SOLUTION TO EXERCISE 5-2 IDENTIFICATION 1. Preference Share
2. Articles of Incorporation 3. Board of Directors 4. Watered stock or share
5. By-Laws
6. Pre-emptive Right
7. Par Value
8. Authorized Capital Stock 9. Treasury Share or Stock
SOLUTION TO EXERCISE 5-3 TRUE OR FALSE
1. False Owners of stock coporation are called shareholders or stockholders. Members are for non-stock corporation.
2. True
3. True
4. True
5. False The manner of electing the board of directors is found in the By-Laws
6. True
7. False An entry is made under the journal-entry method.
It is in memorandum entry method that no formal journal entry is made.
8. True
9. False The powers and restrictions conferred by the government upon the corporation is found in the Articles of Incorporation.
10. False The value of a no par value share is stated in the articles of incorporation only and not on the stock certificate.
Owners of stock coporation are called shareholders or stockholders.
The manner of electing the board of directors is found in the By-Laws
It is in memorandum entry method that no formal journal entry is made. The powers and restrictions conferred by the government upon the
SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE
Date Account Title Debit
Jul 15 MEMO ENTRY
Authorized to issue 50,000 shares at P100 par value.
Subscription Receivable-Share Capital 1,250,000 Subscribed Share Capital
To records 12,500 shares subscribed by five (5) incorporators at P100.00 par value.
Cash 312,500
Subscription Receivable-Share Capital To record 25% payment of five (5) incorporators of their subscription.
Aug 1 Subscription Receivable-Share Capital 1,000,000 Subscribed Share Capital
To record Ms. Elcee subscription of 10,000 shares at par.
14 Cash 20,000
Share Capital
To record issuance of 200 shares at par for cash.
Sept 15 Cash 1,000,000
Subscription Receivable-Share Capital To record collection in full of the Aug 1
subscription of Ms. Elcee.
Subscribed Share Capital 1,000,000
Share Capital
To record issuance of 10,000 shares at part to Ms. Elcee.
Sept 22 Land 500,000
Share Capital
To record issuance of 5,000 shares at par to Ms. Mariebic in exchange for land received
Oct 31 Organizational Costs & Expenses 5,000 Share Capital
To record 50 share issued at par to Ms. Jina for promotional services rendered during the formation of the corporation.
Equipment 60,000 Share Capital
To record issuance of 1,000 shares at par to Ms. Akino in exchange for merchandise and
equipment received.
Dec 1 Cash 937,500
Subscription Receivable-Share Capital To record collection from five (5) incorporators of the balance of their subsciption.
Subscribed Share Capital 1,250,000
Share Capital
To record issuance of 12,500 shares at par to five (5) incorporators after they paid in full their subscription.
Credit Supporting Computations 1,250,000 (12,500 shares x P100) (P1,250,000 x 25%) 312,500 1,000,000 (10,000 shares x P100) 20,000 (200 shares x P100) 1,000,000 1,000,000 (10,000 shares x P100) 500,000 (5,000 shares x P100) 5,000 (50 shares x P100)
100,000 (1,000 shares x P100)
(P1,250,000-P312,500) 937,500
SOLUTION TO EXERCISE 5-5. ISSUANCE OF SHARE CAPITAL ABOVE PAR VALUE
Date Account Title Debit
2012
July 1 MEMO ENTRY
Authorized to issue 50,000 share at P100 par value.
Subscription Receivable-Share Capital 1,250,000 Subscribed Share Capital
To record shares subscribed by five (5) incorporators at 2,500 shares each at par.
Cash 312,500
Subscription Receivable-Share Capital To record the payment of five (5) incorporators of 25% of their subscription.
2 Prepaid Expenses 4,000
Cash
To record incorpotation fees paid to SEC.
3 Cash 240,000
Share Capital
Premium on share issuance
To record issuance of 200 shares at P120 to Dominic.
6 Cash 562,500
Subscription Receivable-Share Capital To record payment in full of Agatha, Priscilla and Kaye of the balance of their subscriptions.
Subscribed Ordinary Share Capital 750,000 Ordinary Share Capital
To record issuance of shares to Agatha, Priscilla and Kaye after payment of their subscriptions in full.
12 Subscription Receivable-Share Capital 187,500 Subscribed Share Capital
Premium on Share Subsctiption
To record subscription of David of 1,500 shares at P125.
18 Land 450,000
Share Capital
To record issuance of 3,000 shares to Darren in exchange for a piece of land.
24 Cash 187,500
Subscription Receivable-Share Capital To record payment of David in full of his
subscription.
Subscribed Share Capital 150,000
Share Capital
To record issuance of 1, 500 shares at P100 par to David after paying his subscription in full.
31 Cash 375,000
Subscription Receivable-Share Capital To record payment in full of Amiel and Jhun of their subscription.
Subscribed Share Capital 500,000
Share Capital
To record issuance of shares to Amiel and Jhun after they paid their subscription in full.
Credit Supporting Computations 1,250,000 (5 x 2,500 shares = 12,500 shares x P100) (P1,250,000 x 25%) 312,500 4,000 200,000 (2000 shares x P100) 40,000 (P240,000 - P200,000) (=3 x 2,500 shares x P100 x 75%) 562,500 750,000 (3 x 2,500 shares x P100) (1500 shares x P125) 150,000 (1,500 shares x P100) 37,500 (1,500 shares x P5) 300,000 (3,000 shares x P100) 150,000 (P450,000 - P300,000)
187,500
150,000 (1,500 shares x P100)
(2 x 2,500 x P100 x 75%) 375,000
SOLUTION TO EXERCISE 5-6. TWO CLASSES OF SHARES
Date Account Title Debit
June 1 MEMORANDUM ENTRY
Authorized to issue 400,000, 9% preference shares at P40 par value.
Authorized to issued 500,000 ordinary shares at P30 par value.
Aug 5 Subscriptions Receivable-Ordinary 12,600,000 Subscribed Ordinary Shares
Share Premium-Ordinary
Cash 2,520,000
Subscriptions Receivable-Ordinary
7 Cash 528,000
Ordinary Share Capital Share Premium-Ordinary
9 Subscriptions Receivable-Preference 5,400,000 Subcribed Preference Share
Share Premium-Preference
Cash 810,000
Subscriptions Receivable-Preference
Sept 1 Cash 5,040,000
Subscriptions Receivable-Ordinary
Subscribed Ordinary Share 3,600,000
Ordinary Share Capital
5 Cash 22,500
Preference Share Capital Share Premium-Preference
Oct 1 Cash 2,295,000
Subscriptions Receivable-Preference
Subscribed Preference Share 2,040,000 Preference Share Capital
Nov 1 Cash 26,400
Preference Share Capital Share Premium-Preference
Dec 1 Cash 5,040,000 Subscriptions Receivable-Ordinary
Subscribed Ordinary Share 9,000,000
Ordinary Share Capital
Cash 2,295,000
Subscriptions Receivable-Preference
Subscribed Preference Share 4,800,000 Preference Share Capital
Credit 9,000,000 3,600,000 2,520,000 495,000 33,000 4,800,000 600,000 810,000 5,040,000 3,600,000 20,000 2,500 2,295,000 2,040,000 24,000 2,400
5,040,000
9,000,000
2,295,000
Supporting Computations (300,000 shares x P42) (300,000 shares x P30) (P12,600,000-P9,000,000) (P12,600,000 x 20%) (16,500 shares x P32) (16,500 shares x P30) (120,000 shares x P45) (120,000 shares x P40) (P5,400,000 x 15%) (P5,400,000 x 15%) (P12,600,000 - P2,520,000 = P10,080,000 x 50%)
(300,000 shares - 60,000 shares = 240,000 shares x 50% = 120,000 shares x P30) (300,000 shares - 60,000 shares = 240,000 shares x 50% = 120,000 shares x P30) (500 shares x P45)
(500 shares x P40) (P22,500 - P20,000)
(P5,400,000 - P810,000 = P4,590,000 x 50%) (P5,400,000 - P810,000 = P4,590,000 x 50%)
(120,000 shares - 18,000 shares = 102,000 shares x 50% = 51,000 shares x P40) (120,000 shares - 18,000 shares = 102,000 shares x 50% = 51,000 shares x P40) (600 shares x P44)
(600 shares x P40) (P26,400 - P24,000)
(P12,600,000 - P2,520,000 - P5,040,000) (P12,600,000 - P2,520,000 - P5,040,000) (300,000 shares shares x P30) (300,000 shares x P30) (P5,400,000 - P810,000 - P2,295,000) (120,000 shares x P40) (120,000 shares x P40)
SOLUTION TO EXERCISE 5-7. TWO CLASSES OF SHARES a. Minimum subscription and paid-up capital
Preference
Authorized number of shares 100000
Par value 100
Value of authorized shares 10,000,000
Multiply by 25% minimum requirement 25%
Minimum subscribed share capital 2,500,000
Multiply by 25% minimum requirement 25%
Minimum paid up share capital 625,000
b. Number of preference shares issued
Paid-up preference shares 7,500,000
Divide by par value 100
Number of preference shares issued 75,000 c. Number of ordinary shares issued
Paid-up ordinary shares 12,500,000
Divide by par value 50
Number of ordinary shares issued 250,000 d. Issue price of preference shares
Paid-up preference shares 7,500,000
Share premium on preference shares 262,500 Total value received for preference shares issued 7,762,500 Divide by number of preference shares issued 75,000 Issue price of preference shares 103.50 e. Issue price of ordinary shares
Paid-up ordinary shares 12,500,000
Share premium on ordinary shares 1,750,000 Total value received for ordinary shares issued 14,250,000 Divide by number of ordinary shares issued 250,000 Issue price of ordinary shares 57.00 f. Total amount of legal capital
Preference shares 7,500,000
Ordinary shares 12,500,000
Total legal capital 20,000,000
g. Total amount of contributed capital
Preference
Paid-up share capital 7,500,000
Share premium 262,500
Ordinary Total 500000 50 25,000,000 35,000,000 25% 6,250,000 8,750,000 25% 1,562,500 2,187,500
Ordinary Total
12,500,000 20,000,000 1,750,000 2,012,500 14,250,000 22,012,500
SOLUTION TO EXERCISE 5-8. TRUE OR FALSE
1. True
2. False Legal capital constitues stated or par value only.
3. True
4. True
5. True
6. True
7. True
8. False The market value of a share is independent of its par or stated value.
9. False Unissued share capital is credited when stocks are issued under the journal entry method. 10. True Any shares can be acquired through subscription.
The market value of a share is independent of its par or stated value.
SOLUTION TO EXERCISE 5-9. NO PAR VALUE SHARES a. Cash 5,500,000 Share Capital 5,500,000 b. Cash 5,500,000 Share Capital 5,000,000 Premium on Shares 500,000 c. Cash 5,500,000 Share Capital 2,500,000 Premium on Shares 3,000,000
Computations (500,000 shares x P11) (500,000 shares x P11) (500,000 shares x P11) (500,000 shares x P10) (P550,000 - P500,000) (500,000 shares x P11) (500,000 shares x P5) (P550,000 - P250,000)
SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE
Date Account Title
Jan 1 MEMO ENTRY
Authorized to issue 100,000 ordinary shares at P10 stated value per share.
Cash
Ordinary Share Capital 10 Subscription Receivable-Ordinary
Subscribed Ordinary Shares
Ordinary Share Capital in Excess of Stated Value Cash
Subscription Receivable-Ordinary 22 Land
Equipment
Merchandise Inventory
Ordinary Share Capital
Ordinary Share Capital in Excess of Stated Value 25 Cash
Subscription Receivable-Ordinary Subscribed Ordinary Shares
Ordinary Share Capital 30 Cash
Ordinary Share Capital
Debit Credit 250,000 250,000 125,000 100,000 25,000 37,500 37,500 350,000.00 100,000.00 95,000.00 500,000.00 45,000.00 87,500 87,500 100,000 100,000 210,000.00 150,000.00 60,000.00
Supporting Computations (25,000 share x P10) (25,000 share x P10) (10,000 shares x P12.50) (10,000 shares x P10) (P125,000 x 20%) (P125,000 x 20%) (50000 shares x P10) [(P350,000 + P100,000 + P95000) - P500,000] (P125,000 - P37,500) (P125,000 - P37,500) (10,000 shares shares x P10) (10,000 shares x P10)
(100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P14) (100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P10)
SOLUTION TO PROBLEM 5-1
a. Amount of contributed capital
Total Amount received for shares sold
(40,000 shares x P25) 1,000,000
Market value of equipment received for stocks issued 18,600
Contributed Capital 1,018,600
b. Authorized number of shares 120,000
Less number of shares issued
For cash 40,000
In exchange of equipment 600 40,600
Number of unissued shares 79,400
SOLUTION TO PROBLEM 5-2
Amount of cash collected from share capital transactions Authorized share capital
Unissued share capital Issued share capital Add: Share Premium
Subscribed capital stock Less: Subscription receivable
Cash collected from share capital transactions SOLUTION TO PROBLEM 5-3
Contributed capital as of December 31, 2011 Preference shares, P10 par value,
10,000 shares authorized (6,000 shares x P10) Ordinary shares, P40 stated value per share,
40,000 shares authorized (24,000 shares x P40) Paid-up shares
Share premium
Preference shares [6,000 shares x (P16 - P10)] Ordinary shares (P1,200,000 - P960,000)
Par Value Number Premium Value Per Share of Shares
400,000 600,000 15 40,000 9,600 9,000 15 600 409,600 609,000 15 40,600 300,000 120,000 180,000 8,000 60,000 32,000 28,000 216,000 60,000 960,000 1,020,000
36,000
240,000 276,000 1,296,000
