Warranty Auto Shop, Inc. is a quality car care center located at St. Paul st.

Digos
City. Assume that 5,000 shares of P10 par value ordinary shares of the company
were sold on subscription at P12 per share on September 1, 2015 to Ashley Long.
Subscription instalments of P24,000 and P36,000 will be due on September 16
and September 30, respectively.
The related entries follow:

9/01/15Subscription Receivable P60,000 (5000 shares @ P12 per share)

Subscribed ordinary shares P50,000 (5000 shares @ P10 per share)
Share Premium 10,000 (60,000-50,000)
To record subscription above par.

9/16/15 Cash 24,000

Subscription Receivable 24,000
To record initial instalment.

9/30/15 Cash 36,000

Subscription Receivable 36,000
To record final instalment.

9/30/15 Subscribed Ordinary shares 50,000

Ordinary Shares 50,000
To record issuance of stock certificates.

*** The subscribed ordinary shares account represents the par value of the subscribed shares.

SUBSCRIPTION OF SHARES

Assuming the same facts above except that the subscriber FAILED to settle part of his
subscription in the amount of P48,000. After complying with the legal procedures pertaining to
delinquency sale, a public auction was held. The offer price is P56,000 including P3,000 accrued interest
and P5,000 expenses of sale. Three bidders are willing to pay the offers price namely
Lenore Loqueloque 4,300 shares
Luz On 4,500 shares
Winnie Villanueva 4,700 shares

Loqueloque is the highest bidder. The 5000 shares are deemed fully paid. Ashley Long, the
original subscriber, gets 700 shares and Loqueloque receives 4,300 shares.

Subscription Receivable P60,000

Subscribed Ordinary Shares 50,000
Share Premium 10,000
To record subscription above par.
Cash P12,000 (60,000-48,000)
Subscription Receivable 12,000
To record partial initial instalment of Ashley Long.

Receivable from Highest Bidder P3,000

Interest Revenues 3,000
To record accrued interest on delinquent shares.

Receivable from Highest Bidder P5000

Cash P5000
To record auction expenses.

Cash P56,000
Receivable from Highest Bidder 8,000
Subscription Receivable 48,000
To record sale at public auction from Loqueloque.

Subscribed Ordinary Shares P50,000

Ordinary Shares 50,000
To record issuance of stock certificates.

SHARE ISSUANCE OF NON-CASH CONSIDERATION

Issuing Shares for Assets
Locostales Construction and Development Corporation is a medium-sized closely held company
based in Digos City. A group of Taiwanese investors would like to acquire shares of the company
because of its tremendous earnings potential. After much thought on the part of its president, John
Bilogolo, the investors were allowed to make investments. One of the considerations given was a tract
of land in Davao City with a fair value of P1,000,000. The entry to record the issue of 900 shares of
P1000 per ordinary shares in exchange for the land.
Dr. Land P 1,000,000
Cr. Ordinary Shares P900,000(900 shares @ P1000/par value)
Share Premium 100,000

Issuing Shares for Services for Liabilities

Balen Bookstore Asia, Inc. engaged the services of a promoter during its formation and
organization. The corporation issued 800 shares of P100 par value ordinary shares for the the fair
market value of such services amounting to P100,000.

Dr. Organizational Expenses P 100,000

Cr. Ordinary Shares P80,000 (800 shares @ P100 par value)
Share Premium 20,000
Two Methods of Accounting for Share Capital

1. Journal Entry Method

2. Memorandum Entry Method

Lucky Draw Corporation was authorized to issue P400,000 ordinary shares divided into 4000 shares
with a par value of P100 per share. On August 13, 2015, the corporation received subscription for 1000
shares at par from various individuals. A of September 20, 2015. 600 of the subscribed shares have been
fully paid and the stock certificates issued correspondingly nest day. The corporation issued 100 shares
at par for cash.

Journal Entry Memorandum Entry

Authorization Dr. Unissued Ordinary Shares 400,000 Memo Entry:
Cr. Authorized Ordinary Shares 400,000 “The corporation was authorized to issue
P400,000 ordinary shares, divided into
4,000 shares with P100 par.”
Share Dr. Subscription Receivable 100,000 Dr. Subscription Receivable 100,000
Subscription at Cr. Subscribed Ordinary Shares 100,000 Cr. Subscribed Ordinary Shares 100,000
par
Subscription Dr. Cash 60,000 Dr. Cash 60,000
Fully Collected Cr. Subscription Receivable 60,000 Cr. Subscription Receivable 60,000
Issuance of Dr. Subscribed Ordinary Shares 60,000 Dr. Subscribed Ordinary Shares 60,000
Stock certificate Cr. Unissued Ordinary Shares 60,000 Cr. Ordinary Shares 60,0000
after full
payment of
subscription.
Cash Dr. Cash 40,000 Dr. Cash 40,000
Subscription at Cr. Unissued Ordinary Shares 40,000 Cr. Ordinary Shares 40,000
par

Journal Entry Method

Shareholder’s Equity:

Authorized Ordinary Shares P1000 par, 400 shares P400,000

Less: Unissued Ordinary Shares, 300 shares (300,000)
Issued Ordinary Shares P100,000

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (P40,000) 0
Shareholder’s Equity P100,000
Memorandum Entry MethodShareholder’s Equity:

Ordinary Shares, P100 par, 4000 shares P100,000

Authorized 1000 shares issued

Subscribed Ordinary Shares P40,000

Less: Subscription Receivable (40,000) 0
Shareholder’s Equity P100,000

Treasury Stocks

Comprehensive Problem:

Dioma Sea Wind is a world class resort in Boracay Island, the operations have been successful. To
consolidate control over the enterprise and thus avoid a corporate takeover by outsiders, the board of
directors decided to minimize outstanding shares by purchasing 1,500 shares with a par value of P1,000
for P2,000.

Purchase of Treasury Stock:

Treasury Stock P3,000,000 (1,500 shares @ PP2,000)
Cash P3,000,000

Reissuance of Treasury Stock

At Cost Above Cost(@P2,500) Below Cost(P1500)
Cash 3,000,000 Cash 3,750,000 Cash 2,250,000
Treasury Stock 3,000,000 Treasury Stock 3,000,000 Retained Earnings 750,000
Share Premium-Treasury Stock 750,000 Treasury Stock P3,000,000

Retirement of Treasury Stock:

With Gain on Retirement(cost is P750) With Loss on Retirement

Dr. Ordinary Shares 1,500,000 (1500 shares@P1000par) Dr. Ordinary Shares 1,500,000
Cr. Share Premium 375,000 Share Premium 750,000
Treasury Stock 1,125,000 Retained Earnings 750,000
Cr. Treasury Stock 3,000,000

ACCUMULATED PROFIT AND LOSSES

Debit Credit
a. Loss for the period a. Profit for the period
b. Dividends Declared b. Reversal of Appropriation
c. Appropriation for plant expansion.
Contingency, etc.

Income
 -Appropriated - Unappropriated
Entry
Accumulated Profit and Loss
Appropriated Profit and Loss

Important Dates to Remember on Dividends

1. Date of Declaration- this is the date when the BOD approved the resolution to distribute
dividends. In this date, the liability, Dividends Payable is recorded and Accumulated Profits and
Losses is decreased.
2. Date of Shareholders of Record- this is the date the share and transfer book is closed to
determine who are the shareholders are of such date who are entitled to receive dividends. On
this date, the list of shareholers is prepared . “ NO JOURNAL ENTRY IS REQUIRED”
3. Date of Payments- this is the date when dividends are actually distributed. On this date, the
liability Dividends Payable is paid and assets decrease in case of each cash or property dividends.

DIVIDENDS ON PREFERENCE AND ORDINARY SHARES

10% Preference Share P100 par, 1000 shares
were issued and outstanding P100,000
Outstanding shares, P50 par, 3000 shares
were issued and outstanding 150,000
Accumulated Profit and Losses
Appropriated for Plant Expansion P80,000
Unappropriated or Free 120,000 200,000

Of the Unappropriated of Free accumulated profits and losses of P120,000, P90,000 was
declared as cash dividends in 20A. No cash dividends were declared and paid in the past two
years.

#1. Cumulative and Non-Participating

Cash dividend is distributed as follows:

Preference Ordinary
Total Shares Shares
Preference Share Dividends
Arrears- P100,000 x 10% x 2 years P 20,000 P20,000
Current- P100,000x 10% x 1 year 10,000 10,000

Ordinary Dividend (90,000-30,000)

Balance to all Ordinary shares 60,000 P60,000
Dividends as distributed 90,000 P30,000 P60,000
÷ shares outstanding 1000 shares 3,000 shares
Dividends per share P30.00 P20.00

#2. Non-Cumulative and Non-Participating

Cash Dividends is distributed as follows:
Preference Ordinary
Total Shares Shares
Preference Share Dividends
Current - P100,000 x 10% x 1 year P10,000 P10,000

Ordinary Shares Dividends

Balance all to Ordinary Shares 80,000 P80,000
Dividends as distributed P90,000 P10,000 P80,000
÷ shares outstanding 1,000 shares 3,000 shares
Dividends per share P10 P26.67

#3. Cumulative and Fully Participating

Cash Dividends is distributed as follows:
Preference Ordinary
Total Shares Shares
Preference Share Dividends
Arrears - P100,000 x 10% x 2 years P20,000 P20,000
Current P100,000 x 10% x 1 year 10,000 10,000

Ordinary Dividends
P150,000 x 10% x 1 year 15,000 P15,000

Balance for Participation P45,000

Preference: 100,000/250,000 x P45,000 P 18,000 P18,000
Ordinary:150,000/250,000 x P 45,000 27,000 27,000
Dividends as distributed P 90,000 P48,000 P42,000
÷ shares outstanding 1,000 shares 3,000 shares
Dividends per share P48 P14
 #4 Non-Cumulative and Fully Participating
Cash Dividends is distributed as follows:
Preference Ordinary
Total Shares Shares
Preference Share Dividends
Current year- P100,000 x 10% x 1 year P10,000 P10,000

Ordinary Dividends:
Current year P 150,000 x 10% x 1 year P15,000 P15,000

Balance for Participation P 65,000

Preference: P100,000/250,000 x P65,000 P 26,000 26,000

Ordinary:P 150,000/250,000 x P65,000 P 39,000 P39,000
Dividends as distributed P90,000 P36,000 P 54,000

÷ shares outstanding 1,000 shares 3,000 shares

Dividends per share P 36.00 P18.00

WATERED SHARE AND SECRET RESERVE

Rule #1: If issued for outstanding liability, the share capital is recorded at par value and not in an
amount equal to the liability set-off.

Salvar Corporation issued its 1000 shares with a par value pf P100. The outstanding obligation
amount stop P120,000.

Loans Payable P120,000

Share Capital P100,000
Share Premium 20,000

DONATED CAPITAL

Case #1

Labo Food Corporation received a new service van from its major shareholders as a gift. The donated
asset has a cash price of P350,000.

Entry:
Service Vehicle P350,000
Donated Capital P350,000

Case #2

Cabingatan Food Industries received 500 pf P100 par value ordinary shares from its major shareholder
as a gift. The receipt of the major donated share is recorded by means of a memorandum entry.

“Received 500 ordinary shares as donation”

These donated shares are essentially treasury stocks which maybe reissued at any price. The sale of
these donated shares will increase assets and shareholders equity.

Assume that the 50 shares were issued at P80 per share

Entry: Cash 40,000

Donated Capital 40,000