PROBLEMS on SHAREHOLDERS’ EQUITY (Issuance, Treasury Share, Splits)

PROBLEM 1:
Carding Company provided the following data at year-end:

Authorized Share Capital 5,000,000 Retained Earnings – Unappropriated 600,000

Unissued Share Capital 2,000,000 Retained Earnings – Appropriated 300,000
Subscribed Share Capital 1,000,000 Revaluation Surplus 200,000
Subscription Receivable 400,000 Treasury Shares, at Cost 100,000
Share Premium 500,000

1. What is the amount of legal capital?

2. What is the amount of contributed capital?
3. What total amount should be reported as shareholder’s equity?

PROBLEM 2: At the beginning of current year, Ashe Company was organized with authorized capital of 100,000 shares of 200 par
value. The following share issuances occurred during the year:

Jan 10 Issued 25,000 shares at P 220 a share

Mar 25 Issued 1,000 shares for legal services rendered by ABC Consulting. The company would otherwise have to
pay P 250,000 for the service.
May 1 Issued 5,000 shares for a tract of land when the fair value was P 260 a share.
Oct 1 Issued 1,250 shares in exchange for a used customized machinery from an investor. Due to the
customization of the asset, no fair value was ascertained at the date of issuance.
Nov 1 2,000 shares from the January 10 issuances were donated to the company by the shareholder. At this
date, the fair value of the shares were P 200 a share.

4. What amount should be reported as share capital?

5. What amount should be reported as share premium?
6. What is the journal entry to record the donation on Nov 1?

PROBLEM 3: During 2018, Future Funds Company had the below issuance of shares:
Mar 1 Issued for P 150 per share, 12,000 convertible preference shares of P 100 par value. Each share may be
converted into 4 ordinary shares of P 40 par value at the option of the holder.
Jun 1 Issued 10,000 ordinary shares (P40 par) and 20,000 convertible preference shares(P100 par) for a total
value of P 10,000,000. At this date, the ordinary shares were selling at 50 while the preference shares
were selling at 130.

On October 2018, all converted preference shares issued on Mar 1 were converted to ordinary shares.

7. How much is the total ordinary share capital to be reported at December 31, 2018?
8. How much is the share premium resulting from the conversion of preference shares in October?
9. How much is the share premium on preference shares at December 31,2018?

PROBLEM 4: On February 1, 2018, Mcdollibee sold 180,P 1000, 9% bonds due February 1, 2026, at 103 with one detachable warrant
attached to each bond. Interest is payable annually on February 1. The fair market value of the bonds without the share warrants is
95. The detachable warrants have a fair value of 50 each and expire on February 1, 2019. Each warrant entitles the holder to
purchase 10 ordinary shares with P 10 par value at P 40 per share.

10. What amount should be credited to share warrants outstanding on Feb 1, 2018?
11. Assuming 150 of the warrants were exercised on December 31, 2018, what is the journal entry to record the transaction?
12. What is the entry to recognize the expiration of the remaining 30 warrants assuming they haven’t been exercised at Feb 1,
2019?
PROBLEMS on SHAREHOLDERS’ EQUITY (Issuance, Treasury Share, Splits)

PROBLEM 5: On December 31, 2017, Hanzo Company reported, the following shareholder’s equity:

Share Capital, P 10 par, outstanding 225,000 shares P 2,250,000

Share Premium 900,000
Retained Earnings 2,190,000
Treasury Shares at cost (6,000 shares) 270,000

During 2018, the company had the following transactions relating to its treasury shares:
 Sold 1,000 shares at P 50 a share.
 Sold the 3,000 at P 41 per share.
 Retired the remaining shares.

13. What is the total amount of share premium at year-end?

14. What is the total amount of Retained Earnings at year-end?

PROBLEM 5: Crude Company had 500,000 ordinary shares authorized and 300,000 shares outstanding on January 1, 2018. During
2018, the following transactions occurred:

January 31 Purchased 100,000 shares

June 30 Declared 10% stock dividends
August 1 Reissued 50,000 shares
November 30 Declared 2-for-1 stock split
Dec 1 Reissued 25,000 shares

15. On Dec 31, 2018, how many ordinary shares are outstanding?
16. On Dec 31, 2018, how many shares are held as treasury shares?

PROBLEM 6: GAWAD company reported the following shareholder’s equity on January 1, 2018:

Preference share capital, 100,000 shares, P 10 par P 1,000,000

Ordinary share capital, 500,000 shares, P 10 par 5,000,000
Share premium – Preference 50,000
Share premium – Ordinary 200,000
Retained Earnings 100,000

During the current year, the following transactions were completed:

 Retirement of 5,000 preference shares at P11 per share
 Purchase of 5,000 ordinary shares of treasury at P 12 per share
 Share split, ordinary share 2 for 1
 Reissue of 2,000 shares of treasury at P 8 per share
 Net income for the year, P 300,000.

17. What is the total shareholders’ equity on December 31, 2018?