Fq 001 Sharehoders_ Equity And Retained Earnings

Father Saturnino Urios University Accountancy Program Butuan City

Accounting 520 FQ 001 Shareholders’ Equity Anbert Angelo C.Cayna, CPA

1. The shareholders’ equity of glee company revealed the following information on December 31, 2013 Preference share capital, P100 par 2,300,000 Share premium - PS 805,000 Ordinary share capital, P15 par 5,250,000 Share premium 2,750,000 Subscribed ordinary share capital 500,000 Retained earnings 1,900,000 Note payable 4,000,000 Subscriptions receivable - ordinary 400,000 How much is the legal capital? a. 8,050,000 b. 7,650,000 c. 9,950,000 d. 11,605,000 16-29 p767 A 2. Bronze Company provided the following information on December 31, 2013: Share capital 5,000,000 Subscribed share capital 3,000,000 Subscription receivable 2,000,000 Share premium 1,500,000 Cumulative translation adjustment - debit 500,000 Treasury shares, at cost 700,000 Retained earnings 1,000,000 Cumulative unrealized gain on futures contract designated as cash flow hedge 600,000 What is the contributed capital on December 31, 2013? a. 9,500,000 b. 7,500,000 c. 8,500,000 d. 6,800,000 16-32 p768 B 3. Presented below is the shareholders’ equity of Caper Company on January 1, 2013. Share capital, par value P20, authorized 50,000 shares; issued and outstanding, 30,000 shares Share premium Retained earnings

600,000 150,000 230,000

During the year, the following transactions occurred relating to shareholders’ equity:  1,000 shares were reacquired at P28 per share.  900 shares were reacquired at P30 per share.  1,500 shares of treasury were sold at P32 per share. For the year ended December 31, 2013, the entity reported net income of P110,000. What amount should be reported as total shareholders’ equity on December 31, 2013? a. 1,071,000 b. 1,078,000 c. 1,083,000 d. 973,000 16-39 p771 C 4. Precious Company was organized on January 1, 2013 with an authorization of 1,200,000 ordinary shares with a par value of P6 per share. During 2013, the entity had the following capital transactions: January 5 Issued 675,000 shares at P10 per share July 28 Purchased 90,000 treasury shares at P11 per share December 31 Sold the 90,000 shares held in treasury at P18 per share The entity used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of share premium on December 31, 2013? a. 3,330,000 b. 2,070,000 c. 2,700,000 d. 0 16-41 p772 A 5. Of the 125,000 shares issued by the Vey Company, 25,000 shares were held as treasury on January 1, 2013. During the year, transactions involving share capital were as follows: January 1 through October 31 – 13,000 treasury shares were distributed to officers as part of a share compensation plan November 1 – A 3 for 1 share spilt took effect. December 1 – The entity purchased 5,000 of its own shares to discourage an unfriendly takeover. These shares were not retired On December 31, 2013, how many shares were issued and outstanding, respectively? a. 375,000; 334,000 c. 334,000; 334,000 b. 375,000; 324,000 d. 325,000; 324,000 16-45 p774 A 6. On December 31, 2013, Pack Company’s board of directors cancelled 5,000 shares of P25 par value held in treasury at an average cost of P130 per share. Before recording the cancelation of the treasury shares, the entity had the following shareholders’ equity: Share capital 625,000 Share premium 750,000 Retained earnings 900,000 Treasury shares, at cost 650,000 On December 31, 2013, what amount should be reported as share capital outstanding?

a. 7.

8.

9.

10.

11.

0 b. 250,000 c. 500,000 d. 625,000 16-50 p776 C Juan Company was organized on January 1, 2013 with 100,000 authorized shares of P100 par value. The following transactions occurred: January 15 Sold 30,000 shares at P150 per share February 14 Issued 2,000 shares for legal services with a billing price of P300,000. The shares on this date are quoted at P140 per share. March 27 Purchased 5,000 treasury shares at a cost of P12 per share. October 31 Issued P4,000,000 convertible bonds at 110. The bonds are quoted at 97 without the conversion feature. November 5 Declared a 2-for-1 share split when the market value of the share was P160. December 17 Sold 10,000 shares at P75 per share. What total amount should be recognized as share premium on December 31, 2013? a. 1,830,000 b. 1,850,000 c. 2,350,000 d. 2,370,000 16-58 p779 C Marinduque Company provided the following post-closing trial balance on December 31, 2013: Accounts payable and accrued liabilities 3,000,000 Accounts receivable 6,000,000 Accumulated depreciation 2,500,000 Allowance for doubtful accounts 800,000 Bonds payable 5,000,000 Property, plant and equipment 11,000,000 Cash 2,500,000 Ordinary share capital, P50 par value 6,000,000 Dividends payable 300,000 Inventory 8,000,000 Available for sale securities 3,500,000 Investment in equity securities at cost 2,000,000 Unrealized loss on interest rate swap designated as cash flow hedge 500,000 Share premium - ordinary in excess of par 5,000,000 from sale of treasury 1,000,000 Preference share capital, P25 par value 5,000,000 Retained earnings 6,500,000 Treasury ordinary shares - 20,000 at cost 1,500,000 35,000,000 35,000,000 The dividend on cumulative preference share capital is 10%. The preference share has a liquidation value of P50. What is the total shareholders’ equity on December 31, 2013? a. 22,000,000 b. 21,500,000 c. 21,700,000 d. 23,500,000 16-61 p781 B Penn Company began operations on January 1, 2013 by issuing at P15 per share one-half of the 950,000 ordinary shares of P10 par value that had been authorized for sale. In addition, the entity has 500,000 authorized preference shares of P5 par value. During 2013, the entity had P1,025,000 of net income and declared P230,000 of dividend. During 2014, the entity had the following transactions:  Issued 100,000 ordinary shares for P17 per share.  Issued 150,000 preference shares for P8 per share.  Authorized the purchase of a custom-made machine to be delivered in January 2015. The entity restricted P300, 000 of retained earnings for the purchase of the machine.  Issued additional 50,000 preference shares for P9 per share.  Reported P1, 215,000 of net income and declared on December 31, 2014 a cash dividend of P635, 000 to shareholders of record on January 15, 2015 to be paid on February 1, 2015. What is the total shareholders’ equity on December 31, 2014? a. 11,850,000 b. 11,550,000 c. 12,485,000 d. 7,920,000 16-60 p780 A Berna Company’s equity accounts on January 1, 2013 were: Share capital, P20 par 8,000,000 Share premium 2,550,000 Retained earnings 1,275,000 All shares outstanding on January 1, 2013 were issued in 2012 for P26 a share. On December 31, 2013, the entity reacquired 20,000 shares at P24 a share and retired them. Immediately after the shares were retired, what is the balance in the “share premium”? a. 2,430,000 b. 2,470,000 c. 2,510,000 d. 2,590,000 16-48 p775 B Lauretta Company’s shareholders’ equity on January 1, 2013 is as follows: Share capital 1,500,000 Share premium 3,000,000

Retained earnings 2,000,000 The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were issued and outstanding. On June 30, 2013, the entity acquired 50,000 shares for P10 per share to be held as treasury. The shares were originally issued at P8 per share. The cost method is used to account for treasury shares. On November 1, 2013, the entity declared and distributed a property dividend of inventory payable on July 1, 2014. The inventory had a P750, 000 carrying amount and a P600,000 fair value on November 1, 2013. The inventory had a fair value of P800, 000 on December 31, 2013, and P900,000 on July 1, 2014. The net income for 2013 was P2, 500,000. What amount should be reported as unappropriated retained earnings on December 31, 2013? a. 3,250,000 b. 3,200,000 c. 3,400,000 d. 3,700,000 17-29 p844 B 12. Cash dividends during 2013 on the P10 par value share capital of Ray Company were as follows: 1st quarter 800,000 2nd quarter 900,000 3rd quarter 1,000,000 4th quarter 1,100,000 The 4th quarter cash dividend was declared on December 20, 2013 to shareholders of record December 31, 2013 payable on January 31, 2014. In addition, the entity declared a 5% stock dividend on December 1, 2013 when there were 300,000 shares issued and outstanding and the market value was P20 per share on declaration date and P25 on distribution date. The shares were issued on December 21, 2013. What was the effect on shareholders’ equity accounts as a result of the dividend transactions? Share capital Share premium Retained earnings a. Zero Zero 3,800,000 debit b. 150,000 credit 225,000 credit 4,175,000 debit c. 150,000 credit 150,000 credit 4,100,000 debit d. 300,000 credit 300,000 credit 3,800,000 debit 17-30 p845 C 13. Rudd Company had 700,000 ordinary shares authorized and 300,000 shares outstanding on January 1, 2013. January 31 Declared 10% stock dividend June 30 Purchased 100,000 shares August 1 Reissued 50,000 shares November 30 Declared 2-for-1 share split On December 31, 2013, how many ordinary shares are outstanding? a. 560,000 b. 600,000 c. 630,000 d. 660,000 17-33 p846 A 14. In 2013, Elm Company bought 10,000 shares of Oil Company at a cost of P200,000. On December 1, 2013, Elm Company declared a property dividend of the Oil stock to shareholders of record on February 1, 2014, payable on February 15, 2014. The Oil stock had the following market value: December 1, 2013 250,000 December 31, 2013 260,000 February 15, 2014 240,000 What is the net charge of the property dividend against retained earnings during 2013? a. 200,000 b. 240,000 c. 250,000 d. 260,000 17-28 p844 D 15. Beaux Company provided the following information: Preference share capital, P500 par value, 2,200 shares 1,100,000 Treasury preference shares, 100 shares at cost 110,000 Ordinary share capital, no par, 3,000 shares at issue price 600,000 Retained earnings 2,500,000 The Board of Directors resolved to pay a 100% stock dividend on all shares outstanding capitalizing amounts of retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding, respectively, and thereafter to pay a cash dividend of 10% on preference share and a cash dividend of P10 per ordinary share. What is the total shareholders’ equity after effecting the dividend transactions? a. 4,090,000 b. 3,810,000 c. 3,820,000 d. 3,955,000 17-42 p850 C 16. On December 31, 2013, the shareholders’ equity of Kremlin Company was as follows: Share capital, P50 par value 3,000,000 Share premium 600,000 Retained earnings 4,200,000 A 15% share dividend was declared and distributed on December 31, 2013 when the entity’s share was selling at P65. What amount should be reported as share capital outstanding? a. 3,450,000 b. 3,585,000 c. 3,615,000 d. 4,185,000 17-49 p853 A 17. Adverse financial and operating circumstances warrant that Solid Company should undergo a quasi – reorganization on December 31, 2013. The following information may be relevant in accounting for the quasi – organization:  Inventory with a fair value of P2,000,000 is currently recorded in the accounts at its cost of P2,500,000.  Plant assets with a fair value of P7,000,000 are currently recorded at P8,500,000, net of accumulated depreciation.

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18. 19. 20.

21.

Individual shareholders contribute P4,000,000 to create additional capital to facilitate the reorganization. No new shares are issued.  The par value of the share is reduced from P25 to P5. Immediately before these events, the shareholders’ equity appears as follows: Share capital, P25 par, 100,000 shares outstanding 2,500,000 Share premium 1,750,000 Retained earnings (deficit) (3,000,000) After the quasi – reorganization, what amount should be reported as share premium? a. 2,750,000 b. 3,250,000 c. 3,750,000 d. 1,750,000 17-56 p857 A Jade Company showed the following shareholders’ equity on January 1, 2013. Share capital, 1,500,000 shares 1,500,000 Share premium 15,000,000 Retained earnings 8,100,000 Treasury shares, 100,000 at cost (900,000) All of the outstanding and treasury shares were originally issued in 2011 for P11 per share. The treasury shares are reacquired on March 31, 2012. During 2013, the following events or transactions occurred relating to shareholders’ equity:  February 15 – Issued 400,000 shares for P12.50 per share.  June 15 – Declared a cash dividend of P0.20 per share to shareholders of record on April 1 and payable on April 15. This was the first dividend ever declared.  September 15 – The president retired. The entity purchased from the retiring president 100,000 shares for P13.00 per share which was equal to market value on this date. These shares were cancelled.  December 15 – Declared a cash dividend of P0.20 per share to shareholders of record on January 2, 2014, and payable on January 15, 2014.  On December 31, 2013, the entity is being sued by two separate parties for patent infringement. The management and outside legal counsel share the following opinion regarding these suits: Suit Likelihood of losing the suit Estimated loss #1 Reasonably possible 600,000 #2 Probable 400,000 What is the increase in share premium arising from the issuance of 400,000 shares on February 15? a. 4,000,000 b. 5,000,000 c. 4,600,000 d. 400,000 What is the decrease in share premium arising from the retirement of 100,000 shares on September 15? a. 1,300,000 b. 1,200,000 c. 1,000,000 d. 100,000 The entity decided to appropriate retained earnings for all loss contingencies that are not properly accruable by a charge to expense. How much of loss contingencies should be appropriated be a charge to unappropriated retained earnings? a. 1,000,000 b. 600,000 c. 400,000 d. 500,000 What amount of cash dividend should be charged against unappropriated retained earnings in 2013? a. 700,000 b. 680,000 c. 360,000 d. 340,000 17-59 p859 no 1 to 4 CCBA