Chapter 8

Accounting for Share

Capital Transaction
QUIZ BOWL
LEVEL
ONE
 LEVEL ONE

TRUE or FALSE

The authorized shares represent the maximum

number of shares that a corporation may issue. While
Unissued shares represent the number of shares that
may still be issued.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

In the Philippines, it is legal to issue share capital at

less than par value. (discount on share capital)
ANSWER:

FALSE
 LEVEL ONE

TRUE or FALSE

When share capital is issued for consideration in the

form of property other than cash, the net book value
of the property is used to record the transaction.
ANSWER:

FALSE
 LEVEL ONE

TRUE or FALSE

The share capital that has been sold to a shareholder is

called an issued share capital.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

Under the journal entry method, the amount of share

capital issued is determined by deducting the balance
of unissued share capital account from the balance of
authorized share capital account.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

A stock certificate is issued to the subscriber upon full

payment of his subscription.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

Additional paid-in capital (share premium) for the

excess of the stock subscription price over par or
stated value is recorded at the time of subscription.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

Convertible preference shares allow the issuing

corporation to redeem the shares.
ANSWER:

FALSE
 LEVEL ONE

TRUE or FALSE

Treasury shares are equity shares that has been fully

paid to shareholders and subsequently reacquired by
the corporation. It is a deduction from the total
shareholders equity.
ANSWER:

TRUE
 LEVEL ONE

TRUE or FALSE

Generally, there are only two classes of authorized

share capital, the ordinary share capital and special
share capital.
ANSWER:

FALSE
LEVEL
TWO
 LEVEL TWO
MULTIPLE CHOICE
The par value of a share capital
a. Is usually the same from its market value
b. Is often higher for ordinary share than for preference share
c. Is an arbitrary amount assigned to a share of stock
d. All of this answer is correct
ANSWER:

C. Is an arbitrary amount assigned

to a share of stock
 LEVEL TWO
MULTIPLE CHOICE
Which of the following is not one of the basic right of a
shareholder?
a. The right to participate in the earnings
b. The right to maintain one’s proportionate interest in the
corporation
c. The right to inspect the accounting records of the corporation.
d. The right to participate in the management of the corporation
ANSWER:

D. The right to participate in the

management of the corporation
 LEVEL TWO
MULTIPLE CHOICE
A preference share capital that may be exchanged for the ordinary
share capital is known as
A. cumulative P.S.
B. participating P.S.
C. noncumulative P.S.
D. convertible P.S.
ANSWER:

D. convertible preference share.

 LEVEL TWO
MULTIPLE CHOICE
A non-cash assets received in exchange for share capital is
recorded at
A. its book value
B. its fair market value
C. lower of book value and fair market value
D. higher of book value and fair market value
ANSWER:

B. its fair market value

 LEVEL TWO
MULTIPLE CHOICE
The issuance of ordinary share capital to shareholders
A. increase ordinary share capital authorized
B. decrease ordinary share capital authorized
C. increase ordinary share capital outstanding
D. decrease ordinary share capital outstanding
ANSWER:

C. increase ordinary share

capital outstanding
 LEVEL TWO
MULTIPLE CHOICE
Which of the following is not typically a characteristics of
preference share?
A. preference as to dividends
B. preference as to voting rights
C. cumulative and callable terms
D. preference over ordinary shareholders during liquidation
ANSWER:

B. preference as to voting rights

 LEVEL TWO
MULTIPLE CHOICE
When ordinary shares are issued in exchange for services, the
transaction should be recorded at the
A. par value of the ordinary shares issued
B. fair value of the ordinary shares issued
C. fair value of the services received
D. fair value of the services received unless the fair value of the
ordinary share is more reliably determinable
ANSWER:

C. fair value of the services received

 LEVEL TWO
MULTIPLE CHOICE
When there is no bidder for delinquent subscription, the
subscribed shares
A. will be issued to the delinquent subscriber
B. will be issued in the name of the corporation
C. will be reverted back to unsubscribe shares
D. none of the above
ANSWER:

B. will be issued in the name of the

corporation
 LEVEL TWO
MULTIPLE CHOICE
Preference shares that have no claims on any prior year dividends
that may have passed
A. cumulative preference share
B. participating preference share
C. non-cumulative preference share
D. non-participating preference share
ANSWER:

C. non-cumulative preference share

 LEVEL TWO
MULTIPLE CHOICE
The Securities and Exchange Commission 25%, 25% rule means
that
A. at least 25% of the total authorized share capital has been
subscribed
B. at least 25% of the total subscriptions have been paid
C. Both A and B
ANSWER:

C. Both A and B
LEVEL
THREE
 LEVEL
THREE
JOURNAL ENTRY
The Integrity Corporation was incorporated on January 1, 2010 with
authorized share capital of 25,000 shares of P100 par value 10%
preference share capital and 500,000 shares of P10 stated value
ordinary share capital. The shares were issued as follows:
Jan. 1 Issued for cash 6,250 preference shares at par, and
125,000 ordinary shares for P15.
Required: Entry under memo entry method.
ANSWER:
Cash 2,500,000
Preference share capital 625,000
Ordinary share capital 1,250,000
Ordinary share premium 625,000
 LEVEL
THREE
JOURNAL ENTRY
The Security Corporation was organized on May 1, 2010 and is
authorized to issue 500,000 shares of ordinary share capital.
Subsequently, 125,000 shares were issued at P25 per share.

Required: Entry under journal entry method assuming that the share’s
par value was P30 per share.
 ANSWER:

Cash3,125,000
Discount on share capital 625,000
Unissued ordinary share capital 3,750,000
 LEVEL
THREE
JOURNAL ENTRY
The Honesty Corporation was organized on April 1, 2010 with
authorized share capital of 500,000 ordinary shares, par value of P10.
Thereafter, the following transactions took place:
April 25 Issued 5,000 shares for the services rendered by the lawyer
during the period of incorporation. The fair value of such
services is undeterminable.
Required: Entry under journal entry method.
 ANSWER:

Service fees 50,000

Unissued Ordinary share capital 50,000
 LEVEL
THREE
JOURNAL ENTRY
Patience Co. was authorized to issue 500,000 ordinary shares with a
stated value of P10. The following transactions relative to the share
capital took place:
Jan 1 Received subscriptions for 125,000 shares at P25 receiving a
down-payment of 60%.
Required: Entry under memo entry method.
ANSWER:

Cash (60% of 125,000xP25) 1,875,000

Subscription receivable1,250,000
subscribe Ordinary share capital(at par) 1,250,000
Ordinary share premium 1,875,000
 LEVEL
THREE
JOURNAL ENTRY
Patience Co. was authorized to issue 500,000 ordinary shares with a stated value of
P10. The following transactions relative to the share capital took place:
Jan 1 Received subscriptions for 125,000 shares at P25 receiving a down-payment of
60%.

28Received balance due from subscribers of 50,000 shares. Shares of stock were
subsequently issued.

Required: Jan. 28 entries under memo entry method.

ANSWER:
Cash 500,000
Subscription receivable 500,000
50,000 shares x P25 x 40% = 500,000

Subscribed share capital 500,000

Ordinary share capital 500,000
50,000 shares x P10 = 500,000
LEVEL
FOUR
 LEVEL FOUR
PROBLEM SOLVING

Dennis Corporation was organized on January 1, 2015 with

authorized capital of P2,000,000 consisting of 100,000
ordinary shares, P20 par value. Subsequently, incorporators
subscribe for 30% shares for P25. How much must be paid up
upon subscription to comply with the requirement of SEC?
ANSWER:

100,000 shares x 30% x P25 x 25%

= P187,500
 LEVEL FOUR
PROBLEM SOLVING
Jenette Corporation was organized on April 1, 2010 with authorized share
capital of 500,000 ordinary shares, par value of P10. Thereafter, the following
transactions took place:
April 1 The incorporators acquired 200,000 shares at P18.
25 Issued 5,000 shares for the services rendered by the lawyer during the
period of incorporation. The fair value of such services is P70,000.
May 28 Issued 15,000 shares in exchange for equipment valued at P200,000.
Required: What is the balance of ordinary share capital as of May 28?
ANSWER:
Date ordinary share capital (at par)
April 1 200,000 x P10 = 2,000,000
April 255,000 X P10 = 50,000
May 28 15,000 X P10 = 150,000
TOTAL = P2,200,000
 LEVEL FOUR
PROBLEM SOLVING
The Shareholder’s Equity of Divine Corp. revealed the following:
Preference share capital, P100 par value P230,000
Preference share premium 80,000
Ordinary share capital500,000
Ordinary share premium 50,000
Ordinary share subscribed 5,000
Retained Earnings 180,000
Required: How much is the legal capital of this corporation?
 ANSWER:
Preference share capital, P100 par value P230,000
Ordinary share capital500,000
Ordinary share subscribed5,000
Legal Capital P735,000
 LEVEL FOUR
PROBLEM SOLVING
The Shareholder’s Equity of Daiserie Corp. revealed the following:
6% Preference share capital, P100 par value P180,000
Preference share premium 80,000
Ordinary share capital, stated value P5 500,000
Ordinary share premium 50,000
Ordinary share subscribed 5,000
Retained Earnings 180,000
Treasury shares-ordinary, 10,000 shares at cost 40,000
Required: How many ordinary shares were issued?
ANSWER:

Ordinary share capital P500,000 / P5

= 100,000 shares issued
 LEVEL FOUR
PROBLEM SOLVING
The Shareholder’s Equity of Dexter Corp. revealed the following:
6% Preference share capital, P100 par value P180,000
Preference share premium 80,000
Ordinary share capital, stated value P5 500,000
Ordinary share premium 50,000
Ordinary share subscribed 5,000
Retained Earnings 180,000
Treasury shares-ordinary, 10,000 shares at cost 40,000
Required: How many ordinary shares were outstanding?
 ANSWER:

Ordinary share capital P500,000 / P5

= 100,000 shares issued
Less : 10,000 treasury shares
= 90,000 outstanding shares
 BONUS PROBLEM ( five points)
PROBLEM SOLVING
The Shareholder’s Equity of Messy Corp. revealed the following:
6% Preference share capital, P100 par value P180,000
Preference share premium 80,000
Ordinary share capital, stated value P5 500,000
Ordinary share premium 50,000
Ordinary share subscribed 5,000
Retained Earnings 180,000
Treasury shares-ordinary, 10,000 shares at cost 40,000
Subscription receivable-ordinary 2,000
Required: Compute for the total shareholder’s equity.
 BONUS PROBLEM ( five points)
ANSWER
6% Preference share capital, P100 par value P180,000
Preference share premium 80,000
Ordinary share capital, stated value P5 500,000
Ordinary share premium 50,000
Ordinary share subscribed 5,000
Retained Earnings 180,000
Treasury shares-ordinary, 10,000 shares at cost (40,000)
Subscription receivable-ordinary (2,000)
total shareholder’s equity = P953,000
End of the Quiz