ACCOUNTING FOR
CORPORATIONS
ADDITIONAL EQUITY TRANSACTIONS
ACCOUNTING 3 AND 4
WED AND SAT
7:30AM TO 10:30AM
LEARNING OBJECTIVES
•
•
•
•
•
Prepare entries incorporating a partnership
Describe the characteristics of preference share
Compare preference share and ordinary shares
Analyze and record preference share and ordinary shares
Explain and compute for legal capital considering preference
share
• Explain and record delinquent shares, treasury shares, retired
shares and donated shares
• Prepare the shareholders equity section in good form
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INCORPORATING A PARTNERSHIP
Same with our discussion in accounting
for partnership under the topic
Dissolution.
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PREFERENCE SHARE
Shareholders believe that preference shares are:
✓ Are less risky than the ordinary shares
✓ Have a rate of return higher than the ordinary shares
✓ Have a fixed rate of dividend amount and
✓ Enjoy preferential rights over dividends and over
assets
Share that has preferential rights as follows:
1. Preference over distribution of dividends
2. Preference over distribution of assets
Preference share may be:
ACCOUNTING
ACCOUNTING 33 AND
and 44 • convertible to ordinary shares
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• Redeemable or repurchase by the corporation
7:30AM
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to 10:30am
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ORDINARY SHARES
Advantages of Ordinary shares over the Preference
shares:
✓ Right to vote
✓ Right over residue dividends and assets after
satisfying the preferential claims
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ISSUANCE OF TWO CLASSES OF STOCKS
Accounts titles used
Ordinary
share
Subscribed
ordinary share
Subscription
ReceivableOrdinary
Preference
share
Subscribed
preference
share
Subscription
ReceivablePreference
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Share
PremiumOrdinary
Share
PremiumPreference
ISSUANCE OF TWO CLASSES OF STOCKS
Shareholders’ Equity
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LEGAL CAPITAL
It is measured by:
1. Aggregate of the par value of all issued par value
shares, and
2. Aggregate of the cash and the value of any
contributions paid for all issued no par value shares
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DELINQUENT SHARES
When stock subscription is not paid on call date
or on the date fixed by the Board, the stock is
said to be delinquent.
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DELINQUENT SHARES
ILLUSTRATIVE PROBLEM
Assume that Abi subscribed to 100 shares on June 1, 2021 at the par value of P100.
Subscription Receivable (P100 x 100) ₱ 10,000
Subscribed Share Capital
₱ 10,000
A 25% down payment was given by A, the balance payable in two equal installments, on June 30 and
July 30.
₱
Cash
Subscription Receivable
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2,500
₱
2,500
DELINQUENT SHARES
ILLUSTRATIVE PROBLEM
She paid the first installment but defaulted in the second installment.
₱
Cash
3,750
Subscription Receivable
₱
3,750
₱
3,750
The unpaid subscription was offered for sale in a public auction.
Due from the Highest Bidder
Subscription Receivable
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₱
3,750
DELINQUENT SHARES
ILLUSTRATIVE PROBLEM
Advertising cost amounted to P500.
Due from the Highest Bidder
Cash
₱
500
₱
500
Nicole made a bid for 90 shares, Soraya for 75 shares and Belle for 80 shares. Soraya being the
highest bidder paid the amount due plus interest of P425. Stock certificate were issued for Abi and
Soraya.
₱
Cash
4,675
Due from the Highest Bidder
Interest Income
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Subscribed Share Capital
Share Capital
₱
₱
₱
4,250
425
₱
10,000
10,000
TREASURY SHARES
Features:
1. These are shares of the corporation
2. Already paid and issued to the shareholders
3. Then reacquired by the corporation
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ILLUSTRATIVE PROBLEM
TWO METHODS IN RECORDING TREASURY SHARES
CHACHA Corporation data are as follows:
Ordinary Share Capital, with a par value of P100
Share Premium
Retained Earnings
June 10
Reacquired 500 ordinary shares for treasury at P80 per share
COST METHOD
Treasury Share (500 x P80)
Cash
June 12
P1,000,000
50,000
1,200,000
PAR VALUE METHOD
Php 40,000
Php 40,000
Treasury Share (500 x P100)
Php 50,000
Cash
Php
Share Premium from Treasury shares
40,000
10,000
50 treasury shares were sold @ P75 per share
Cash
Php
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Retained
earnings
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and SAT
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shares (50 shares)
7:30AM
7:30am TO
toTreasury
10:30am
10:30AM
3,750
250
Php
4,000
Cash
Php 3,750
Share Premium from Treasury shares
1,250
Treasury shares
Php 5,000
ILLUSTRATIVE PROBLEM
TWO METHODS IN RECORDING TREASURY SHARES
CHACHA Corporation data are as follows:
Ordinary Share Capital, with a par value of P100
Share Premium
Retained Earnings
June 15
100 treasury shares were sold for P10,000
COST METHOD
Cash
PAR VALUE METHOD
10,000
Treasury shares (100 x P80)
Share Premium from Treasury shares
June 20
Cash (150 x P70)
P1,000,000
50,000
1,200,000
8,000
2,000
Cash
10,000
Treasury shares (100 x P100)
10,000
150 treasury shares were sold @ P70 per share
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Share
Premium
WED
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AND
and
SAT
SAT from Treasury shares
7:30AM
7:30am TO
toTreasury
10:30am
10:30AM
shares (150 x P80)
10,500
1,500
12,000
Cash (150 x P70)
Share Premium from Treasury shares
Treasury shares (150 x P100)
10,500
4,500
15,000
ILLUSTRATIVE PROBLEM
TWO METHODS IN RECORDING TREASURY SHARES
CHACHA Corporation data are as follows:
Ordinary Share Capital, with a par value of P100
Share Premium
Retained Earnings
June 25
100 treasury shares were retired
COST METHOD
Ordinary Share Capital (100 x P100)
10,000
Treasury shares (100 x P80)
Share Premium-Stock Retirement
June 30
PAR VALUE METHOD
8,000
2,000
Ordinary Share Capital (100 x P100)
Treasury shares
10,000
10,000
An appropriation for treasury shares was recorded
Retained earnings-Unappropriated
8,000
Retained earnings approriated for TS
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P1,000,000
50,000
1,200,000
8,000
30 Retained earnings-Unappropriated10,000
Retained earnings approriated for TS
10,000
ILLUSTRATIVE PROBLEM
TWO METHODS IN RECORDING TREASURY SHARES
CHACHA CORPORATION
Shareholders' Equity
as of June 30, ___
Paid In Capital
Ordinary Share Capital (10,000 shares)
₱ 990,000
Additional Paid in Capital
Share Premium
Share Premium from Treasury shares
Share Premium from Stock Retirement
₱ 50,000
500
2,000
Total
Retained Earnings
Appropriated for Treasury shares
Unappropriated
Total Stockholder's Equity
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8,000
1,191,750
52,500
₱ 1,042,500
1,199,750
₱ 2,242,250
IMPORTANT NOTES ON TREASURY
SHARES
To protect the corporate creditors and to insure that the legal
capital is not impaired, a corporation the Corporation code
prohibits a corporation to acquire treasury shares unless it
has sufficient unrestricted retained earnings.
Retained earnings must be restricted for an equal amount of
treasury shares.
This is a contra shareholders’ equity account, therefore
should be deducted from total SHE
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IMPORTANT NOTES ON TREASURY
SHARES
Cost Method (Reissuance)
If reissue price > cost price
credit Share Premium from Treasury shares
If reissue price < cost price
charge against :
1. Share Premium from Treasury shares,
2. then from Retained earnings
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RETIRED SHARES
Cancellation of issued shares. This transaction
will result in additional unissued shares.
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IMPORTANT NOTES ON TREASURY SHARES
Cost Method (Retirement)
If share capital at par > treasury shares at cost
credit Share Premium from Stock Retirement
If share capital at par < treasury shares at cost
Charge it against:
1. Share premium of original issuance subject to ceiling
2. Share Premium from Stock Retirement
3. Retained Earnings
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DONATED SHARES AND DONATED ASSETS
Donated shares are shares received by the corporation by
way of donation. When received a memorandum entry
is prepared. When sold:
Cash
Pxx,xxx
Donated Share Capital Pxx,xxx
Donated assets are assets donated to the corporation. It
must be recorded at fair market value and any expenses
related to the donation must decrease the donated
capital account.
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Most of the discussion and illustration were from
the book of
Zenaida Vera Cruz Manuel
entitled
“FINANCIAL ACCOUNTING & REPORTING FOR
PARTNERSHIP AND CORPORATION”
ACCOUNTING 3 AND 4
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