Audit Of Stockholders Equity

CHAPTER 9 – Audit of Shareholders’ Equity Problem 1 You have been assigned to the audit of Aguillon Inc., a manufacturing company. You have been asked to summarize the transactions for the year ended December 31, 2004, affecting shareholders’ equity and other related accounts. The shareholders’ equity section of Aguillon’s December 31, 2003, balance sheet follows: Shareholders’ Equity Contributed capital: Ordinary share P2 par value, 500,000 shares authorized, 90,000 shares issued, 88,790 shares outstanding Paid-in capital in excess of par Paid-in capital from treasury share Total contributed capital Retained earnings Total contributed capital and retained earnings Less: Cost of 1,210 shares of treasury share Total shareholders’ equity

P

180,000 1,820,000 22,500 P2,022,500 324,689 P2,347,189 72,600 P2,274,589

You have extracted the following information from the accounting records and audit working papers. 2004 Jan. 15

Aguillon reissued 650 shares of treasury share for P40 per share. The 1,210 shares of treasury share on hand at December 31, 2001, were purchased in one block in 2001. Aguillon used the cost method for recording the treasury shares purchased.

Feb. 2

Sold 90, P1,000, 9% bonds due February 1, 2005, at 103 with one detachable share warrant attached to each bond. Interest is payable annually on February 1. The fair market value of the bonds without the share warrants is 97. The detachable warrants have a fair value of P60 each and expire on February 1, 2005. Each warrant entitles the holder to purchase 10 shares of Ordinary share at P40 per share.

Mar. 6

Subscriptions for 1,400 shares of Ordinary share were issued at P44 per share, payable 40% down and the balance by March 20.

20

Nov. 1

The balance due on 1,200 shares was received and those shares were issued. The subscriber who defaulted on the 200 remaining shares forfeited the down payment in accordance with the subscription agreement. There were 55 share warrants detached from the bonds and exercised.

Net income for the year is P600,000. Questions- Based on the information above, answer the following questions: 1. The Ordinary Share at December 31, 2004 is: a. P 215,000 b. P 204,000 c. P 191,000

d. P 183,500

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2. The Additional paid capital in excess of par at December 31, 2004 is: a. P 1,903,000 b. P 1,894,600 c. P 1,870,400 d. P 1,835,800 3. The APIC – treasury share at December 31, 2004 is: a. P 22,500 b. P 13,000 c. P 9,500

d. P 0

4. The Ordinary Share Warrants Outstanding at December 31, 2004 is: a. P 5,400 b. P 3,300 c. P 2,100 d. P 0 5. The Subscribed Ordinary Share at December 31, 2004 is: a. P 2,800 b. P 2,400 c. P 400

d. P 0

6. The APIC – forfeited share at December 31, 2004 is: a. P 0 b. P 3,520 c. P 3,920

d. P 5,280

7. The Treasury Share at December 31, 2004 is: a. P 0 b. P 72,600 c. P 39,000

d. P 33,600

8. The Total Shareholders’ Equity at December 31, 2004 is: a. P 2,984,309 b. P 2,659,620 c. P 2,384,309

d. P 2,059,620

Solution Jan 15 Cash (650 shares x P40) 28,000 Paid-in capital from treasury share 13,000 Treasury Share 39,000 Cost of treasury share: P72,000/1,210 shares = P60 per share Cost of shares sold: 650 shares x P60 = P 39,000 Feb 2 Cash (P90,000 x 103) 92,700 Discount on bonds payable 2,700 Bonds payable 90,000 Ordinary share warrants 5,400 Price of bonds without warrants attached: 97 x P90,000 = P87,300 Value of detached warrants: 90 x P60 = P 5,400 Because value of bonds plus value of detachable warrants is equal to the total issuance price (P87,300 + P5,400 = P92,700), the value assigned to the bonds and warrants is the fair value of each. Mar 6 Cash 24,640 Ordinary share subscription receivable 36,960 Ordinary share subscribed 2,800 Paid-in capital in excess of par 58,800 Mar 20 Cash 31,680 Ordinary share subscription receivable 31,680 Mar 20 Ordinary share subscribed 2,400 Ordinary share 2,400 Mar 20 Ordinary share subscribed 400 Paid-in capital in excess of par 8,400 Ordinary share subscription receivable 5,280 Paid in capital from forfeited share subscription 3,520 Nov 1 Cash (550 s P40) 22,000 Ordinary share warrants (55 x P60) 3,300 Ordinary share 1,100 Paid-in capital in excess of par 24,200 Answer: 1. D 2. B 3. C 4. C 5. D 6. B 7. D 8. D

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Problem 2 The shareholder’s equity of the Amongan Lumber Co. on June 30, 2004, was as follows: Contributed capital: 5% preference share, P50 par, cumulative, 30,000 shares issued, dividends 5 years in arrears P1,500,000 Ordinary share, P30 par, 100,000 shares issued 3,000,000 P4,500,000 Deficit from operations (600,000) Total shareholder’s equity P3,900,000 On July 1, the following actions were taken: a. Ordinary shareholders turned in their old Ordinary share and received in exchange new ordinary share, 1 share of the new share being exchanged for every 4 shares of the old. New ordinary share was given a stated value of P60 per share. b. One-half share of the new ordinary share was issued on each share of preference share outstanding in liquidation of dividends in arrears on preference share. c. The deficit from operations was applied against the paid-in capital arising from the ordinary share restatement. Transactions for the remainder of 2004 affecting the shareholders’ equity were as follows: Oct. 1 Nov. 10 Dec. 31

10,000 shares of preference share were called at P55 plus dividends for 3 months at 5%. Share was formally retired. 60,000 shares of new ordinary share were sold at P65. Net income for the 6 months ended on this date was P400,000. (Assume that revenues and expenses were closed to a temporary account, Income summary. Use this account to complete the closing process.) The semiannual dividend was declared on preference shares, and a P0.75 dividend on ordinary shares, dividends being payable January 20, 2003.

Questions Based on the information above, answer the following questions: 1. The balance of 5% Preference Share at December 31, 2004 is: a. P 1,500,000 b. P 1,000,000 c. P 500,000

d. P 0

2. The balance of Ordinary Share at December 31, 2004 is: a. P 3,000,000 b. P 4,000,000 c. P 4,500,000

d. P 6,000,000

3. The balance of Additional paid in capital at December 31, 2004 is: a. P 0 b. P 300,000 c. P 1,500,000 d. P 1,800,000 4. The balance of Retained Earnings at December 31, 2004 is: a. P 0 b. P (600,000) c. P 243,750

d. P 293,750

Solution July 1 Ordinary share, P30 par 3,000,000 Ordinary share, P60 stated value 1,500,000 Exchanged 100,000 shares of old ordinary share with a par value of P30 for 25,000 shares of new ordinary share with a stated value of P60.

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July 1

Retained earnings 900,000 Ordinary share, P60 stated value 900,000 Eliminate dividends in arrears on preference share through issuance of 15,000 shares of new ordinary share. July 1 Paid-in capital in excess of stated value 1,500,000 Retained earnings 1,500,000 Applied deficit against paid-in capital created through recapitalization Oct 1 5% Preference share 600,000 Retained earnings 56,250 Cash 556,250 Retired 10,000 shares of preference share 10,000 shares preference share retired: Amount paid (10,000 shares x P55) P550,000 Dividends for 3 months (P500,000 x .05 x 3/12) 6,250 P 556,250 Nov 10 Cash 3,900,000 Ordinary share, P60 stated value 3,600,000 Paid-in capital in excess of stated value 300,000 Sold 60,000 shares of ordinary share P65. Dec 31 Income summary 400,000 Retained earnings 400,000 Recorded earnings for the 6-month period ended December 31. Dec 31 Dividends (Retained earnings) 100,000 Dividend payable – preference 25,000 (20,000 x P50 x .05 x ½) Dividend payable – ordinary 75,000 (100,000 shares x P.75) SHAREHOLDERS’ EQUITY Contributed Capital 5% preference share Ordinary share Paid-in capital in excess of stated value – ordinary Total Retained earnings (accumulated since July 1, 2002) Total Shareholders’ Equity

1,000,000 6,000,000 300,000 7,300,000 243,750 7,543,750

On July 1, 2004, 100,000 shares of ordinary share, P30 par, were exchanged for 25,000 shares of ordinary share with a P60 stated value, thus creating additional paid-in capital. Such paid-in capital was applied to the elimination of a P600,00 deficit on this date and also the liquidation of dividends in arrears on preference share of P900,000 through the issue of 15,000 shares of new ordinary. Earnings since July 1, 2004, were P400,000. Charges for dividends since this date were P106,250, and the call premium on 10,000 shares of preference share redeemed was P50,000, resulting in a retained earnings balance of P243,750. Answer: 1. B 2. D

3. B

4. C

Problem 3 Alcain COMPANY’s shareholders’ equity account balance at December 31, 2003, were as follows: Ordinary share 800,000 Additional paid-in capital 1,600,000 Retained earnings 1,845,000 The following 2004 transactions and other information relate to the shareholders’ equity accounts: a. Alcain had 400,000 authorized shares of P5 par ordinary share, of which 160,000 shares were issued and outstanding. b. On March 5, 2004, Alcain acquired 5,000 shares of its ordinary share for P10 per share to hold as treasury share. The shares were originally issued at P15 per share. ALCAIN

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uses the cost method to account for treasury share. Alcain’s state of incorporation.

Treasury share is permitted in

c. On July 15, 2004, Alcain declared and distributed a property dividend of inventory. The inventory had a P75,000 carrying value and a P60,000 fair market value. d. On January 2, 2002, Alcain granted share options to employees to purchase 20,000 share of Alcain’s ordinary share at P18 per share, which was the market on that date. The option may be exercised within a three year period beginning January 2, 2004. The measurement date is the same as the grant date. On October 1, 2004, employees exercised all 20,000 options when the market value of the share was P25 per share. ALCAIN issued new shares to settle the transaction. e. Alcain’s net income for 2004 was P240,000. Questions Based on the information above and other analysis as necessary, answer the following question: 1. Alcain’s Ordinary share balance at December 31, 2004 is: a. P 1,300,000 b. P 1,160,000 c. P 900,000

d. P 800,000

2. Alcain’s Additional paid-in capital balance at December 31, 2004 is: a. P 1,860,000 b. P 1,960,000 c. P 2,000,000 d. P 2,100,000 3. Alcain’s Retained Earnings balance at December 31, 2004 is: a. P 2,085,000 b. P 2,025,000 c. P 2,010,000

d. P 1,770,000

4. Alcain’s Treasury Share balance at December 31, 2004 is: a. P 0 b. P 50,000 c. P 75,000

d. P 125,000

5. Alcain’s Shareholders’ Equity balance at December 31, 2004 is: a. P 4,910,000 b. P 4,820,000 c. P 4,735,000

d. P 4,720,000

Solution a. Memo entry b. Treasury share 50,000 Cash c. Retained earnings 75,000 Property dividends payable d. Cash 360,000 Ordinary share APIC e. Income summary 240,000 Retained earnings Answer: 1. C 2. A 3. C 4. B 5. D

50,000 75,000 100,000 260,000 240,000

Problem 4 Ashary COMPANY is a publicly held company whose shares are traded in the over the counter market. The shareholders’ equity account at December 31, 2003, had the following balances: Preference share, P100 par value. 6% cumulative; 5,000 shares authorized; 2,000 shares issued and outstanding P 200,000

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Ordinary share, P1 par value; 150,000 shares authorized; 100,000 issued and outstanding Additional paid-in capital Retained earnings

100,000 800,000 1,586,000

Transactions during 2004 and other information relating to the shareholders’ equity account were as follows: 

February 1, 2004 – Issued 13,000 shares of ordinary share to Keith Company in exchange for land. On the date issued, the share had a market price of P11 per share. The land had a carrying value on Keith’s books of P135,000, and the assessed value for property taxes of P90,000.



March 1, 2004 – Purchased 5,000 shares of its own ordinary share to be held as treasury for P14 per share. Ashary uses the cost method to account for treasury share. Transactions in treasury share are legal in Ashary’s state of incorporation.



May 10, 2004 – Declared a property dividend of marketable securities held by Ashary to ordinary shareholders. The securities had a carrying value of P600,000, fair value on relevant dates were: Date of declaration (May 10, 2004) P 720,000 Date of record (May 25, 2004) 758,000 Date of distribution (June 1, 2004) 736,000



October 1, 2004 – Reissued 2,000 shares of treasury share for P16 per share.



November 4, 2004 – Declared a cash dividend of P1.50 per share to all ordinary shareholders of record November 15, 2004. The dividend was paid on November 25, 2004.



December 20, 2004 – Declared the required annual cash dividend on preference share for 2004. The dividend was paid on January 5, 2005.



January 16, 2005 – Before closing the accounting records for 2004, Ashary became aware that no amortization had been recorded for 2004 for a patent purchased on July 1, 2003. The patent was properly capitalized at P320,000 and had an estimated useful life of eight years when purchased. Ashary’s income tax rate is 30%.



Net income after tax for 2004 was P838,000.

Questions 1. The total additional paid-in capital at year-end is: a. P 881,000 b. P 877,000 c. P 922,000

d. P 934,000

2. The total fundamental errors is a. P 14,000 b. P 20,000

d. P 40,000

c. P 27,200

3. The total cash dividends – ordinary at year-end is: a. P 172,500 b. P 169,500 c. P 165,000

d. P 162,000

4. The total property dividends – ordinary at year-end is: a. P 600,000 b. P 720,000 c. P 736,000

d. P 758,000

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5. The number of ordinary share issued and outstanding at year-end is: a. 102,000 b. 110,000 c. 111,000 d. 113,000 Solution Feb 1 Mar 1

-

May 10 Oct 1

-

Nov 4

-

Dec 20 Dec 31 Dec 31 Answer: 1. D 2. A

Land

143,000 Ordinary share APIC – CS Treasury share 70,000 Cash Retained earnings 600,000 Property dividend payable Cash 32,000 Treasury share APIC – TS Retained earnings 165,000 Cash Retained earnings 12,000 Dividends payable Retained earnings 14,000 Income tax payable 6,000 Patents Income summary 838,000 Retained earnings 3. C

4. A

13,000 130,000 70,000 600,000 28,000 4,000 165,000 12,000 20,000 838,000

5. B

Problem 5 During your audit of Asumbra Company for the year 2004, its initial year of operations, you find the following entries in its “Shareholders’ Equity” account: ____________________SHAREHOLDERS’ EQUITY___________________ Jan. 01Issuance of 150,000 shares of capital share, P10 par; authorized 500,000 shares in exchange for real estate property with a market value of P2 million 1,500,000 Jan. 15Sale of 200,000 shares of capital share at P12 per share

2,400,000

Mar. 01Purchase 20,000 shares of its own share at P15 per Share

300,000

May 15Loss on sale of motor equipment

100,000

Jun 10 Proceeds from sale of 10,000 treasury shares

170,000

Dec 31 Declared cash dividends payable quarterly beginning April 1, 1998

200,000

Dec 31 Net profit for the year

790,000

Questions 1. The adjusted balance of the “Shareholders’ Equity” account of the company’s balance sheet as of December 31, 2004 is: a. P 4.36 million b. P 4.46 million c. P 4.76 million d. P 4.91 million

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2. The book value per share of the company’s share as of December 31, 2004 is a. P 14.44 b. P 14.00 c. P 13.12 d. P 12.82 Solution Land Ordinary share APIC Cash Ordinary share APIC Treasury share Cash Retained earnings Loss on sale Cash Treasury share APIC – TS Retained earnings Cash Answer: 1. C 2. B

2,000,000 2,400,000 300,000 100,000 170,000 200,000

1,500,000 500,000 2,000,000 400,000 300,000 100,000 150,000 20,000 200,000

Problem 6 You are auditing the balance sheet of the Ballares Company on December 31, 2004, which has the following items on the equity side of the balance sheet: Current Liabilities Bonds Payable Reserve for Bonds Retirement 6% Cumulative Preference Share, P100 par value (entitled to P110 and accumulated dividends per share in voluntary liquidation). Authorized, 30,000 shares; issued, 20,000 shares; in treasury, 1,500 shares Ordinary share, P100 par value, authorized, 100,000 shares; issued and outstanding, 40,000 shares Premium on preference share Premium on ordinary share Retained earnings

2,858,000 3,000,000 1,600,000

1,850,000 4,000,000 100,000 673,000 1,312,600

The company proposes to finance a plant expansion program by issuing an additional 20,000 shares of ordinary share. Ordinary shareholders of record October 1, 2004 were notified that they will be permitted to subscribe to the new issue at P150 per share up to 50% of their holdings. The market value of the share on October 1, 2004, was P172.50. The share goes ex-rights in the market on October 3, 2004. Questions 1. Total shareholders’ equity as of December 31, 2004 is: a. P 2,035,000 b. P 5,535,000 c. P 7,500,000

d. P 9,535,600

2. Total book value of the 40,000 shares of ordinary share is: a. P 9,535,000 b. P 7,500,600 c. P 2,035,000

d. P 1,875,150

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3. The book value per share of ordinary share as of December 31, 2004 is: a. P 203.55 b. P 187.52 c. P 172.50 d. P 165.00 Solution 1 D.

Reserve for bond retirement 6% cumulative Preference share Ordinary share Premium on preference share Premium on ordinary share Retained earnings Total shareholders’ equity Less equity identified to preference share Liquidation value (18,500 shares x P110)

P1,600,000 1,850,000 4,000,000 100,000 673,000 1,312,600 P9,535,600

P7,500,600

2

B

Total BV of the 40,000 shares of ordinary share

3

B

BV per share of ordinary share P7,500,600/ 40,000

2,035,000

P187.52

Problem 7 On January 1, 2003, the shareholders’ equity of Bantaya Company’s balance sheet revealed the following information: P5 Convertible Preference Share (P40 par value; 50,000 shares authorized, 20,000 shares issued and outstanding) Ordinary share (P5 stated value; 200,000 shares authorized, 120,000 shares issued and outstanding) Paid-in capital in excess of par Retained earnings Total shareholders’ equity

800,000 600,000 3,000,000 4,500,000 8,900,000

In addition, the following information is known: a. On February 2, 2003, 15,000 ordinary shares were acquired by the company for P33 per share. b. On September 30, 2003, 5,000 preference shares were converted to ordinary shares. One share of preference share is convertible into one share of ordinary share. At the time of conversion, the ordinary share had a market value of P42 per share. c. On December 21, 2003, the company received a share subscription of 10,000 ordinary shares at a subscription price of P33 per share. The subscription contract required a cash down payment equal to 60% of the subscription price, with the balance due on February 1, 2004. d. On February 1, 2004, 8,500 ordinary shares were issued according to the subscription contract. Because of default by a subscriber, 1,500 shares were not issued. The subscription contract requires the subscriber to forfeit all cash advance. e. On April 15, 2004, 10,000 shares held in treasury were reissued at P50 per shares. f.

On May 16, 2004, a special dividend of preference share was distributed to ordinary shareholders. One hundred shares of ordinary share entitled a shareholder to one share of preference share. The market price of preference share was P40 per share at that time.

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g. Net income for 2003 was P660,000 and for 2004, P890,000. Questions 1. The total preference share at December 31, 2003 is: a. P 600,000 b. P 625,000 c. P 651,400

d. P 667,500

2. The total ordinary share at December 31, 2003 is: a. P 600,000 b. P 625,000 c. P 651,400

d. P 667,500

3. The total additional-paid in capital at December 31, 2003 is: a. P 3,637,300 b. P 3,625,000 c. P 3,612,700

d. P 3,455,000

4. The total retained earnings at December 31, 2003 is: a. P 4,706,887.50 b. P 5,160,000.00 c. P 5,491,925.00

d. P 5,596,887.50

5. The Treasury share at December 31, 2003 is: a. P 495,000 b. P 330,000 c. P 165,000

d. P 0

6. The total preference share at December 31, 2004 is: a. P 548,600 b. P 600,000 c. P 625,000

d. P 651,400

7. The total ordinary share at December 31, 2004 is: a. P 600,000 b. P 625,000 c. P 651,400

d. P 667,500

8. The total additional paid-in capital at December 31, 2004 is: a. P 3,637,300 b. P 3,625,000 c. P 3,612,700

d. P 3,455,000

9. The total retained earnings at December 31, 2004is: a. P 5,998,900.00 b. P 5,491,925.00 c. P 4,965,000.00

d. P 4,706,887.50

10. The Treasury share at December 31, 2004 is: a. P 495,000 b. P 330,000 c. P 165,000

d. P 0

Solution 2003 Treasury share Cash Preference share Ordinary share Additional paid-in capital Subscription receivable Cash Subscribed ordinary share Additional paid-in capital Income summary Retained earnings 2002 Cash Subscription receivable Subscribed ordinary share Ordinary share Subscribed ordinary share Additional paid-in capital Subscription receivable APIC – forfeiture of share Cash Treasury share Additional paid-in capital Retained earnings

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495,000 200,000 132,000 198,000 660,000 112,200 42,500 7,500 42,000 500,000 51,400

495,000 25,000 175,000 50,000 280,000 660,000 112,200 42,500 19,800 29,700 330,000 170,000

Preference share Income summary Retained earnings Answer: 1. A 2. B 3. D

51,400

890,000 4. B

5. A

6. D

7. D

890,000 8. C

9. A

10. C

Problem 8 You are a senior accountant responsible for the annual audit of Calunsag Company for the year ended December 31, 2003. The information available to you is presented below. You may assume that any pertinent information not presented below has already been checked found satisfactory. Excerpts from trial balance, December 31, 2003: Debit

Credit 93,000 36,500 100,000

Retained earnings Allowance for decline in value of inventory Capital share (1,000 shares)

The books have not been closed, but all adjusting entries which the company expects to make have been posted. Their trial balance shows a P60,000 net profit for the year. Ledger details of Retained Earnings: RETAINED EARNINGS 08/06/03 CD 2,000 12/31/02 Balance 10/10/03 J 10,000 04/29/03 CR 12/31/03 J 30,000

134,500 500

NOTE: The balance at 12/31/02 agrees with last year’s working papers. Analysis of selected cash Receipts: Date 04/29/03 10/10/03

Account credited Capital Share Retained Earnings Building

Amount P10,000 500 P530,000

Explanation Sold P100 par share at 105 See corollary entry dated October 10, 2003.

Analysis of selected cash disbursement: Date 08/06/03

Account debited Retained Earnings

Amount P2,000

Explanation Freak accident to company truck not covered by insurance; repairs by JET & Co.

Selected entries in the general journal: Date 10/10/03

12/31/03

Entry and explanation Allowance for depreciation Retained Earnings Building Sale of main office Building. Retained Earnings Allowance for Decline in Market Value of Inventory

Debit 370,000 10,000

Credit 380,000

30,000 30,000

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Provision to value materials Inventory at lower of cost or NRV, in accordance with Company pricing policy. Questions 1. The Ordinary Share balance of Calunsag Company at December 31, 2003 is: a. P 100,500 b. P 100,000 c. P 99,500 d. P 89,500 2. The Additional paid-in capital balance of Calunsag Company at December 31, 2003 is: a. P 1,000 b. P 500 c. P 0 d. cannot be determined 3. The Retained Earnings – January 1, 2003 balance of Calunsag Company is: a. P 155,000 b. P 154,500 c. P 135,000 d. P 134,500 4. Net income of Calunsag Company at December 31, 2003 is: a. P 18,000 b. P 20,000 c. P 28,000

d. P 48,000

5. The Retained Earnings – December 31, 2003 balance of Calunsag Company is: a. P 182,500 b. P 175,000 c. P 172,500 d. P 152,500 Solution Adj: Retained earnings Additional paid-in capital OE: Cash Accum. dep’n Retained earnings Building CE: Cash Accum. dep’n Loss on sale Building Adj: Loss on sale Retained earnings Adj: Repairs Retained earnings Adj: Loss on market decline Retained earnings Answer: 1. B 2. B 3. D 4. A 5. D

500 530,000 370,000 10,000 530,000 370,000 10,000 10,000 2,000 30,000

500

910,000

910,000 10,000 2,000 30,000

Problem 9 You were engaged by Catacutan Company, a publicity held company whose shares are traded in the Philippines Share Exchange, to conduct an examination of its 2004 financial statements. You were told by the company’s controller that there were numerous equity transactions that took place in 2004. The shareholders’ equity accounts at December 31, 2003, had the following balances: Preference share, P100 par value, 6% cumulative; 15,000 shares authorized; 9,000 shares issued and outstanding Ordinary share, P1 par value, 900,000 shares authorized: 600,000 shares issued and outstanding Additional paid-in capital Retained earnings Total shareholders’ equity

P 900,000 600,000 1,200,000 3,198,000 P5,898,000

You summarized the following transactions during 2004 and other information relating to the shareholders’ equity in your working papers as follows:

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 January 6, 2004 – issued 22,500 shares of ordinary share to Difficult Company in exchange or land. On the date issued, the share had a market price of P16.50 per share. The land had a carrying value of P201,000, and an assessed value for property taxes of P135,000.  January 31, 2004 – Sold 1,350, P1,000, 12% bonds due January 31, 2006, at 98 with one detachable share warrant to each bond. Interest is payable annually on January 31. The fair value of the bonds without the share warrants is 95. The detachable warrant entitles the holder to purchase 10 shares of ordinary share at P10 per share.  February 22, 2004 – Purchased 7,500 shares of its own ordinary share to be held as treasury share for P24 per share.  February 28, 2004 – Subscriptions for 21,000 shares of ordinary share were received at P26 per share, payable 50% down and the balance by March 15.  March 15, 2004 – The balance due on 18,000 shares was received and those shares were issued. The subscriber who defaulted on the 3,000 remaining shares forfeited the down payment in accordance with the subscription agreement.  April 30, 2004 – Declared a dividend of inventory to ordinary shareholders. The inventory had a carrying value of P910,000:fair value on relevant dates were: Date of declaration (April 30, 2004) Date of record (May 15, 2004) Date of distribution(May 31, 2004)

P950,000 900,000 920,000

 August 30, 2004 – Reissued 3,000 shares of treasury share for P20 per share.  September 14, 2004 – There were 945 warrants detached from the bonds and exercised.  November 30, 2004 – Declared a cash dividend of P2 per share to all ordinary shareholders of record December 15, 2004. The dividend was paid on December 30, 2004.  December 15, 2004 – Declared the required annual cash dividends on preference share for 2004. the dividend was paid on January 15, 2004.  January 8, 2005 – Before closing the accounting records for 2004. Catacutan became aware that no amortization had been recorded for 2003 for a patent purchased on July 2, 2003. The patent was properly capitalized at P480,000 and had an estimated useful life of eight years when purchased. Catacutan is subject to 32% regular corporate income tax. The appropriate correcting entry was recorded on the same day.  Adjusted net income after tax for 2004 was P1,860,900. Questions Based on the foregoing and the result of your audit, answer the following : 1. By how much should the retained earnings be decreased as a result of the property dividend declaration on April 30, 2004?

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a. P 950,000 b. P 920,000 c. P 910,000 d. P 0 2. How much is the total dividends declared on preference and ordinary share in 2004? a. P 2,294,900 b. P 2,263,900 c. P 2,254,900 d. P 2,200,900 3. Preference share at December 31, 2004 is a. P 1,500,000 b. P 954,000

c. P 900,000

d. P 0

4. Ordinary share at December 31, 2004 is a. P 640,500 b. P 645,450

c. P 649,950

d. P 652,950

5. How much is the total additional paid-in-capital as of December 31, 2004 a. P 2,163,300 b. P 2,178,220 c. P 2,765,600 d. P 2,774,000 6. The adjusted balance of retained earnings on December 31,2004 is a. P 2,783,600 b. P 2,774,000 c. P 2,771,600 d. P 2,743,600 7. How much is the treasury share as of December 31, 2004? a. P 180,000 b. P 120,000 c. P 108,000 8.

How much is the total shareholders’ equity on December 31, 2004? a. P 6,376,850 b. P 4,271,550 c. P 4,232,550 d. P 4,194,350

Solution Jan 6 Jan 31

-

Feb 22

-

Feb 28

-

Mar 15 -

Apr 30

-

Aug 30 Sep 14 -

Nov 30 Dec 15 Dec 31 -

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d. P 0

Land

Ordinary share APIC

371,250

22,500 348,750

Cash 1,323,000 Discount on BP 67,500 Ordinary share warrants 40,500 Bonds Payable 1,350,000 Proceeds 1,323,000 Less: Market Value of Bonds (P1,350,000 x 95%) 1,282,500 Allocated Cost of the warrants 40,500 Treasury share 180,000 Cash 180,000 Cash 273,000 Subscription receivable 273,000 Subscribed ordinary share 21,000 APIC 525,000 Cash 234,000 Subscription receivable 234,000 Subs. ordinary share 18,000 Ordinary share 18,000 Subs. Ordinary share 3,000 APIC 75,000 Subscription receivable 39,000 APIC – forfeiture of share 39,000 Dividends/RE 910,000 Inventory 910,000 Cash 60,000 Retained earnings 12,000 Treasury share 72,000 Cash 94,500 Ordinary share warrants 28,350 Ordinary share 9,450 APIC 113,400 Dividends/RE 1,290,900 Cash 1,290,900 Dividends 54,000 Dividends payable 54,000 Retained earnings 20,400

Answer: 1. C 2. C

Income tax payable (32%) 9,600 Patents Income summary 1,860,900 Retained earnings 3. C

4. C

5. A

6. C

30,000 1,860,900 7. C

8. A

Problem 10 The Ceniza Company engaged Mr. Coliseo, a CPA, in 2003 to examine its books and records and to make whatever adjustments are necessary. The CPA’s examination disclosed the following: a. Prior to any adjustments, the Retained Earnings account is reproduced below: RETAINED EARNINGS Date 2001 Jan. 1 Dec. 31 2002 Jan 31 Apr. 3 Aug. 30

Particular

Debit

Balance Net income for the year

Dividends paid 140,000 Paid in capital in excess of par Gain on retirement of preference Share at less than issue price Dec. 31 Net loss for the year 205,000 2003 Jan 31 Dividends paid Dec. 31 Net loss for the year

100,000 165,500

Credit

Balance Debit Credit

310,000

580,000 890,000

90,000

750,000 840,000

64,500

904,500 699,500 599,500 434,000

b. Dividends had been declared on December 31, 2001 and 2002 but had not been entered in the books until paid. c. The company purchased a machine worth P360,000 on April 30, 2000. The company charged the purchase to expense. The machine has an estimated useful life of 3 years. The company uses the straight line method and residual values are deemed immaterial. d. The company received at transportation equipment as donation from one of its shareholders on September 30, 2002. The equipment was used to deliver goods to customers. The equipment costs P750,000 and has a remaining life of 3 years on the date of donation. The equipment has a fair value of P240,000 and P30,000 was incurred for registering the transfer of ownership. The company did not record the donation on its books. The expenses paid related to the donated equipment were charged to expense. e. The physical inventory of merchandise had been understates by P64,000 and by P44,500 at the end of 2001 and 2003, respectively. f.

The merchandise inventoried at the end of 2002 and 2003 did not include merchandise that was then in transit shipped FOB shipping point. These equipments of P43,400 and P32,600 were recorded a purchases in January 2003 and 2004, respectively.

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Questions Based on the above audit findings, the adjusted balances of the following are: (Disregard tax implication) 1. Retained earnings, 12/31/00 a. P 860,000 b. P 850,900

c. P 790,900

d. P 760,900

2. Net income for 2001 a. P 373,100

b. P 369,800

c. P 254,000

d. P 215,800

3. Retained earnings, 12/31/01 a. P 976,700 b. P 974,000

c. P 860,700

d. P 720,700

4. Net loss for 2002 a. P 379,000

b. P 359,700

c. P 349,700

d. P 269,700

5. Retained earnings, 12/31/02 a. P 341,000 b. P 411,000

c. P 481,000

d. P 495,000

6. Net loss for 2003 a. P 241,000

b. P 228,300

c. P 178,300

d. P 148,300

7. Retained earnings, 12/31/03 a. P 362,700 b. P 332,700

c. P 302,700

d. P 254,000

Solution Unadjusted net income/(loss) Adjustments: “c” – Depreciation “d” – Error in charging to expense Depreciation “e” – Understatement of inv. – 2001 Understatement of inv. - 2003 “f” – Understatement of inv. - 2002 Understatement of inv. – 2003 Under. of purchases – 2002 Under. of purchases – 2003 Adjusted Net income Plus: Retained Earnings – beg unadj. Prior period adjustment Error in charging to expense Unrecorded depreciation Retained Earnings – beg adjusted Less: Dividends Retained earnings – end Answer: 1. A 2. C 3. B 4. A 5. D 6. A

2001 310,000

2002 (205,000)

2003 (165,500)

(120,000)

(120,000) 30,000 (20,000) (64,000)

(40,000)

64,000

(43,400) ___________ (379,000)

44,500 (43,400) 32,600 43,400 (32,600) (241,000)

974,000 (100,000) 495,000

495,000 _________ 254,000

43,400 ___________ 254,000 580,000 360,000 (80,000) 860,000 (140,000) 974,000

(80,000)

7. D

Problem 11 The shareholders’ Equity of Cosare Corporation at December 31, 2003, showed Capital share, Ordinary, P100 par value per share (Authorized 10,000 shares; issued and outstanding 6,000 shares) Retained Earnings

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P600,000 300,000

Total

P900,000

An audit disclosed that the treasurer was short in his cash to the extent of P50,000. He had concealed his shortage by increasing inventory values by p15,000; land values by P20,000 and accounts receivables- trade by P15,000 Upon discovery of the shortage, the Treasure offered to surrender at book value 500 shares of the Capital Share which he owns in the settlement of the shortage. The board of directors accepted his offer and remitted cash to the Treasurer for any excess value over shortage. The treasurer’s 500 shares, after being acquired by the company were distributed pro – rata to the remaining shareholders. Questions 1. What amount of money should the company pay the Treasurer? a. P 50,000 b. P 25,000 c. P 15,000

d. P 0

2. What is the corporate retained earnings after distribution? a. P 225,000 b. P 200,000 c. P 100,000

d. P 75,000

Solution Inventory 15,000 Land 20,000 Accounts receivable 15,000 Cash Treasury share 75,000 Inventory Land Accounts receivable Cash Retained earnings 75,000 Treasury share Answer: 1. B 2. A

50,000 15,000 20,000 15,000 25,000 75,000

Problem 12 You have been engaged to audit the financial statements of Cuajotor Corporation for the calendar year 2003. The company was organized on January 2, 2002 and has not been audited before. The following items relating to equity and income statement accounts appear in your Working Balance Sheet (WBS) and Working Income Statement (WIS) WBS- December 31, 2003: Long- term liabilities Capital Share issued Additional Paid in capital Revaluation increment- Land Retained Earnings WIS- Year ended December 31, 2003 Income before tax Provision for income tax Income before extraordinary items Extraordinary items(net of tax) Net income

Balance Per Books P240,800 560,000 100,000 90,000 54,000 150,000 45,000 105,000 77,000 28,000

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Following are your audit findings: 1. Long- term liabilities- This consist Mortgage payable Accrued interest on mortgage payable Reserve for general contingencies Total

P180,000 10,800 50,000 P240,800

The company mortgage its land to the Philippine National Bank for P180,000 on September 1, 2003. The mortgage liability is payable in 18 semi-annual installments of P10,000 plus accrued interest of 18% to date. The first installments due March 1, 2004. The reserve for general contingencies was set up by resolution of the Board of Directors on December 27, 2003. its purpose is to provide for possible future losses due to the risk of an impending business recession. A corresponding charge was made to general contingency losses which is classified as an extraordinary item. 2. Capital Share issued- The company is authorized to issue 10,000 shares of P100 par value ordinary share. Your analysis of the capital share issued account shows: 2003 Jan. 1 Mar. 1 Nov. 1 Dec. 31

DESCRIPTION

AMOUNT

Balance, 4,500 shares issued Sold 500 shares at P120 per share Assessment on shareholders P10 per share Balance

P450,000 60,000 50,000 P 560,000

3. Additional paid in capital - The account balance represents the fair value of property donated to the company in 2002. There was no manager’s check account in 2002. 4. Revaluation increment (Land) – Land was written up to appraised value on December of 2003. The appraised value of P90,000 was determined by the company engineer. The property was acquired in 2002 at a cost of P40,000. 5. Retained earnings, December 31, 2003 – Analysis of the retained earnings account for 2003 shows: Balance, January 1, 2003 Net income – 2003 Gain on sale of treasury share Balance, December 31, 2003

P18,000 28,000 8,000 P54,000

6. Over/Understatement – The following over/understatements were discovered in the course of your audit: 2002 2003 Inventory, end 4,000 under 10,000 under Depreciation expense 2,500 under 2,000 under Accrued expenses payable end 1,000 under 1,600 over

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7. Extraordinary items – Extraordinary items consists of: General contingency losses Write-off of obsolete inventory Loss due to earthquake Total Less: Tax savings, 30% Extraordinary items, net of tax

P50,000 20,000 40,000 110,000 33,000 77,000

8. Provision for income tax - The income tax rate is 30%. There are no permanent differences between financial and taxable income. Required: For each item below, determine the amount per audit that should appear in your working balance sheet and working income statement. Assume that client approves all adjustments. Questions 1. Capital share issued a. P 580,000

b. P 550,000

c. P 510,000

d. P 500,000

2. Additional paid-in capital a. P 168,000 b. P 150,000

c. P 110,000

d. P 100,000

3. Long-term liabilities a. P 230,000

c. P 180,000

d. P 160,000

4. Current portion of long-term debt a. P 80,000 b. P 20,000

c. P 10,000

d. P 0

5. Revaluation increment – Land a. P 90,000 b. P 50,000

c. P 40,000

d. P 0

6. Retained earnings, 12/31/2002 a. P 21,850 b. P 20,800

c. P 18,350

d. P 18,000

7. Extraordinary items (net of tax) a. P 0 b. 42,000

c. 40,000

d. 28,000

8. Income before tax a. P 96,600

c. 134,600

d. 120,400

9. Provision for income tax a. P 40,980 b. P 40,380

c. P 36,120

d. P 28,980

10. Net income a. P 67,620

c. P 42,280

d. P 24,280

c. 63,080

d. 47,720

b. P 190,800

b. 136,600

b. P 54,220

11. Retained earnings, 12/31/2003 a. P 85,970 b. 72,220 Solution

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Long-term liability 20,000 Mortgage Payable – current 20,000 Long-term liability 10,800 Interest payable 10,800 Long-term liability 50,000 Extraordinary item 35,000 Income tax payable 15,000 Capital share 10,000 APIC 10,000 Capital share 50,000 APIC 50,000 APIC 100,000 APIC - Donated capital 100,000 Revaluation increment 40,000 Land 40,000 Gain on sale 8,000 APIC – TS 8,000 Beg. Inventory 4,000 Retained earnings - beg 2,800 Income tax payable 1,200 Inventory 10,000 Cost of sales 10,000 Retained earnings – beg 1,750 Income tax payable 750 Depreciation 2,000 Accum. Depreciation 4,500 Retained earnings – beg 700 Income tax payable 300 Expenses 1,000 Accrued expenses 1,600 Expenses 1,600 Loss on inventory 20,000 Loss on damages 40,000 Extraordinary items 42,000 Income tax payable 18,000 Answer: 1. D 2. A 3. D 4. B 5. D 6. P 18,350 8. P 96,600 Unadjusted NI 150,000 Under beg. Inv. ( 4,000) Under ending invent. 10,000 Under depreciation ( 2,000) Under AE – beg 1,000 Over AE – end 1,600 Loss on inventory (20,000) Loss on damages (40,000) Income before tax 96,600 Provision 28,980 Net income 67,620 9. P 28,980 10. A 11. P 85,970

7. P 0

Problem 13 Listed below are the transactions that affected the shareholders’ equity of Christian Paul Corporation during the period 2003-2005. At December 31, 2002, the corporation’s accounts included: (P in 000s) Ordinary share, 315 million shares at P1 par P 315,000 Paid-in capital – excess of par 1,890,000 Retained earnings 2,910,000

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a. November 2, 2003, the board of directors declared a cash dividend of P0.80 per share on its ordinary shares, payable to shareholders of record November 16, to be paid December 2. b. On March 3, 2004, the board of directors declared a property dividend consisting of bonds of Maria Mikaela County that Christian Paul was holding as an investment. The bonds had a fair market value of P4.8 million, but were purchased two years previously for P3.9 million. Because they were intended to be held-to-maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 14, to be distributed April 6. c. On July 13, 2004, the corporation declared and distributed a 5% ordinary share dividend (when the market value of the ordinary share was P21 per share). Cash was paid for fractional share rights representing 750,000 equivalent whole shares. d. On November 2, 2004, the board of directors declared a cash dividend of P0.80 per share on its ordinary shares, payable to shareholders of record November 16, to be paid December 2. e. On January 16, 2005, the board of directors declared and distributed a 3-for-2 share split effected in the form of a 50% share dividend when the market value of the ordinary share was P23 per share. f.

On November 2, 2005, the board of directors declared a cash dividend of P0.65 per share on its ordinary shares, payable to shareholders of record November 16, to be paid December 2.

g. The reported net income of Christian Paul was P990 million, P1,185 million, and P1,365 million for 2003, 2004, and 2005, respectively. Questions 1. The Retained earnings of Christian Paul Corporation at the end of 2005 is: (P in 000s) a. P 5,276,700 b. P 5,276,600 c. P 5,112,600 d. P 5,095,850 2. The Additional paid-in capital of Christian Paul Corporation at the end of 2005 is: (P in 000s) a. P 5,860,000 b. P 5,655,000 c. P 2,190,000 d. P 2,025,000 3. The Ordinary share of Christian Paul Corporation at the end of 2005 is: (P in 000s) a. P 495,750 b. P 495,000 c. P 330,750 d. P 330,000 4. The total Shareholders’ Equity of Christian Paul Corporation at the end of 2005 is: (P in 000s) a. P 11,097,450 b. P 7,797,600 c. P 7,796,700 d. P 7,615,850 Solution (in 000’s) A. Retained earnings Cash B. Retained earnings Investment – HTM C. Retained earnings Ordinary share APIC Cash

252,000 3,900 330,750

252,000 3,900 15,000 300,000 15,750

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D. E.

Retained earnings Cash Retained earnings Ordinary share

Retained earnings Cash Answer: 1. P 5,112,600

264,000 165,000

F.

321,750 2. C

3. B

264,000 165,000 OR

Ordinary share, old Retained earnings Ordinary share, new

330,000 165,000

495,000

321,750 4. P 7,797,600

Problem 14 VELASCO COMPANY was formed on July 1, 2000. It was authorized to issue 300,000 shares of P20 par value ordinary share and 100,000 shares of 8 percent P50 par value, cumulated and nonparticipating preference share. VELASCO COMPANY has a July 1 – June 30 fiscal year. The following information relates to the shareholders’ equity accounts of VELASCO COMPANY: Ordinary share Prior to the 2002-2003 fiscal year, Velasco Company had 110,000 shares of outstanding ordinary share issued as follows: 1. 95,000 shares were issued for cash on July 1, 2000, at P62 per share. 2. On July 24, 2000, 5,000 shares were exchanged for a plot of land which cost the seller P140,000 in 1994 and had an installment market value of P440,000 on July 24, 2000. 3. 10,000 shares were issued on March 1, 2001; the shares had been subscribed for P84 per share on October 31, 2001. During the 2002-2003 fiscal year, the following transactions regarding ordinary share took place: October 1, 2002 Subscriptions were received for 10,000 shares at P92 per share. Cash of P184,000 was received in full payment for 2,000 shares and share certificates were issued. The remaining subscription for 8,000 shares were to be paid in full by September 30, 2004, at which time the certificates were to be issued. November 30, 2002 Velasco Company purchased 2,000 shares of its own share on the open market at P78 per share. Velasco Company uses the cost method for treasury share. December 15, 2002 Velasco declared a 5% share dividend for shareholders of record on January 15, 2003, to be issued on January 31, 2003. Velasco Company was having a liquidity problem and could not afford a cash dividend at that time. Velasco Company’s ordinary share was selling at P104 per share on December 15, 2002. June 20, 2003

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Velasco Company sold 500 shares of its own ordinary share that it had purchased on November 30, 2002, for P42,000. Preference share Velasco Company issued 50,000 shares of preference share at P88 per share on July 1, 2001. Cash Dividends Velasco Company has followed a schedule of declaring cash dividends in December and June with payment being made to shareholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2003, are shown below: Declaration Date 12/15/01 6/15/02 12/15/02

Ordinary share P0.60 per share P0.60 per share -

Preference Share P2.00 per share P2.00 per share P2.00 per share

No cash dividends were declared during June 2003, due to the company’s liquidity problem. Retained Earnings As of June 30, 2002, Velasco Company’s retained earnings account had a balance of P1,380,000. For the fiscal year ending June 30, 2003, Velasco Company reported net income of P80,000. In March of 2002, Velasco Company received a loan from Davao Bank. The bank requires Velasco Company to establish a sinking fund and restrict retained earnings for an amount equal to the sinking fund and restrict retained earnings for an amount equal to the sinking fund deposit. The annual sinking fund payment of P100,000 is due on April 30 each year, the first payment was made on schedule on April 30, 2003. Questions 1. What is the balance of the ordinary share account at June 30, 2003? a. P 2,352,000 b. P 2,350,000 c. P 2,320,500 d. P 2,320,500 2. What is the balance of the Treasury Share account at June 30, 2003? a. P 156,000 b. P 124,800 c. P 117,000 d. P 114,000 3. What is the entry to record the dividend in arrears on the preference share? a. Retained earnings 100,000 c. Dividend payable 100,000 Dividend payable 100,000 Cash 100,000 b. Retained earnings 100,000 d. No journal entry Cash 100,000 4. What is the total additional paid-in capital at June 30, 2003? a. P 8,171,000 b. P 8,055,000 c. P 7,593,000

d. P 6,155,000

5. How much is the retained earnings at June 30, 2003? a. P 1,250,000 b. P 1,150,000 c. P 788,000

d. P 688,000

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6. What is the total shareholders’ equity at June 30, 2003? a. P 13,736,000 b. P 13,116,000 c. P 13,000,000 Solution Cash 5,890,000 Ordinary share 1,900,000 APIC 3,990,000 Land 440,000 Ordinary share 100,000 APIC 340,000 Cash 840,000 Ordinary share 200,000 APIC 640,000 Cash 184,000 Ordinary share 40,000 APIC 144,000 Subscription receiv. 736,000 Subscribed CS 160,000 APIC 576,000 Treasury share 156,000 Cash 156,000 Retained earnings 572,000 (110,000 + 2,000 – 2,000 x 5% x P104) Ordinary share 110,000 APIC 462,000 Cash 42,000 Treasury share 39,000 APIC – TS 3,000 Cash 4,400,000 Preference share 2,500,000 APIC – PS 1,900,000 Retained earnings Cash

432,000

432,000

Income summary 80,000 Retained earnings 80,000 RE – unappropriated 100,000 RE – appropriated 100,000 Answer: 1. B 2. C 3. D 4. B 5. C 6. A

d. P 12,900,000

Dividends: Ordinary share 12/15/01 110,000 x .60 = P 66,000 6/15/02 110,000 x .60 = 66,000 Preference share 12/15/01 50,000 x 2 = 100,000 6/15/02 50,000 x 2 = 100,000 12/15/02 50,000 x 2 = 100,000 Total 432,000

Problem 15 On April 1,1994, the Jen-Jen, inc. issued P6,000,000 of 7% convertible bonds w/ interest payment dates of April and Oct. 1. The bond were sold ion July 1,1994, and mature on April 1, 2014. The bond discount totaled P319,950. The bond contract entitles the bondholders to received 10 shares of P20 par value ordinary share in exchange for each P1,000 bond. On April 1, 2004, the holders of the bonds with total face value of P750,000 exercised their conversion privilege. On July 1, 2004, the company reacquired at 125, bonds with a face value of P375,000. The balances in the capital accounts as of December 31, 2003 were Ordinary share P20 par, authorized 3 million shares, Issued and outstanding, 187,00 shares Premium on ordinary share Market value of the ordinary share and bonds were as follows:

24

P 3,750,000 1,875,000

DATE April 1, 2004 July 1, 2004

BONDS 122 125

ORDINARY SHARE 52 56

Questions: Based on the above and the result of your audit, answer the following: 1. How much the total cash received from the sale of the P6,000,000 bonds on April 1, 1994? a. P 6,000,000 b. P 5,680, 050 c. P 5,785,050 d. P 5,820, 050 2. How much is the interest expense for the year 1994? a. P 323,100 b. P 315,000 c. P 218,100

d. P 201,900

3. How much is the carrying value of the bonds payable as of December 31, 1994? a. P 6,311, 850 b. P 6,000,000 c. P 5,692,048 d. P 5,688,150 4. The entry to record the conversion on April 1, 2004 will include a. A debit to bonds payable of P729,750. b. A debit to discount on bonds payable of P20,250. c. A credit to APIC of P579,750. d. A credit to gain on bond conversion of P579,750. 5. How much is the gain (loss) on bond reacquisition on July 1, 2004? a. P 103,622 b. P(103,622) c. P (83,878) d. 0 Solution 4/1/94 Cash 5,785,050 (squeezed figure) Discount on BP 319,950 Bonds payable 6,000,000 Interest expense 105,000 10/1/94 Interest expense 210,000 Cash 210,000 12/31/94 Interest expense 105,000 Interest payable 105,000 Interest expense 8,100 Discount on BP 8,100 (P319,950/237 x 6 = P8,100) 4/1/04 Bonds payable 750,000 Discount on BP 20,250 APIC 579,750 6/1/04 Bonds payable 375,000 Loss on retirement 103,622 Discount on BP 9,872 Cash 468,750 Answer: 1. C 2. C 3. D 4. C

5. B

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