Financial Accounting 2 Chapter 3 Solman PDF

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
Donated capital 4,960,000
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:
P
Issue of 30,000 ordinary shares 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
P
Total shareholders’ equity, December 31, 2012 2,188,800
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
(4) Ordinary share 10,000

Share premium 3,000
Total shareholders’ equity, December 31,
(b) 2011 P2,200,000
(1) Purchase of treasury share (10,000 x
14) (140,000)
(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
26
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
P2,265,00
Total shareholders’ equity 0
3-5. (Consuelo Enterprises, Inc.)

Preference share (4,000 x
(a) 20) 80,000
Share premium – Preference (4,000 x 1.60) 6,400
Cash (4,000 x 22) 88,000
(b) 20) 80,000
Cash (4,000 x 26) 104,000
(c) 20) 80,000
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

Share Dividends
Distributable 300,000
Ordinary Share
Capital 300,000
27
(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.
Preferen Ordinar
2011 ce y
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
Dividend per share P 7.50 P0
28

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

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%.

Current dividends:
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%.

Current dividends:
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
29
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
Securities 20,000
10,000 shares x (17 – 15)

February 28, 2013


Gain on Disposal of Trading
Securities 30,000
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
Equipment 450,000
Cost P450,000
Acc. Deprn 450,000/10 x
6 270,000
Carrying value P180,000
30
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
Total
shareh
olders’
(a) equity P17,146,000
(b) Numbe 26,000
r of
prefere
nce
shares
issued
and
outstan
ding
Numbe
r of
ordinar
y
shares
(c) issued 200,000
Numbe
r of
ordinar
y
shares
outsta
nding(
200,00
0–
12,000) 188,000
Cost of
remaini
ng
treasur
y
(d) 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
0 440,000
9/
3
0/
1
1
R
e
t
ai
n
e
d
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/ Share
1 dividen
0/ ds
1 distribu
1 table 400,000
Ordin
ary
share 400,000
1
2/
3
1/ Income
1 summar
1 y 1,175,000
Retai
ned
earni
ngs 1,175,000
31
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
*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
32
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)
Memo: Granted share options to
1/1/12 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

Share Options
Outstanding 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)

Memo: granted 40,000 share options certain officers for
01/02/12 to 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

Share options
outstanding 800,000
(40,000 x 80)  4 years
Memo: 8,000 share options were
2014 cancelled.
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
(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
33
3-18. (Red Fox

Corporation)
(a) Compensation Expense
200 – 10 – 15 = 175 employees x 100
2012 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.



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.
Share Options Outstanding 66,667
(10,000 x 20) / 3 years

(10,000 x 20) - 66,667
34
2014 Cash (10,000 x 120) 1,200,000

Ordinary Share Capital (10,000 x
100) 1,000,000
Share Premium-Ordinary 400,000
(b)
Memo: Granted 10,000 share options for the purchase of P100
01/01/12 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.
(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

2014 Cash (32,000 x 140) 4,480,000
35

Ordinary Share (32,000 x 100) 3,200
Share Premium – Ordinary 1,984
(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)
Share Appreciation Rights Payable 66,667
10,000 x (140 -120) x 1/3

10,000 x (150 - 120) x 2/3 = 200,000
200,000 – 66,667 = 133,333

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.
36
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

10,000 x 26.80 x 1/3

10,000 x 31.20 x 2/3 = 208,000
208,000 – 89,333 = 118,667

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

37
(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
Share Options Outstanding ¼x 31 ,
12/31/14 200 7,800
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

Ordinary Share (3,000 x 100) 300,000
Share Premium – Ordinary 187,800
31,200¾ x
3-25 (Red Santa Company) Unappropriate

Appropriated 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)
(6) Appropriation for bond redemption 2,000,000 (2,000,000)
(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
38
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
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
(110,000 + 10,000) x 2 = 220,000 issued; 220,000 – (4,000 x 2) =
MC42 B 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
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
4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 –
MC52 B 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
RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x
MC58 B 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
13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ;
MC59 C 7,200,000/750,000
shares = 9.60
MC60 D (200,000 x 2) + (200,000 x 5) – 950,000 = 450,000
41

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CHAPTER 3

3-1. (Budomo Company)

Legal expense/Professional fees 90,000

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

Share premium-Ordinary 60,000

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

d. Subscription receivable 450,000

3-3. (Blazing Red Corporation)

Correction to the problem: RE balance on December 31, 2012, instead

The total amount of P2,048,800 may also be obtained without necessarily

3-4. (Millennium Company)

(2) Cash 60,000

(3) Cash 65,000

(4) Ordinary share 10,000

Dividends declared (200,000)

3-5. (Consuelo Enterprises, Inc.)

Average preference share premium per share

3-6. (Concepcion Enterprises, Inc.)

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

3-7. (Red Stone Company)

(b) Retained Earnings (30,000 x 10) 300,000

3-8. (Dark Red Company)

(1) Preference share is non-cumulative and non-participating

2012 Preference Ordinary

2013 Preference Ordinary

(2) Preference share is cumulative and non-participating.

2012 Preference Ordinary

Dividend per share P10.50 P0.12

2013 Preference Ordinary

(3) Preference share is cumulative and fully participating

2011 Preference Ordinary

2012 Preference Ordinary

2013 Preference Ordinary

(a) Preference is participating up to 14%.

(b) Preference is participating up to 12%.

3-10. (Red Mama Company)

Share Dividends Distributable 500,000

Fractional Share Warrants Outstanding 100,000

3-11 (Red Ball Corporation)

Retained Earnings 150,000

December 31, 2012

Retained Earnings 20,000

February 28, 2013

Property Dividends Payable 200,000

3-12. (Red Chili Company)

10/1/12 Depreciation Expense 33,750

Retained Earnings 190,000

Assets Held for Distribution 180,000

FV(because it is higher) P190,000

12/31/12 Impairment Loss 20,000

1/31/13 Retained Earnings 15,000

Property Dividends Payable 175,000

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

08/10/12 Issued 82,500 rights to shareholders

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

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

12/10/12 Retained earnings 962,500

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

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

3-15. (Red Carpet Company)

Securities Market value Allocation Allocated Price

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

3-16. (Red Hot Company)