expire on December 31, 2012.

12/31/12 Compensation expense 186,667

2015 Cash (140 x 100 x 220) 3,080,000

Share options outstanding (14,000 x

32) 448,000

Ordinary share (14,000 x 200) 2,800,000

Share Premium - Ordinary 728,000

2016 Cash (10 x 100 x 220) 220,000

32) 32,000

Ordinary share (1,000 x 200) 200,000

32) 64,000

PIC from forfeited share options 64,000

3-19. (Cherry Red Company) (a)

01/01/12 Memo: Granted 10,000 share options for the purchase of P100 par ordinary shares at P120 per share. The options vest once the market price of ordinary shares reached P200, up to Dec. 31, 2014 Options expire at the end of 2015.

12/31/12 Compensation Expense 66,667

(18)

(10,000 x 20) / 3 years

Share Options Outstanding 133,333

(10,000 x 20) - 66,667

(19)

2014 Cash (10,000 x 120) 1,200,000

Ordinary Share Capital (10,000 x

100) 1,000,000

(b)

Share Premium-Ordinary 400,000

01/01/12

Memo: Granted 10,000 share options for the purchase of P100 par

ordinary shares at P120 per share. The options vest once the market

price of ordinary shares reached P200. Options expire at the end of

2013.

12/31/12 Compensation Expense 66,667

(10,000 x 20) / 3 years

2015 Cash (8,000 x 120) 960,000

Share Options Outstanding (80% x

200,000) 160,000

Ordinary Shares (8,000 x 100) 800,000

Share Premium-Ordinary 320,000

Share Options Outstanding (20% x

200,000) 40,000

PIC from Forfeited Share Options 40,000

(3)

If the stock price reached P200 by June 2015, the same entries will be made for year 2012 through 2014, as given in (b) The recorded share options, however, will be cancelled at the end of 2015, as the options already expire.

12/31/15 Share Options Outstanding 200,000

PIC from Forfeited Share Options 200,000

3-20. (Red Day Company) (a)

01/01/12 Granted 80 share options to each of 400 employees for the purchase of P100 par ordinary shares at P140 per share. Options shall vest in 2012 if earnings increase by 15% or at the end of 2013 if average annual earnings for 2012 and 2013 increased by an average of 12%.

400 x 80 x 22 = 704,000 704,000/2 = 352,000

(20)

2014 Cash (32,000 x 140) 4,480,000

(21)

Ordinary Share (32,000 x 100) 3,200,000

Share Premium – Ordinary 1,984,000

(2)

The full amount of P704,000 is recognized as compensation expense since the options vest already in 2012.

3-21. (Bloody Red Company)

01/01/12 Memo: Issued to its CEO share options for the purchase of ordinary shares at a strike price of P50. The options are exercisable beginning January 1, 2015 and expire on December 31, 2016. The number of share options will be based on the level of sales for 2014.

15,000 sh x 30 x 1/3

15,000 sh x 30 x 2/3 300,000 Less: previously

accrued 150,000

Compensation expense 150,000

18,000 sh x 30 x 3/3 540,000 Less: previously accrued 300,000 Compensation expense 240,000 3-22. (Striking Red Corporation) (a) 12/31/12 Compensation Expense 66,667

Share Appreciation Rights Payable 66,667 10,000 x (140 -120) x 1/3

Share Appreciation Rights Payable 133,333 10,000 x (150 - 120) x 2/3 = 200,000

200,000 – 66,667 = 133,333

Share Appreciation Rights Payable 250,000 10,000 x (165 - 120) = 450,000

450,000 –200,000 = 250,000

(2)

(1) Assuming that the rights were exercised on January 1, 2015, when the market price is P165.

01/01/15 Share Appreciation Rights Payable 450,000

Cash 450,000

(2)

(2) Assuming that the rights were exercised on December 31, 2015, when the market price is P172.

(22)

(23)

12/31/15 Share Appreciation Rights Payable 450,000 Compensation Expense 10,000 (172 –

165) 70,000

Cash 10,000 x (172-120) 520,000

3-23. (Red Bull Corporation)

(a) Liability at December 31, 2012 = P89,333 December 31, 2013 = P208,000 December 31, 2014 = P394,000

Share Appreciation Rights Payable 89,333 10,000 x 26.80 x 1/3

Share Appreciation Rights Payable 118,667 10,000 x 31.20 x 2/3 = 208,000

208,000 – 89,333 = 118,667

Share Appreciation Rights Payable 186,000 10,000 x 39.40 = 394,000

394,000 –208,000 = 194,000

2015 Share Appreciation Rights Payable 394,000

Compensation Expense 56,000

Cash 10,000 x (165-120) 450,000

3-24. (Ruby Red Company)

(1)

Fair value of the equity alternative

4,000 shares x 150 600,000

Fair value of debt component

3,600 shares x 158 568,800

Fair value of equity component 1/1/12 31,200

(b) 2012: 3,600 x 160=576,000; 576,000/3 192,000

31,200/3 10,400

Total compensation expense 202,400

2013: 3,600 x 165 x 2/3 = 396,000

396,000 – 192,000 204,000

31,200/3 10,400

2014: 3,600 x 168 = 604,800

604,800 – 396,000 208,800

31,200/3 10,400

2013: 2,700 x (172-168) 10,800

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(2)

Correction to the problem: One executive exercised his right to receive the cash alternative on December 31, 2014, instead of 2012.

01/01/12 Granted each of the four executives the right to choose either 1,000 ordinary shares or to receive cash payment equal to 900 shares, conditional upon the completion of three years of service.

Share Appreciation Rights

Payable 192,000

Payable 204,000

Payable 208,800

12/31/14

Share Options Outstanding ¼x 31 ,

200 7,800

Share Appreciation Rights Payable 151,200

Cash 151,200

PIC from Unexercised Share

Options 7,800

31,200 / 4 = 7,800 604,800 / 4 =151,200

Payable 10,800

900 x 3 x (172 – 168)

12/31/13 Share Options Outstanding 23,400

Share Appreciation Rights Payable 464,400

Ordinary Share (3,000 x 100) 300,000

Share Premium – Ordinary 187,800

31,200¾ x 3-25 (Red Santa Company)

Appropriated Unappropriate d RE, January 1, 2012 P 4,000,000 P9,000,000 2012 Transactions (1) 200,000 x 70% (140,000) (2) Dividends On preference: 200,000 x P100 x 8% (1,600,000) On ordinary: 300,000 x P5 (1,500,000) (3) 10,000 (150 – 130) (200,000) (4) Release of appropriation (4,000,000) 4,000,000 (5) 45,000/300,000 = 15% bonus issue 45,000 x P150 (6,750,000)

(25)

(7) Profit for the year 3,000,000

Balance, December 31, 2012 P2,000,000 P3,810,000

Total retained earnings, (P2,000,000 unavailable

for dividends) P5,810,000

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3-26. (Red Hat Company)

Retained earnings balance as of December 31, 2012

3,900,000 – 600,000 – 240,000 P 3,060,000

Total shareholders’ equity as of December 31, 2012

6,000,000 + 8,000,000 + 3,060,000 P17,060,000

(a) Preference Ordinary

Par value of preference share P6,000,000 Dividends in arrears (6,000,000 x 9% x 3 yrs.) 1,620,000

Excess to ordinary (17,060,000 – 7,620,000) P9,440,000

Total equity P7,620,000 P9,440,000

Divide by the number of shares outstanding 60,000 800,000

Book value per share P 127 P 11.80

(b) Preference Ordinary

Liquidation value (60,000 shares x P105) P6,300,000 Dividends in arrears (P6,000,000 x 9% x 3

yrs.) 1,620,000

Excess to ordinary (17,060,000 – 7,920,000) P9,140,000

Total equity P7,920,000 P9,140,000

Divide by the number of shares outstanding 60,000 800,000

Book value per share P132 P11.425

3-27. (Red, Inc.)

Inventory 300,000

Land 1,500,000

Buildings 1,875,000

Machinery and Equipment 350,000

Accum. Depreciation – Buildings 875,000

Accum. Depreciation – Machinery &

Equipment 150,000

Revaluation Surplus 3,700,000

Revaluation Surplus 2,300,000

Retained Earnings 2,300,000

3-28. (Skinny Red Company)

(a) Retained Earnings 400,000

Accumulated Depreciation 75,000 Current Assets 100,000 Building 375,000 Ordinary Share 6,000,000 Ordinary Share 4,000,000 Share Premium 2,000,000 Share Premium 1,400,000 Retained Earnings 1,400,000 39

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Skinny Red Company Statement of Financial Position

Current Assets P 400,000 Liabilities P1,000,000

Land 1,500,000 Ordinary Share 4,000,000

Building 4,625,000 Share Premium 600,000

Accumulated Depreciation ( 925,000)

Total P5,600,000 Total P5,600,000

3-29. Same as 3-27.

MULTIPLE CHOICE QUESTIONS Theory MC1 C MC12 A MC2 D MC13 C MC3 B MC14 C MC4 B MC15 A MC5 B MC16 D MC6 C MC17 B MC7 C MC18 D MC8 C MC19 C MC9 A MC20 D MC10 C MC21 C MC11 C MC22 C Problems MC23 C 230,000 + 525,000 + 5,000 = 760,000 MC24 B 480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000 MC25 D MC26 D (60,000 x 2) – (5,000 x 2) = 110,000 MC27 B 125,000 x 3 = 375,000 MC28 A 375,000 – [(12,000 x 3) + 5,000] = 334,000 MC29 A 20,000 x 9 = 180,000; 180,000/2 = 90,000 x 1/2 = 45,000 MC30 C 600,000 x 5 = 3,000,000 MC31 B 1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000 MC32 A 7,000,000 + (35,000 x 70) = 9,450,000 MC33 B 2,000 x 8 = 16,000 MC34 C 70 – (70/2) = 35 MC35 B (5,000 x 80) – (5,000 x 40) = 200,000 MC36 B 600 x 10 x 60% = 3,600; 6,000 – 3600 = 2,400

MC37 D Interest expense for 2009 = 100,000 x 10% x 9/12 = 7,500 MC38 C 2,120,000 – (2,000 bonds x 1,040) = 40,000

MC39 B 945,000/ 70 = 13,500; 13,500/90,000 = 15%

MC40 D 80,000 + (2,000,000 x 8%) = 240,000; 300,000 – 240,000 = 60,000 MC41 D (3,000,000 x 5% x 2 years) – 100,000 = 200,000 arrears, end MC42 B (110,000 + 10,000) x 2 = 220,000 issued; 220,000 – (4,000 x 2) = 212,000 MC43 A 24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000 72,000 + (12,000 x 4/6) = 80,000; 24,000 + (12,000 x 2/6) =28,000 80,000/4,000 = 20; 28,000/20,000 = 1.40 MC44 A 8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000 MC45 A (15 x 2)/5 = 6.00 40

(28)

Chapter 3 – Shareholders’ Equity MC46 B 25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000 1,000,000 + 250,000 = 1,250,000 MC47 C (40,000x 105) – (600 x 110) + (400 x 95) + 830,000 – 200,000 = 4,802,000 MC48 C 5,520,000 – 25,000 – 170,000 + 40,000 + 900,000 = 6,265,000 MC49 A (2,000 x 85) – (800 x 42.50) = 136,000 MC50 D [3,000 x (50-20)] / 3 years = 30,000 MC51 C 4,500,000 x 95% = 4,275,000; 4,275,000/3 = 1,425,000 MC52 B 4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 – 1,425,000=1,395,000 MC53 B (4 x ½200=120,000x3) x MC54 D (90% x 7 x 200 x 300) – 120,000 = 258,000 MC55 B 360,000 – 70,000 = 290,000; 290,000/5,000 = 58 MC56 B 3,150,000/ 50,000 = 63 MC57 B 3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51

MC58 B RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x 3 years = 1,200,000, but dividends are limited to the extent of RE balance of

P1,000,000; Thus, equity of ordinary share is 13,500,000 – 5,000,000 – 1,000,000 = 7,500,000; 7,500,000/ 750,000 shares = P10 MC59 C 13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ; 7,200,000/750,000 shares = 9.60 MC60 D (200,000 x 2) + (200,000 x 5) – 950,000 = 450,000 41