ReSA
Acnttag
2000
ReSA
The Review School of Accountancy
RTel. No. 735-9807
&
AUDITING PROBLEMS
734-3989
IRENEo/ESPENILLA/JAMES
QUIZZER2
- SHE
PROBLEM 1: A partial list of the accounts and ending account balances taken from the post
closing trial balance of ALPHA CORPORATION on Deccmber 31, 2014 is shown as follows:
Account
Amount
Accumulated profits - unappropriated
Bonds payable
Ordinary sharcs subscribed
Long term investments in equity securities
Additional paid-in capital on ordinary shares
Premium on bonds payable
Authorizd ordinary shares at P10 par value
Preference shares subscribed
Additional paid-in capital on preference shares
Authorized preference shares at P50 par value
Gain on sale of treasury shares
Unrealized increase in value of securitics available for sale
P410,000
220,000
50,000
210,000
460,000
30,000
900,000
45,000
112,000
400,000
4,000
3,000
Ordinary share warrants outstanding
Unissued ordinary shares
20,000
500,000
100,000
50,000
25,000
220,000
Unissued preference shares
Cash dividends payable - preference
Donated capital
Reserve for bond sinking fund'
Reserve for depreciation
Revaluation increment in properties
Subscription receivable - preference (long term)
Subscription receivable - common (long term)
150,000
100,000
15,000
20,000
REQUIRED:
Compute the following:
A
1. Ordinary
shares issued
2. Preference shares issued
3. Additional paid-in capital
3. Total contributed capital
5. Total legal capital
6. Total stockholders' equity
B
950,000
445,000
592,000
1,332,000
1,395,000
2,744,000
D
C
900,000
400,000
596,000
450,000
400,000
345,000
621,000
1,352,000
1,300,000
2,244,000
300,000
651,000
1,377,000
795,000
2,114,000
1,381,000
700,000
2,144,000
PROBLEM 2: The stockholders' equity of the WPC as of December 31, 2013 was as follows:
Common stock, P10 par, authorized 300,000 shares;
250,000 shares issued and outstanding
P2,500,000
Paid-in capital in excess of par
3,750,000
Retained earnings
1,800,000
On June 1, 2014, WPC reacquired 40,000 shares of its common stock
following transactions occurred in 2014 with regard these shares:
July 1,
Sold 15,000 treasury shares at P45.
July 15,
2 for 1 share split
Aug. 15,
Sold 34,000 treasury shares at P15.
Sept. 1,
Retired 2,000 shares.
at P40 per share. The
Based on the information provided, determine the correct balances of the following:
A
7. Treasury stock
8. Common stock
9. Paid-in capital in excess of par
10. Paid-in capital from treasury stock
11. Retained earnings
310,000
2,490,000
D
280,000
2,500,000
3,750,00
150,000
3,720,000
1,690,000
1,810,000
60,000
130,000
2,460,000
3,735,000
205,000
2,210,000
3,810,000
75,000
1,825,000
1,905,000
PROBLEM 3:In the course of your first time audit of MISAMIS INC 'S stockholder's equity
accounts for the audit year 2014, the following schedule of the company's stockholder's equity
accounts as of December 31, 2013 were presented by the client:
Ordinary share capital, P100 par; 200,000 shares authorized; 50,000
shares issued and outstanding; options to purchase 10,000 shares at P100
per share are held by employees, no vaue having been assigned to these
options
P5,000,000
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ReSA: The Review School of Accountancy
Share premium from
Accumulated profits
Further investigation
ordinary
1,000,000
shares
3,000,000
and inquiry revealed the following information:
a. The options referred to above were granted to each of its 100 employees on January 1,
2012 vahich shall vest three ycars thereafter provided employces remain in the company's
employ and provided further that sales increase at least by an average of 5% per year. If
the sales increase by an average of at least 5% per year, each year, employees shall
receive 100 share options. If the sales increase by an average of at least 10% per year,
each employee shall receive 200 share options. If the sales increase by an average of at
lcast 15% per year, cach employee shal!.receive 300 options.
The fair value of cach share option on the grant date was P30 per shåre. No employee left
the company during the said vesting period. Records show that average sales increase
over the inciusive vesting periot are: 2012, 8%; 2013, 10%, and 2014, 13%.
b.
On May 1, 2014, the company issued bonds of P5,000,000 at 120 giving each P1,000
bond a warrant enabling the holder to purchase 4 shares at P120 per share for a one year
period. Shares were selling for P140 at this time. The market value of bond ex-warrant
is 105.
C.
On June 1, 2014, haif of
the warrants issued with bonds were exercised.
d. aOn,Auqust 1, the 1company iSsued
rights to shareholders, permitting holders to acquire for
60-day period,
share at P130 with every 5 rights submitted. Shares were selling for
P150 at this time. All but S,000 of these rights were excrcised and additiohal shares were
issued.
C.
The company declared a P5 per share cash dividends on December 15, 2014 payable to
stockho!ders as of Decemtber 31, 2014 on January 3.1, 2015.
f.
Net income before any adjustmants
Required:
12. What is the retroactive adiustrnent to
the options granted in 2012?
a.
P600,000
b
amourited to PZ,500,000 in 2014.
the
accumulated profits account related to
beqinning
P400,000
C
P200,000
No adjustment
necessary
13. What is the correct credit to the share premiunn account as a result of the exercise of rights
referred to in iem d?
C
285,000
250,000
a.
270,000
d. 330,000
b
14. What is the total Additional Paid in Capital to be presented in the stockholders' equity portion
of the balance sheet as of December 31, 2014?
C.
a
3,130,000
2,530,000
d. 2,155,000
3,505,000
b
15. What is the correct Accumulated Profits as of Decemtber31, 2014?
C
a
5,145,000
4,745,000
b
4,900,000
4,545,000
Effective April 23, 2014, the shareholders of Cold Corporation approved a 2 for 1
stock split of Cold ordinary share and an increase in authorized ordinary share from 100,000
Cold's
shares (par value P80 per sharc) to 200,000 shares (par value P40 per share).
Shareholders Equity accounts immediately before issuance of the stock split shares were as
follows:
Ordinary share (par value P80, 100,000 shares authorized,
P4,000,000
50,000 shares outstanding)
600,000
Share premium (P12 per share on the issuance)
PROBEM 4:
Accumulated profits and losses
The stock split shares were issued on June 30, 2014.
5,400,000
16. In Cold's June 30, 2014 statement of sharcholders' equity, balance of Ordinary share, Share
premium and Accumulated profits and Losses are:
Share premium
Accumulated profts
Ordnary share
2,000,000
8,000,000
1,400,000
8,000,000
600,000
C.
4,000,000
5,400,000
600,000
1,400,000
4,000,000
d
4,600,000
AUDITING PROBLEMS
- STOCKHOLDERS' EQUITY
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PROBLEM 5:0n December 31, 2013, Santiago Inc.'s ordinary shares were selling for P55 per
share. On this date, the company creates a compensatory share option plan for its 70
employees. The plan document states that each employee may purchase 500 shares of its P20
par ordinary shares for P35 per share after one year if revenues reach P15M, after 2 years if
revenues reach P18M, or after three years if revenues reach P20M. On this date, based on a
reliable option pricing model, Santiago Inc. estimates that each option which can be exercised up
to 2018 under the condition that the employee is still within the employ of the comparny, has a
fair value of P18.
The company has experience a stable 25% increase in revenues for the past 5 years and
expects the same trend for the upcoming years.
-reasonably
The following information are available
Actual
Year
Revenues
Earned
2014
2015
2016
from the company's records:
Remaining
Expected
employees
additional
at year end employee
68
P14.5M
17.5M
20.5M
resignation
8
.65
63
Forty-five employees exercised their vested options on June 15, 2017 while three employees
resigned on the same year without exercising their options, thus were forfeited.
Required:
17. What is the compensation expense related to the share option plan to be recognized in the
2014 financial statements?
C. 207,000
a. 315,000
b. 270,000
d. 90,000
18. What is the compensation expense related to the share option plan to be recognized in the
2015 financial statements?
c. 207,000
a. 315,000
d. 90,000
b. 270,000
19. What is the balance of the additional paid-in-capital account related to the share options as of
December 31, 2016?
c. 567,000
a. 207,000
d. 630,000
b. 540,000
20. What is the balance of the ordinary share options outstanding account as of December 31,
2017.
c. 270,000
d. 405,000
a. 135,000
b. 162,000
21. What is the resulting Share premium from the issuance of shares from the exercise of the
employee options.
C.
a. 405,000
742,500
d. 877,500
b. 432,000
PROBLEM 6: On January, 2014, Pandora Corp. granted to 600 employces, 100 share options
cach exercisable after 3 years, subject to the employees staying with the company until the end
of 2016. Options can be cxercised if share price increases from P40 at the beginning of 2014 to
above P60 at the end 2016. The share options can be exercised at any time during the next five
years, that is by the end of 2021. The company estimates the fair value of the share options on
the grant date at P5 per option. This estimate takes into account the possibility that the share
price will exceed P60 per share at the end of 2016, thus options are exercisable and the
possibility that the share price willnot exceed P60 at the end of 2016, thus the share options will
be forfcited.
The following information are deemed relevant:
Actùal number of
Fair value Fair
value of employees actually
of Shares
Options
leaving the company
during
Dec. 31. 2014
Dec. 31, 2015
Dec. 31, 2016
AUDITING PROBLEMS
P48
44
56
Estimated number of
additional employees
expected to leave the
Company by the end
of 2016
the year
P4
5
3
20
- STOCKHOLDERS' EQUITY
45
35
30
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Requirements:
22. What is the
a.
compensation expense in 2014?
b. 91,667
100,000
23. What is the compensation expense in 20157
a. 100,000
b. 91,667
24. What is the còmpensation expernse in 2016?
a. 92,500
b. 91,667
C.
88;333
d. none
C.
88,333
d. none
C.
88,333
d. none
25. What is the ordinary share options outstanding as of December 31, 2015?
C.
a. 180,000
188,333
b. 191,667
d. none
PROBLEM Z:0n January, 2014 Jubee Corp. grants cach of its 100 employees in the sales
department share options. The share options willvest at the end of 2016, provided that the
ernployecs remain in the entity's employ and provicded that the volume of sales increases by at
least an average of 5% per year. Ifthe sales volume increase by an average of 5% to 10% per
year, each employce will receive 100 options each. If sales volume increase by 11% to 15%,
each employee wil! reccive 200 options cach. If sales volunme increases by more than 15%, each
employee will receve 300 options each. Each option can be exercised to acquire ordinary shares
(P100 par) at Pl20 per sthare at any time up to December 31, 2017.
Onthe grant date, the company estimates that the share options have a fair value of P40 per
option. The company also estimates that the volurne of sales for the product will increase by an
average of 11% to 15% per year. The entity also cstimates, based on weighted probability that
20% of the employces will leave before the end of 2016.
By the end of 2014, seven employees have left the company and the entity still estimates that a
total of 20 employees will ieave by the end of 2016, Product sales have increased by 12% and
the entity expects that this rate wl! continue over the next 2 ycars.
By the end of 2015, further five employees left the company. The entity now expects due to low
turnover that 15% of employees will leave by the end of 2016. Product sales increased by 20%
and expects thc same increase in 2016.
By
the end of 2016, additiornal two empioyees left. The entity sales have increased by 16%
in
2016.
Requirements:
26. What is the conpensation
a. 640,000
expense in 2014?
27. What is the compensation
a. 640,000
expense
28. What is the compensation
a. 640,000
expense in. 20162
b. 213,333
b.
b.
213,333
in 2015?
213,333
29. Assuming that 60% of the options granted to employees
the exercise shall require a crecdit sharE premium at:,
a. 928,800
b. 925,200
C.
466,667
d. 352,000
C.
466,667
d. 352,000
C.
466,667
d. 352,000
were exercsed, the entry to record
C.
309,600
d. 306,000
30. Assuming that 40% of the options granted to enployees expires by the end of 2017, the
entry to record the expiration shall require a credit share premiu at:
C. 408,000
a. none
d. 400,000
b. 412,800
8: MYX Co. issued stock äppreciation rights to its Chief Operating Officer on January
The stock appreciation rights may be exercised beginning January 1, 2015 provided
that the officer is still in the employ of the Company at the date of exercise., Each right provides
for a cash payment equal to the amourt the share price of MYX Co. exceed P50. The cquivalent
number of shares for stock appreciation rights will be based on the tevel of sales of the company
at the date of exercise, as foliows:
PROBLEM
1, 2012..
Sales Level (in Millions)
P250 to P400
Number of SAR to be Granted
P400-+ ro P750
Above P750
10,000
15,000
20,000
Sales actually achieved by the Company and tlhe stock price at the erd of cach year are:
AUDITING
PROBLEMS
STOCKHOLDERS' EQUITY
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Year
2012
2013
2014
Sales Level
P350 million
410 million
760 million
Share Price at End of Year
P74
85
95
expense to be recognized in 2013?
31. What is the compensation
C. 525,000
a. 80,000
b. 270,000
d. 550,000
32. The entry to record the payment to employees in 2015 assuming all of the rights are
exercised?
C. 550,000
a. 80,000
b. 525,000
d. 900,000
33. Assuming the SARS are not yet exercised as at December 31, 2015 and that the fair value of
the stock appreciation rights is at P1,000,000, what is the liability for the SAR to be
recognized as of December 31, 2015?
C. 900,000
a. 500,000
b. 525,000
d. 1,000,000
PROBLEM 9:0n December 31, 2013, Kalinga Co. issued share appreciation rights to 20 of its
employees. The rights will vest at the end of 3 years provided the employees remain with the
company and provided further that the average revenue growth over the same period is at 10%.
The following are the approved terms of the said rights:
If the average revenue is 10 to 15%, each employee
appreciation
If
will
receive 10,000 share
rights.
the average revenue is 16 to 20%, cach employee will receive 20,000 appreciation
rights.
If the average growth more than 20%, each employee will receive 30,000 rights.
On the grant date, each share appreciation right is determined to have a fair value of P6, Kalinga
expects.an average growth rate of 12.5 percent during the 3 year vesting period and that 4
employees
will ultimately
resign before the vesting period ends.
The following information are available from the company's
Actual revenue
growth rate for the
Year
records:
Estimated
resignations
year
Fair Market
Value of the
share
appreciation
rights
2014
2015
2016
10%
15%
4
6.00
6.75
25%
5*
7.00
*actual
Requirements:
34. How much is the compensation
recognized in 2014?
a. 320,000
expense
in
relation to the share appreciation
C.
d.
b. 660,000
35. How much is the compensation
recognized in 2015?
a.
C.
appreciation
rights
to be
720,000
d. 4000,000
b. 960,000
36. How much is the compensation expense in
recognized in 2016?
a.
to be
720,000
960,000
expense in relation to the share
1,080,000
rights
relatio to the share appreciation
2,100,000
C.
d.
b. 1,820,000
37. What is the liability for the share appreciation
2016?
a. 1,440,000
b. 2,100,000
1,710,000
1,380,000
rights to be recognized
C.
d.
rights to be
as of December 31,
2,160,000
3,150,000
PROBLEM 10:0n Decernber 1, PQR Company declares a property dividend of one share of SMC
ordinary share for every 5 shares of PQR distributable on January 31 the following year. SMC
ordinary shares have a carrying amount of P55 per share, equal to the original cost. The total
outstanding PQR shares is 10,000. SMC shares were held,as trading securities.
AUDITING PROBLEMS
- STOCKHOLDERS' EQUITY
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ReSA: The Review School of Accountancy
shares were quoted at P60 per share on December
per
P65
share o January 31.
SMC
1,
P63 per share on December 31 and
38. The cntry to record the dectaration of thc property dividends would inciude a debit to retained
earnings
a. 0
at:
b. 110,000
d. 126,O00
c. 120,000
39, The carrying valuc of property dvidends-on December 31 shall be:
c. 120,000
b. 110,000
d. 126,000
à. 0
40. The entry on January 31i upon the distribution of the dividends shall involve a credit to gain
at
C. 6,000
d. 10,000
a. 0
b, 4,000
PROBLEM 11:0n October 31, 2014, ABC Inc. declared a building held as owner-occupied
property with an original life of 10 years as dividend cistributable to stockholders on January 31
of the following year. This wasacquired at PS00,000 on October 31, 2013. The propertyhad fair
market value P900,000 on October 31, 2014. On December 31, 2014 the value of the property
declined to P700,000.
The propertywas transferred to sharehclders on January 31 when the prevailing fair value was at
P800,000.
41. Theentry to record the declaration of the property dividends would include a debit to retained
earnings of:
C. 900,000
d. 1,000,000
b. 800,000
a. 700,000
42. How much property dividends payable should be reported in the statement of financial;
position as of December 31?
C. 900,000
d. 1,000,000
a. 700,000
b. 800,000
43. How much sttoutd be charged to the profit or loss as d resuit of the remeasurement of the
property dividends payable by Decernber 31, 2014?
C.
d. 200,000
a. 0
300,000
b. 100, 000
44. What is the gain or loss to be recognized in the profit or lasses as a result of the distribution
of the property dividends on January 31?
C. 300,000
d. 200,000
a. 0
b. 100,000
May Company issued 3,000 shares of its P10 par ordinary
share dividend. No entry was made on the share dividend declaration
date. The market valuc per share immediately after the issuance was P15. May's shareholders'
equity accounts innediately before issuance of the share dividends were as follows:
Ord:nary share, P10 par, 50,000 shares authorized;
P250,000
25,000 issued
PROBLEM
30, 2014
12;0i September
a
shares in connection with
Paid in Capital in Excess of Par
Retained carnings
300,000
350,000
Treasury shares, 5,000 shares at cost
(40,000)
45. What shoutd be the retained earnings balance imiediately after the share dividend
declaration?
C.
d. 350,000
a. 305,000
327,500
b. 32C,000
46. Assuming that insteaa of declaring and issuing 3,000 strares, the company declared and
issuea 4,000 shares as share dividends, what should be the retained earnings balance
immediately after the sharé dividend' declaration?
C.
a. 310, 000
b. 290,000
300,000
d. 350,000
PROBLEM 13: John Q Company declares a 10% scrip dividends on July 1, 2014 payable a year
after with 12% interest. The total par valuce of the outstanding shares of John Q. is P10,000,000.
47. What is the total appropation to the retained carnings as
declaration?
C.
b. 100,000
a. 1,000,000
112,000
a
result of the script dividends
d. 12,000
48. How much interest expense from the script dvidends should be recognized in 2015 profit or
Ioss?
a. 100,000
b. 120,000
AUDITING PROBLEMS
-
C.
50,000
STOCKHOLDERS' EQUITY
d.
60,000
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PROBLEM 14: Orange Company has a retained earnings balance of P400,000 a the end of 2015.
During 2014, it had issued P100,000 of 5-year, 12%, Iong-term bonds. The bond provisions
require that each year over the 5-year period an additional P20,000 of retained earnings be
unavailable for dividends. This restriction is in addition to any other retained earnings restriction
that the company might make. During 2015, the company also decided to "self-insure" against
fire losses because of its previous safety record, and to avoid high insurance premiums. The
board of directors decided to restrict retained earnings at end of each year in an amount equal to
P8,000 annual premium that woutd have been paid.
49. How much is the total appropriated retained earnings as of December 31, 2015?
C. 28,000
a. 108,000
b. 48,000
d. 20,000
PROBLEM 15:You were assigned to audit the Sans Corp's Stockholders' Equity accounts and the
related capital transactions for its first year of operation ended December 31, 2014. In studying
the transactions you came across the following entries made by the client:
Date
Jan. 15
Mar.
1
Jun.
1
Debit
Particulars
Credit
Land
Ordinary Shares
To record the issuance of 50,000 shares of
ordinary in exchange of a real property.
500,000
Subscription
Ordinary
receivable
Shares
To record the subscription of 20,000 shares
of ordinary at P21 per share subscription price.
420,000
Ordinary Shares
Cash
To record
125,000
Cash
252,000
500,000
420,000
125,000
the acquisition of 5,000 shares of
the company's own ordinary shares..
Aug. 15
Subscription receivable
To record the collection for the full payment
of 60% of the subscribed shares on March 1.
Sept.
2
252,000
40,000
Cash
40,000
Ordinary shares
To record the reissuance of half of the
shares reacquired on June 1.
Dec. 29
Accumulated profits
Share
750,000
750,000
premium
the grant of 10 employees 5,000
share appreciation rights on the grant date
To record
computed as: (10*5,000*P15)
Audit notes:
a. The company was authorized to issue 100, 000 shares of ordinary at P10 par value.
b.
C.
d.
The real property received on January 15, were fairly valued at P1,800,000, 30% of which
is attributed to the land with the balance to the building which the company intends to
use as a factory site.
The company declared a 4 for 1-share split up on AUgust 31.
The share appreciation rights were granted to 10 of its key ernployees provided that the
employee stays with the company for 5 years from date of grant and provided further
that average revenue growth rate over the five-year period is at 10%, each employee will
receive 3,000 SAR each; if the average revenue growth rate is 20%, each employee will
receive 4,000 SAR each; if the average revenue growth ratce is 30%,. each employee will
receive 5,000 SAR each. By the end of the year, it was ascertained by the management
that three of the employees will leave the company before the fifth year and projects that
the average revenue growth rate shall be around 25% over the five-year period. The
prevailing fair value of the stock appreciation rights by the end of the year was P15.
e.
a P1 per share cash dividends to
stockholders of record as of December 20 payable on January 30 of the subsequent year.
On December 30, the Board of Directors approved
AUDITING PROBLEMS- STOCKHOLDERS' EQUITY
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After all the necessary adjusting entries, you ascertained that the correct net income for
the year is at P1,500,000.
Required:
50. What is the balance of the
557.500
b
620,000
Ordinar share account as
51. What is the correct balance
2014?
of
of Décember 3 1, 2014?
700,000
d.
1,090,000
the Stock Appreciation Rights Payable as of December 31,
90,000
b.
C.
C.
105,000
S4,000
420,000
52. How much is the cash dividends payàble as of December 31, 2014?
270,000
C.
238,000
b
248,000
280,000
53.What is the total Additional Paid in Capital balance as of December 31, 2014?
b.
1,300,000
1,497,500
C.
d.
1,520,000
1,790,000
54. What is the Accumulated profits, unappropriated balance as of December 31, 2014?
1,145,000
C
1,500,000
b.
1,207,500
d
1,477,500
55. What is the totai Stockhoiders' equity to be reported
financialposition?
a.
3,285,000
in
the 2014 statement of
3,427,500
3,365,000
3,635,000
PROBLEM 16:The following information ias been taken from the Accumulated profits ledger
accounts of GBC Inc.
P3,200,000
a. Total net incone since incorporation
150,000
b. Total cash dividends paid
C.
Carrying value of the company's equipment declarcd as
600,000
property divided
150,500
d. Proceeds from sale of donatcd stucks
e. Total vaue of stock dividends distributed
250,000
375,000
f. Gain on'trcasury share transaction
g. Unamortized premium on bonds payable
413,200
700,000
h. Appropriated for plant expansion
515,000
i. Loss on treasury share reissue
215,000
). Share premium in excess of par from.issued shares
45,000
k. Share issuance expenSe
I.
1,000,000
Appropriated for remaining treasury shares at cost F50/share
Addtional notes:
The equipment declared as diviciends had a recoverable value of P450,000 as of the date
of declaration.
The stock dividends distributed was based on a 10% share dividend declared on 100,000,
P25 par value shares issued shares. The markct value of shares on the date of
declaration was at P42 per share.
The only transactions affectirng the treasury shares were those described in item f and
.
item
56. How much should be the correct debit to retatned earnings for the property dividends?
c. 500,000
d. 450,000
a. 600,000
b. 550,000
57. How much should be the correct debit
retained earnings for the stare dividends?
c.
d. 200,000
b. 336, 000
250,000
à. 420,000
58. How much is the correct balance of the Accumulated retained earnings unappropriated
account?
C. 330,000
d. 424,000
a. 190,000
b. 274,000
59. What is the balance of the share premum from treasury stock transactions?
c. 375,000
d. 515,000
a. 0
b. 140,0o00
60. The net necessary net adjustment invotves an adjustrnent to additional paid in capital ins the
amount of:
C. 460,500
a. 320, 500
d. 456,500
b. 365,500
t
AUDITING PROBLEMS
-
STOCKHOLDERS' EQUITY
APQ2
Page 9 of 14
ReSA: The Review School of Accountancy
PROBLEM 17:The Accumulated profit account of Paranaque Company follows:
Cr.
Date Item Dr.
07-01-13 Balance
P 48,500
P 20,000
Dividends paid
03-31-13
12-31-113 Net income for the year
32,400
04-01-14 Premium on capital share
15,000
06-30-14 Gain on sale of treasury share
10,000
30,000
09-30-14 Dividends declared
45,100
12-31-14 Net income for the year
Appraisal increase of land
30,000
Balance
131,000
P18 ,000
P181,000
61, What is the adjusted accumulated profits?
a. 76,000
b. 86,000
C.
90,000
d. 131,000
PROBLEM 18:. During your audit of Romar Corporation for the year 2014, its initial year of
operations, you find the following entries in its " shareholders' equity" account:
Particulars
Dr.Cr.
Issuance of 15,000 ordinary shares of
P10 par, authorized 50,000 shares in
exchange for real estate property with a
market value of P200,000
Date
Jan.
P150,000
Jan. 15
Sale of 20,000 ordinary shares at P12 per share
Mar.
Purchase of 2,000 Romar Corporation's
shares at P15 per share
1
May 15
Loss on sale of motor equipment
June 10
Proceeds from sale of 1,000 treasury shares
Dec. 31
Declared cash dividends payable quarterly
beginning Apr. 1, 2015
240,000
P30,000
10,000
17,000
20,000
Net profit for the year
Dec. 31
79,000
The Stockholders,equity portion of the balance sheet of the company should show the following
adjusted
balances:
A
62.
63.
64.
65.
66.
67.
shares
Ordinary
Additonal paid-in capital
Net profit for the year
Retained earnings
Total stockholders' equity
Book value per share
C
320,000
350,000
42,000
92,000
49,000
69,000
29,000
49,000
446,000
14.44
476,000
14.00
D
480,000
90,000
79,000
69,000
491,000
13.12
500,000
40,000
89,000
79,000
526,000
12.82
whose shares are traded in the over-the-counter
December 31, 2014, Wood had 6,000,000 authorized shares of P10 par value ordinary
The shareholders' equity
shares, of which 2,000,000 shares were issued and outstanding.
accounts at December 31, 20013, had the following balarnces:
PROBLEM 19: Wood, Inc. is a public enterprise
market.
At
Ordinary
shares
Additional paid-in capital
Accumulated profit
P20,000.000
7,500,000
6,500,000
Transactions during 2014 and other information relating to the shareholders' equity accounts
were as follows:
5, 2014, Wood issued at P54 per share, 100,000 shares of P50 par value, 9%
cumulative convertible preference shares. Each share of preference share is convertible, at
the option of the holder,into two shares of ordinary shares. Wood had 600,000 authorized
shares of preference shares. The preference share has a liquidation value equal to its par
On January
value.
On February 1, 2014, Wood reacquired 20,000
shares of its ordinary shares for P16 Per
share.
AUDITING PROBLEMS-STOCKHOLDERS' EQUITY
APQ2
Page 10 of 14
RpSA: The Review Schoolof Accountancy
On April 30, 2014, Wood sold 500,000 shares (previously urnissued) of P10
ordinary shares to the public at P17 per share.
par value
On June 18, 2014, Wood dec.ared a cash dividend of PI per share of ordinary share,
payable on July 12, 2014, to sthareholders of record on July 1, 2014.
On Novermber 10, 2014, Wood sold 10,000
shares of treasury shares for P21 per share.
On December 14, 2014, Wood declared the yearly cash dividend on preference share,
payable on January 14, 2015, to shareholders of record on December 31, 2014.
Jarudry 20, 2015, before the books were clesed for 2014, Wood became aware that the
ending inventories at December 31, 2013 were understated by P300,000 (after tax effect
on 2013 net income was P180,000).
The appropriated correction entry was recorded the
same day.
On
After corrccting the beginning inventory, net income for 2014 was P4,500,000.
From the information provicded above, determine the
stockhoiders'
equity
adjusted balance of the following
accounts:
D
C
68. Accumulated profits beginning
(as restated)
69. Accumulated profits ending,
Unappropriated
70. Total contributed capital
71. Treasury stocks
72. Total stockholders' equity
6,620,000
6,800,000
6,580,000
6,680,000
8,100,000
41,450,000
320,000
8,250,000
41,610,000
8,090,000
41,400,000
210,000
7,990,000
41,000,000
110,000
49,700,000
160,000
49,650, 000
49,540,000
49,380,000
PROBLEM 20: On Janvary 1, 2014 tUhe 'sthareholders' equity. section of Iriga Electronics
Company's balance sheet revealed the following infurmation:
P5, Convertible preference shares (P40 par value; 50,000
shares authorized, 20,000 shares issued and outstanding
Ordinary shares (P5 stated value; 200,000 shares authorized,
120,000 shares issued and outstanding)
Share premium - Preference sharcs
Share premiun - Ordinary shares
Retaincd earnings
Total shareholders'equity
P800,000
600,000
500,000
1,500,000
4,500,000
P8,900,000
In addition, the following information is known:
on October 31 and April
1.
Cash dividends are declarcd for prefercnce and ordinary shares
are
P0.50.
30 of each year. Semianrual cash dividends for ordinary shares
2
Net income for 2014 was
3.
On February 2,
4
5
P660,000, and for 2015, P890,000.
2014, 15,000 ordinary shares were acquired by the conpany for P33 per
share (assume tha cost method)
On September 30, 2014, 5,000 preference shares were converted to ordinary shares.
One preference snare is convertible into one ordinary share. At the time of conversio,
the ordinary shares had a market value of P42 per share.
December 21, 2014, the company placcd a share subscription for 10,000 ordinary
a cash
shares at a subscription price of P33 per share. The subscription contract requirced
on
February
due
with
balance
to
the
pricc,
of
the subscription
60%
down payment cqual
On
1, 2015.
8,500 ordinary shares were issued upon collection in full of the
subscription reccivable from the 8,500 shares.Because of default by the subscriber, 1,500
all cash
shares were not issued. The subscription contract requires the forfeiture of
advances.
per share.
7. On April 16, 2015, 10,000 shares held in the treasury werc reissued at P50
6.
On February 1, 2015,
8.
On May 16, 2015, a speCial dividend of prefercnce
shares was distributed to ordinary
a shareholder to one preference
entitled
ordinary
shares
shareholders. One hundred
per sharc at the time.
was
P40
of
preference
shares
price
The
market
share.
Determine the adjustedbalances of
AUDITING PROBLEMS
-
the
following:
STOCKHOLDERS' EQUITY
APQ2
ReSA
ReSA: The Review Schoolof Accountancy
73. How much is the corresponding
preferred stocks?
a. 200,000
b. 25,000
Page 11 of 14
credit to share premium account from the conversion of the
C.
d.
175,000
300,000
74. The entry to record on the default on subscription receivables on February 1, 2015 involves
C. Credit to Share premium at P49,500
a. Credit to Share premium at P29,700
b. Credit to Retained earnings at P29,700
d. Credit to Retained earnings at P49,500
75. How much is the resulting debit to retained earnings as a result of the declaration of the
special dividends on May 16, 2015?
a. 51,400
C. 49,400
d. 0
b. 128,500
76. How much should be presented in the 2015 balance sheet as treasury shares?
a. 495,000
C. 165,000
b. 330,000
d. 0
77. How much is the total cash dividends paid in 2014?
C. 282,500
a. 201,713
b. 298,500
d.
78. How much is the total cash dividends paid in 2015?
C.
a. 201,713
282,500
b. 298,500
d. 284,925
284,925
PROBLEM 21:The BatangasCorp. has requested you to audit its financial statement's for the year
2014. During your audit, Batangas Corp. presented to you its balance sheet as of December 31,
2013 which had the following shareholders' equity section:
Preference shares, P10 par; 90,000 shares authorized and issued,
of which 9,000 are in the treasury costing P135,000 and
shown as an asset
P900,000
Ordinary shares, P4 par value; 900,000 shares authorized, of
which 675,000 shares are issued and outstanding
2,700,000
Share premium (P5 per share on preference shares
450,000
issued in 2012)
Allowance for doubtful accounts receivable
18,000
1,260,000
Reservc for depreciation
297,000
Reserve for firc insurance
Accumulated profits
3,375,000
Total shareholders' equity
P9,000,000
Audit notes:
a. 4,500 treasury shares were sold for P18 per share on Auqust 30, 2014. Batangas Corp.
credited the proceeds to the Preference share account. The treasury shares as of
December.31, 2013 were acquired in one purchase in 2013.
b
C.
The preference shares carries an annual dividend of P1 per share. The dividend is
cumulative. As of December 31, 2013, unpaid cumulative dividends amounted to P5 per
share. The entire accumulation was liquidated in June 2014, by issuing to the preference
shareholders 81,000 ordinary shares.
cash dividend of P1 per share was declared on December 1, 2014 to preference
shareholders of record December 15, 2014. The dividends are payable on January 15,
A
2015.
December 31, 2014, the Allowance for Doubtful Accounts Receivable and Reserve for
Depreciation had balances of P37,500 and P1,575,000, respectively.
d.
At
e.
On March 1, 2014, the Reserve for fire insurance was increased by P90,000; Accumúlated
f.
On December 31, 2014, the Reserve for fire insurance was decreased by P45,000 which
represents the carrying value of a machine destroyed by fire on that date. Fire cleanup
costs of P9,000 does not appear in the records.
profits was debited.
g. The December 31, 2013 Accumulated profits consists of the following:
P675,000
Donated land from a stockholder
76,500
Gains from treasury stock transactions
Earnings retained in the business
2,623,500
P3,375,000
h.
Unadjusted net income for the year ended December 31, 2014 was P1,946,250 per
Company's books.
AUDITING PROBLEMS
-
STOCKHOLDERS' EQUITY
APQ2
Page 12 of 14
ReSA: The Review School of Accountancy
Based on the information above, answer the following:
79. What is the adjusted net income for the year ended December 31, 2014?
C.
a. 1,946,250
d. 1,892,250
1,937,250
b. 1,973,250
80. What is the correct Additional paid in capital as of December 31, 2014?
C..
a. 1,296,000
1,206,000
b. 1,215,000
d. 621,000
áccumulated profits as of December 31, 2014?
C. 342,C00
387,000
d. 0
31. What is the correct Appropriated
a. 454,500
b.
82. What is the correct Unappropriated accumulated profits as.of Decenber 31, 2014?
a. 4,016,250
C. 3,935,250
b. 3,939,750
d. 3,867,750
83. What is the total Shareholders' cquity as of December 31, 2014
C.
a. 5,550,750
d. 9,479,250
9,474,750
b. 8,718,750
PROBLEM 22:In your audit of SPURS ING, for the calendar year ended December 31, 2014,'you
discovered the following charges to the company.'s Retained EarningSaccount:
Balance, January 1
Unrealized holding loss on financial
inveritory
fire loss
assets held as available for sale
loss on Property Plant and Equipment
15% Stock dividends declared (100,000 shares outstanding at Pi00 par)
Loss on sale of equipment
Impairment
-
Correction of a prior period error
as treasty
Loss on retirement of Qrdnary-shares
Gain on sale of ordinary shares as excess over par
Gain on premature retirement of bonds
Unrealized hoiding gain on financial aset held at fair value through profit/loss
Proceeds fróm sa!e of donated shares
Net income for the year
Reserve for plant expansign
P7,800,000
(400,000)
(150,000)
(750,000)
(1,500,000)
(200,000)
(1,500,000)
(1,050,000)
1,000,000
300,000
800,000
800,000
9,000,000
(3,000,000)
Audit Notes
divictends were declared on November 1,
2014 distributable to
stockhclders as of December 1, 2014 distributabe on January 15, 2015. Spur's stocks
were 'selling at P110 on November 1, P105 on December 1, and Pi112 on December 31,
The
15%
stock
2015.
b.
The company's Share premium from treasury stock transaction. account amounted to
P850,000.
C.
The company's management decided to change its inventory costing method from the
weighted average to the FIFO approach during the current year. The inventory balances
under the two methods are as follows:
AVERAGE
FIFO
2,600,000
1,900,000
2,200,000
The company, however, is yet to cffect the said change in its current financial
Beginning
2,500,000
Ending
statements.
Using the information above, answer the following:
84. What is the net adjustment to the retained earnings account for the declaration of the stock
dividends?
a. no adjustment
c. 100,000
b. 50,000
d.) 150,000
85. What is the correct net income for
a.
b.
86.
9,000,000
9,100,000
Whati the restated
a.) 6,400,000
the year 2014?
c9,200,000
d.
9,300,000
beginning retained earnings in 2014?
b. 6,300,000
C.
d.
6,200,000
6,100,000
87. What is the correct rctained earnings at the end of 2014?
a.
i0,650,000
b.) 10,750,000
AUDITING PROBLEMS
C.
d.
10,900,000
11,200,000
STOCKHOLDERS' EQUITY
APQ2
Page 13 of 14
ReSA: The Review School of Accountancy
88. Based on the information above, what is the net adjustment to Additional-paid-in capital?
a. 1,900,000 credit
C) 1,100,000 credit
b. 850,000 debit
d. 950,000 credit
PROBLEM 23: You have been asked to audit the financial statements of HEAT INC. as of and for
the period ended December 31, 2014. During the course of your audit, you were asked to
prepare a comparative data from the company's inception to the present. You ascertained the
following information:
Heat Inc.'s charter became effective on January 2010, when 40,000 shares of P10
ordinary shares and 20,000 of 14% cumulative, nonparticipating, preference shares were
issued. The ordinary shares were sold at P12 per share, and the preference shares were
sold at its par value of P100 per share.
Heat was unable to pay preference dividends at the end of its first year. The preference
shareholders agreed to accept 2 shares of common shares for every 50 shares of
preference shares owned in lieu of the preference dividends due in the first operating
year. The said ordinary shares were issued on January 2, 2011 when the fair market
value of the ordinary shares was at P30.
Heat acquired all the outstanding stock of Raptors Corporation on May 1, 2012 in
for 20,000 Heat ordinary shares.'
Heat effected a stock split on its ordinary shares 3 for 2 on January 1, 2013 and 2 for 1
on January 1, 2014.
exchange
Heat offered to convert 20% of preference shares to common shares on the basis of 2
The offer was accepted and the
shares of common for every share of preference.
conversion was made on July 1, 2014.
No cash dividends were declared on ordinary shares until December 31, 2012.
dividends per share of ordinary were declared and paid as follows:
P3.20
December 31, 2012
1.50
June 30, 2013
2.50
December 31, 2013
June 30, 2014
1.25
December 31, 2014
1.00
Cash
Based on the information above and as a result of your audit, answer the following:
89. The number of ordinary and preference share outstanding at the end of 2014, respectively?
a. 190,400 and 16,000
C. 186,400 and 15,680
d. 186,400,and 16,000
b. 99,200 and 20,000
90. Balances of the Ordinary and Preference Share accounts at the end of 2011, respectively?
a. 400,000 and 2,000,000
C. 500,000 and 2,000,000
b. 408,000 and 2,000,000
d. 404,000 and 1,960,000
91. The amount of cash dividends declared and paid to ordinary shares in 2013?
C. 319,200
a. 364,800
b. 167,200
d. 243,200
92. The amount of cash dividends declared and
a. 428,400
paid
c.
b. 434,400
to ordinary
306,400
shares in 2014?
d. 418,400
PROBLEM 23: Nevada Square has the following selected accounts in its shareholders' equity
section as of December 31, 2U13:
Preferernce shares, P100 par, 10 percent cumulative,
100,000 shares issued and outstanding
Ordinary shares, P20 par, 1,000,000 shares authorized,
700,000 shares issued and outstanding
Share premium
Accumulated profits
P10,000,000
14,000,000
8,000,000
30,000,000
There are no dividends in arrears on the preference shares. During 2014, the following
transactions occurred:
a.
The board of directors declared a cash dividend totaling to P2,800,00Q0 to be paid to
preference and ordinary shareholders. t Later, ashare dividend-of 100,000 ordinary
AUDITING PROBLEMS
- STOCKHOLDERS'
EQUITY
APQ2
Page 14 of 14
ReSA: The Review School of Accountancy
were
declared on ordinary shares. The market value of ordinary shares is P68
share on the date the share dividends were declared.
shares
b.
per
Sonetirme after the above dividends were declared and settled, the board of directors
declared as property-divicdends one shares of its investment in Bingo Corp. stocks being
heid by the company as trading sccurities for every two ordinary share outstanding.
Bingo Corp. stocks were orignally purchased by the company at P12 per share and have
a carrying value based on their fair value as per the last remeasurement (balance sheet)
date, at P20 per share. Bingo Corp. shares were selling at P24 when the property
dividends were declared andwere selling at e25 when the property dividends were
settled. The company had a total of 500,000 shares of Bingo Corp. shares.
the end.of 2014, the board declares a four-for-one share split. With the split, the
number of ordinary shares authorized to be issued increased to 4,000,000. At the date of
the share split, the market value of ordinary share is P75 per share.
C.' At
Net carnings during 2014 total P6,000,000.
Required:
93. What is the adjusted balance of the company's Accuraulated-profit- account at the end of
year?
a. P26,400,000.
b. P21,600,000.
94.
What
is
C.
P18,400,000
t) P16,400,000.
the balance of the ordinary shares accoynt as of Decernber
C. P18,000,000.
a. P14,000,000.
d. P20,800,000.
P16,000,000.
b.)
95. What is the balance of the share premium account as of December
d. P8,000,000.
c)P12,800,000.
b.
P10,00,000.
31, 2014?
31i,
2014?
d. P14,800,000.
96. What is the adjusted balance of the compary's
Shareholders' equity account at the end of the
year?
a. P54,400,000.
(b> P55,200,000.
AUDITING PROBLEMS
C.
P57,200,000.
d. P60,400,000.
- STOCKHOLDERS'
EQUITY
APQ2
BesA)
ReSA
ReSA
The Review School of Accountancy
Tel. No. 735-9807 & 734-3989
3
2000
IRENEO/ESPENILLA/JAMES
AUDITING PROBLEMS
SOLUTIONS TO QUIZZER2- SHE
PROBLEM 1: ALPHA CORPORATION:
Authorized ordinary shares at P10 par value
900,000
(500,000)
Unissued ordinary shafes
400,000
100,000
460,000
112,000
4,000
29,000
25,000
Additional paid-in capital on ordinary shares
Additional paid-in capital on preference shares
Additional paid in capital on sale of treasury shares
Ordinary share warrants outstanding
Donated capital
P621,000
Total Additional Paid-in Capital
3. Ans. C.
P400,000
Ordinary shares issued
Preference shares issued
Ordinary shares subscribed, net of subs. receivable, 20,000
Preference shares subscribed, net of subs. receivable, 15,000
Total Additional Paid-in Capital
300,000
30,000
30,0G0
621,000
4. Ans, d.
P1,381,000
Total Contributed Capital
Ordinary shares issued
Preference shares issued
Ordinary shares subscribed
Preference shares subscribed
Total Legal Capital (Agg. par value of issucd and subs.)
P400,000
300,000
50,000
45,000
5. Ans. C.
P795,000
1,381,000
Total Contributed Capital
Unrealized/Unearned Capital :
Unrealized increase in value of securities available for sale
Revaluation increment in properties
Accumulated profits:
Accumulated profits - unappropriated
Reserve for bond sinking fund
3,000
100,000
410,000
220.000
P2,114,000
Tothl Stockholder's equity
6. Ans.
WPC
2:
Journal Entries:
June 1
July
2. Ans. d.
P300,000
Preference shares issued
PROBLEM
1. Ans, d.
P400,000
Ordinary shares issued
Authorized preference shares at P50 par value
Unissued preference shares
1,600,000
Treasury stock (40,00C*40)
Cash
675,000
Cash
1
1,500,000
600,000
75,000
Treasury stock (15,000*40)
Paid-in capital from treasury stock
.
July15:
Aug. 30
250,000 shares (P10 par) issed to 500,000 (PS par)
25,000 shares (P40 cost) TS to 50,000 (P20 cost)
Cash
Paid in capital from
Retained earnings
510,000
75,000
95,000
treasury stock
680,000
Treasury stock (34,000*20)
Sept.
1
10,000
Common stock (2,000*5)
Paid-in capital in excess of par
15,000
(3,750,000/500,000)*2,000
Retained earnings
Treasury stock (2,000*20)
TreasurY
stock
Unadj. Bal.
June
1
July 1
Aug. 30
Sept. 1
Adj. Bal.
PROBLEM 3:
stock
280,000
b
40,000
cap,
Paid-in
-
750r
exCESS
2,500,000
1,600,000
(600,000)
(680,000)
(40,000)
7.
Common
15,000
of
Paid-in cap, treasury stock
75,000
2,490,000
8. a.
(15,000)
3,735,000
9. C.
MISAMIS INC.
Number of options estimated to vest (200*100)
Multiply by Market value of Options
Total Options Outstanding
Multiply by (2012 & 2013)
20,000
30
600,000
2/3
earnings
1,800,000
(75,000)
(10,000)
Retained
(95,000)
(15,000)
1,690,000
10. d.
11,
a.
C.
QUIZZER2 - SHE- SOLUTIONS (BATCH 31)
Total Accum. Comp. Exp, as of 12.31.2013
IRENEO/ESPENILLA/JAMES
12., Ans. b.
400,000
Proceeds frori exercise of rights (60,000 - 5,000)/5 *130
Par value of Ordinary shares issued (11,000*100)
Share premium
P1,430,000
1,100,000
P330,000
Share premium from ordinary shares
Shre premium from exercise of warrants
Slhre premium from exercise of rights
Ordinary share options outstanding (20,000*30)
Ordinary share warrants outstanding (750,000*50%)
Tota! APIC
P1,000,000
575,000
330,000
13. Ans. d.
P1,905,000
600,000
375,000
P2,380,000
Accumulated profits, beginning
Retroactive adjustment to retained earnings (number 12)
Appropriation for dividends (71,000 * 5)
Net income, 2014 (2,500,000 - 200,000).
14. Ans. b.
P3,000,000
(400,000)
(355,000)
2,300,000
P4,545,000
15. Ans. d.
PROBLEM 4: COLD CORP.
16. Ans. C.
Share splits are accOunted for using a memorandum entry only slnce aggregate par value of ordinary shares remains
the same before and after the split is effected. Solit-up iresults to increase number of shares issued witha
Corresponding cecrease in the par va'se of shares. Reverse split or split-down on the other hand results to decrease
in number of shares issued with a corresponding increase in the par value of shares
PROBLEM 5: SANTIAGO INC.
The share options are under a variable option çlan witha non-market based condition, thus:
2014: VP 1 year achieved if 2014 Rev>=15M; Actual 2014 Rev, P14.5M - not achieved.
VP 2. years achievable if 2015 Rev>=18M; Estimated 2014 Rev, (P14.5M*125%) = 18.125M
Nu.mber of options: (68-8;*500
30,000
Fair value of options on grant date
P18
P540,000
Estimated value of services over 2 years
2 years
P270,000
Divide by: Vesting period
Salaries expense, 2014
2015:
VP 2
VP 3
17. Ans. B.
years achieved if 2015 Rev>=18M; Actual 2015 Rev, P17.5M - not achieved.
years achievable if 2016 Rev>=20M; Estimated 2016 Rev, (P17.5M*125%) = 21.875M
Number of options: (65-5)*500
Fair value of options on grant date
Estimated value of services over 3 years
Multiply by: 2/3
Accumulated saiaries expense as of 2015
Less: Prior years' salaries expense
- achievable.
- achievable.
30,000
P18
PS40,000
2/3
P350,000
(270,000)
Salaries expense, 2015
F90,000
18. Ans. D.
VP 3 years achieved if 2016 Rev>=20M; Actual 2016 Rev, P20.5M -achieved.
Final number of options: 63*500
31,500
Fair value of options on grant date
P18
Final value of services over 3 years
P557,000
19. Ans. C
Multiply by: 3/3
3/3
P567,000
Accumulated salaries expense as of 2016
Less: Prior years' salaries expense
(360,000)
2016:
Salaries expense, 2016
P207,000
Final number of options: 63*500
31,500
(22,500)
(1,500)
Options exercised in 2017: 45*500
Options forfaited in 2017 3*500
Remaining options as of 12/31/17
Multiply by fair value on yrant date
Carrying value of options outstanding
7,500
P18
12/31/17
P135,000
20. Ans. A.
Entry upon exercise of
45*500= 22,500 options:
Cash (22,500*P35)
Ordirary share options outstanding
(22,500*18)
Ordinary shares (22,500*P20)
Sharc premium (21. Ans. C)
PROBLEM 6:
767,500
405,000
450,000
742,500
PANDORA CORP.
The shai e options are under a variable option plan with a market based condition, thus the achievability of the
condition is not a matter to consider in determining annuai salaries expense:
2014:
Number of options: (600-5-45)*100
Fair value of options on grant date
Estimated value of services over 3 years
Divide by: 'Vesting period
Salaries expense, 2014
55,000
P5
P275,000
3 years
22. Ans. B.
91,667
2015:
Number of options: (600-5-20-35)*100
Fair value of options on grant date
54,000
P5
2 of 8
QUIzZER 2
- SHE- SOLUTIONS (BATCH 31)
Estimated value of services over 3 years
Multiply by: 2/3
Accumulated salaries expense as of 2015
Less: Prior years' salaries expense
Salaries expense, 2015
IRENEO/ESPENILLA/JAMES
P270,000
2/3
P180,000
(91,667)
P88,333
2016:
Final number of options: (600-5-20-30)*100
Fairvalue of options on grant date
Final value of services over 3 years
Multiply by: 3/3
Accumulated salaries expense as of 2016
Less: Prior years' salaries expense
Salaries expense, 2016
25. Ans. A.
23. Ans. C.
54,500
P5
P272,500
3/3
P272,500
(180,000)
P92,500
24. Ans.
A
PROBLEM Z: JUBEE CORP.
The share options are under a variable option plen vnith a non-market based condition, thus:
if
Vol. Inc.> =5%; Estimated Sales Vol. Inc. 12% - acnievable.
2014: Condition achievable Sales
16,000
Number of options: (100*80%)*200
P40
Fair value of opions on grant date
640,000
Estimated value of services, over 3 years
3 years
Divide by: Vesting period
26. Ans. B.
P213,333
Salaries expense, 2014
Condition ac-ievable if Sales Vol. Inc. > =5%; Estimated Sales Vol. Inc. (12+20+20)/3=17.3%
2015:
25,500
Number of options: (100*85%)"300
P40
Fair value of options on grant date
,020,000
Estimated value of services over3 years
Multiply by: 2/3
2/3
PSSO,0o0
Accumulated salaries expense as of 2015
(223,333)
Less: Prior years' salaries ekpense
P466,667
27. Ans. C.
Salaries expense, 2015
Condition achieved if if Sales Vol. Inc.> -5h; Estimated Sales Vol.
Final number of options: (100-14)"300
25,300
P40
Fair value of options on grant date
D1,032,000
Final value of services over 3 years
Multiply by: 3/3
3/3
P1,032,000
Accumuiated salaries expense as of 2016
(680,900)
Less: Prior years' salaries expense
2016:
Salaries expense, 2016
Entry upon
irc. (12+20+16)/3=16% - achived.
28. Ans. D.
15,480 options):
P352,000
=
exercise
the options (25.890*60%
1,857,€00
Cash (:5,480*P120)
Ordinary share options outstanding
619,200
(15,480*40)
Ordinary shares (15,480*P100)
of 60% gf
- achievable.
1,548,000
928,800
Share premium
29. Ans.
A.
Entry upon expiration
of
40% of the options (25,890"40% = 10,320 options):
Ordinary share opticns outstanding
(10,320*40)
412,800
Share premium
- Expired options
412,800
PROBLEM 8: MYX CO,
Number of shares based on sales (41OM)
Multiply by: Increase in share price (85 - 50)
Total appreciation
Multiply by: Number of years to date over the total vesting period
Cumulative cornpensation expense as of 2013
Less: Compensation expense recognized in the prior year (2014)
2013 Compensation expense
Number of shares based on sales (760M)
Multiply by: Increase
share price (95 - 50)
Total appreciation
Multiply by: Nunber of years to date over the total vesting period
30. Ans. B.
15,0C0
35
525,000
2/3
350,000
(80,000)
P270,000
31. Ans. b
20,000
45,000
900,000
3/3
32.Ans.
900,000
Cumulative compensation expense as of 2014
33. Ans. d. SARS are continuously revalued at each balance sheet date until the liab. is settled.
d
2ROBLEM 9; KALINGA Co.
a
The share appreciation rights are under a variable lan with non-market based condition, thus:Estimated Ave Rev Growth, 12.5% achicvable,
if
Growth
Rev
Ave
is
>=10o;
achievable
2014: Condition
Estimated number of SAR: (20-4)* 10,c00
Estimated FMV of SAR at year-end
Estimated value of services over 3 years
160,000
P6
poG0,000
3 years
Divide by: Vesting period
|
34. Ans. A.
P320,000
Salaries expense, 2014
Rev Growth, 12.5% - achievable
2015: Condition is achievable if Ave Rev Growtt >10%; Estimated Ave
160,c00
Estimated number of SAR: (20-4)*10,000
P6.75
Estimated FMV of SAR at year-end
P1,080,000
Estimated value of services over 3 years
Muliply by: 2/3
2/3
3 of 8
QUIZZER 2
- SHE- SOLUTIONS (BATCH 31)
IRENEO/ESPENILLA/JAMES
P729,000
Accumulated salaries expense as of 2015
Less: Prior years' salaries expense
(920,900)
Salaries expense, 2015
35. Ans. D.
400,000
Condition is achieved if Ave kev Growth >n10%; Actual Ave Rev Growth (10+15+25)/3=16.7%
300,000
Final number of SAR 1520,000
P7
Fair value of options on grart date
37. Ans. B.
P2,100,000
Est. value of services over 3 years
Multiply by: 3/3
9/3
P2,10c,000
Accunnulated salaries expense as of 2016
(720,000)
Less: Prior years' salaries expense
P1,330,000 36. Ans. D.
Salaries expense, 2016
2016:
- achieved.
PROBLEM 10: PQR Company
IFRIC 17 on "Ristributiors of Non-cash Assets to Ovrers", effective 1 July 2009
states the following guidelines in
accounting for property dividends:
dividend payzble should be recugnized only vehen the dividend is appropriately authorized and is no longer
at the discretion of the entity.
An entity should measure the dividend payable at Fair value of the assets to be distributed.
An entity should recognize the difference betveen the dividend paid and the carrying amount of the assets
distributed in the profit or loss.
Entries:
Dec. 1 Retained carnings (2,000*60) 120,000
28. Ans. C.
120,000
Propeity Div Payable
À
Dec. 31 Retained earnings (2,000*3)
Property Div Payatble
At
6,000
6,000
FMV= 126,000
Trading Securities (P8*2,000)
Unrealized Hclding Guin
Jan. 31 Retained Earnings (2,000"2)
Property Div Payable
39. Ans. D.
16,000
16,000
4,000
4,(000
Property Div Payable (2,000"65)
Trading Securities (2,000*63)
Gain
130,000
126.000
4,000
PROPLEM 11: Cuy Inc.,
Entries
40. Ans. 3.
41. Ans.
900,c00
Oct. 31 Retained Earnings
Property Div. Payable
C.
900,000
720,00
30,900
Non-current Asset Held for Disposal
Accumulated depreciation-Bldg
*
800,000
Building
"after 1 year of depreciation from 10/31/13 t 10/31/14 over 10 years.
Dec 31
Property Div. Payable
Retaired Earnings
200,000
200,000
At fair market value = P700,000
43.
Ans.
A. *no
42. Ans. A.
remeasurment gain or loss in the proft or loss from the propurty dividends payable.
loss recognized at year end was due to the remeasurement of the noncurrent asset held for disnosal.
20,000
|pss
Noncurrent Asset Held for Disposal
Jan 31
20,000
Retained Earnings
Property Div. Payable
100,000
Property Div. Payable
Non-current Asset Held for Disposal
Gain
800,000
100,000
700,000
PROBLEM 12MAY CO.
Retained earnings
Balance after div declaration
(95,000)
PRO5,000
Retained earnings
Approp. for large stock div. ( P10*4,000)
Balunce after div declaration
(99,000)
PROBLEM 13:J0HN
Q.
100,0CO
44. Ans. B.
45. Ans,
a.
46. Ans.
a.
350,00O
Approp. for small stock div. ( P15*3,000)
47. Ans. a.
Any
350,000
P310,000
COMPANY
P10,000,000*10% = P1,000,000
ans.
A.
Script dividends are recorded by debiting Retained Earninçs at the face value of the financial liability recognized. Any
interest that it may incur during its term shall be recognized in the profit and losses.
48. Ans. d.: P1,000,090*12%*6/12 (Jan. 1, 2015 to July 1, 2015 = 6 months in 2015)
49. Ans.
Orange CompanY
Appropriation for bond redermption (2014)
Appropriation for bond redemption (2015)
PROBLEM 14:
b.
20,000
20,000
4 of 8
IRENEO/ESPENILLA/JAMES
QUIzZER 2- SHE-SOLUTIONS (BATCH 31)
8,000
Appropriation for self-insurance
Appropration for plant expansion
Total appropriations
30,000
78,000
Ans. A.
PROBLEM 15: SANS CORP,
CORRECT ENTRIES:
540,000
1,260,000
Land (1.8M*30%)
Building (1.8M*70%6)
Ordinary Sharer
5100,000
1,300,000
Share premium
420,000
Subsription receivable
Ordinary shares subscribed
200,600
220,000
Share premium
Treasury shares (5,000 sh)
125,000
125,000
Cash
252,000
Cash
Subscription
252,000
receivable
120,00O
Ordinary share subscribed
Ordinary shares
MEMO: SPLIT:
120,000
62,000 shares into 248,000 sthares; P10 par value to P2.50 par
8,000 shares subs into 32,000 shares subs; P21 subs price to P5.25 subs price
5.000 TS into 20,000 TS; P25 cost per unit to P6.25 cost per unit
Cash
RE
Treasury shares (10,000*6.25)
Compensation expense
SAR Payablo
40,000
22,500
62,50:)
84,000
51.
84,00O
C.
(7*4,000*P15)/5years
270,000
RE
Cash Dividends Payable
Shares Outstanding
270,000
238,000
32,000.
270,000
1.00
Shares Subscribed
Total
rate
Total Cash dividends
Multiply by cash div
52. C.
270,000
1,500,000
Income Summary
1,500,0D0
RE
Share
OS-Subs
Summary
1/15 3/1
6/1
500,000
-
7/15
120,000
-
200,000
RE
Premium
1,300,000
220,000
TS
(125,000)
(120,00C)
(22,500)
(270,000)
9/2
12/30
12/31 -
62,500
1,500,00Ó
Appropriation for TS
Adj. Balances
620,000
50.
80,900
1,520,000
(62,500)
1,145,000
B3.
(62,500)
PROBLEM 16: GBC,
Shares issued
Less: treasury (1,000,000/50)
Outstanding shares
Multiply by
Dividends distributable, small
Multiply by fair value
57. Appropriation for share dividends (b)
100,000
(20,000)
S0,000
20%
8.000
42
336,000
a. Total net income since incornoration
b. Total cash dividends paid
Impairment on property declared as dividend (600,000- 450,000)
Appropriation for property dividend at impaired value
e. Correct valuation of share dividends (17)
h. Appropriated for plant expansion
i.
Loss on treasury share reissue, net of gain from TST (375,000- 515,000)
I.
Appropriated for remaining treasury shares at cost P50/share
58. Correct Unappropriated Accumulated Profits balance (b)
C.
a.
150;500
d. Proceeds from sale of donated stocks
e. Share premium from share dividends (336,000- 200,COO)
f. Gain or-treasury share transaction
5 of 8
136,00G
375,000
3,365,000
55. D.
54. C.
53. C.
56. ans. d.
59. Ans.
TOTAL
P3,200,000
(150,000)
(150,000)
(450,000)
(336,000)
(700,000)
(140,000)
(1,000,00co)
P274,000
QUIZZER 2
i.
j.
- SHE- SOLUTIONS (BATCH 31)
IRENE0/ESPENILLA/JAMES
Loss on treasury share reissue (debited to f)
Share preinium in excess of par from issued shares
(375,000)
215,000
(45,000)
k. Share issuance expense
60. APIC ()
456,500
PROBLEM 17:PARANAQUE cOMPANY
Item
Cr.
Dr.
Balance
Dividends paicd
)3-31-13
Net income for the year
12-31-13
Dividends declared
09-30-14
Net income for the year
12-31-14
CORRECT BALANCE
Date
P
07-01-13
P
48,50)
20,000
32,400
30,000
45,100
PZ6,000
61,
a
PROBLEM 18: ROMAR CORPORATION
ADJUSTING JOURNAL ENTRIES:.
SHE
Ordinary Shares
AFIC - OS
150,000
SHE
Ordinary Shares
APIC - OS
240,000
10,000
Loss
50,000
Land
10,000
SHE
150,000
17,000
SHE
50,00
Treasury Stocks
APIC
200,000
40,000
-
15,000
2,000
TS
Retained Earnings
20,000
20,000
SHE
Treasury Stocks 30;000
62. Ans.
.
63. Ans. b.
64.Ans. b.
Retained earnings
66. Ans. b.
S.Ans. b.
500,000
Cash (10,000*50)
4/16
330,000
Treasury shares (10,000*33)
Share premium - 75T
170,000
4/30
Retained eàrnings
Dividends payable,/Cash
PS: 15,090*5 = 75,000
OS: 128, 5C0*0.50 =64,25O
139,250
5/16
Retained earnings
51,400
Retained earnings
Dividends payable/Cash
81,425
PS: 16,285*5
145,675
75. Ans. A
10/31
79,000
SHE
30,009
SHE
139,250
51,400
Stock div. pay./Preference
shares
128,500st.ares/:00 = 1,285preference
145,675
OS: 128,500*0.50 r64,250
Income summary
Retained earnings
12/31
76. Ans.
495,000
(330,0O0)
165,000
C.
Cash dividends 4/30/14
Cash dividends 1O/31/1 4
Total cash dividends in 2014 and 2015
78. Ans
890,000
C.
Reacquisition on 2/2014 (15, 000*33)
Reissuance on 4/16/2015 (10,000*33)
9alance of Treasury shares 12/31/15
77. Ans.
890,000
152,500
130,000
282,500
D.
Cash dividends 4/30/15
Cash dividends 1O/31/15
Total cash dividends in 2014 and 2015
139,250
145,675
284,925
6 of 8
67. Ans. b
79,000
QUTZZER 2
- SHE- SOLUTIONS
IRENEO/ESPENILLA/JAMES
(BATCH 28)
PROBLEM 21: RATANGASCORP,
•
Od. shares
Pref.
shares
900,000
Unadjusted bal
App for treasury, beg
a. Reissuance of TS
b. Stock dividend
c.
2,700,000
450,000
324,000
13,500
81,000
Donated capital
Gains from treas. trans.
Net income, adjusted
ADJUSTED NET INCOME
3,375,000
(135,000)
67,500
(405,000)
(85,500)
(90,000)
297,00C
135,000
(67,500)
Cash dividend
e. Additional reserve for fire.
9. Adj. to accum profits:
RE-unapp.
RE-approp.
APIC
90,000
(675,000)
(76.500)
675,000
76,500
3,024,000
900,000
79. Ans. D.
Unadjsuted net income
Impairment loss due to fire
Unrecorded clean-up cost
1,296,000
80. a.
1,892,250
3,867,750
454,500
81. a.
82. d.
2,946,250
(45,000)
(9,000)
P1,892,250
Adjusted Net Income
900,000
3,024,000
1,296,000
Preference shares
Ordinary shares
Share premium
454,500
Accumulated profis,
appropriated
Accumulated profits,
unappropriated
Total stockholders' eouity
Less: Treasury shares
Total stockholders' equity
3,867,750
9,542,250
(67,500)
9,474,750
83.
C.
PROBLEM 22: SPURS
84.
ans.
d:
The stock dividends is a small stockdividends (15%), thus should be valued
declaration date. Thus:
Per audit: (15%*100,000*P110)
Per books
Audit adjustement: DR to RE
at faic
P1,650,000
(1,500,000)
FI50,G00
2014
Unadjusted balances
Inventory loss
Impairment loss
Loss on sale of equipment
Correction of a prior period error- unaccrued advertising costs
Gain on early retirement of bonds payable
Unrealized holding gain on Trading Securiies
C. change in inventory costing, beginning
change in inventory costing, ending
ADJUSSTED BALANCES
NET INC.
9,000,000
(150,000)
(750,000)
(200,000)
Retained earnings, beginning (adjusted from #62)
15% Stock dividends (100,000*15%*110O)
Loss on retirement of treasury stock (1,050,000-850,000)
Appropriations for plant expansion
Net income for the period (from #61)
RETAINED EARNINGS, ENDING (ADJUSTED)
2014 RE,,BEG
7,800,000
(1,500,000)
300,000
800,000
(100,000)
300,000
100,00G
9,200,000
6,400,000
85.
S6. a
C.
2014, RE END
P6,400,000
(1,650,000)
(200,000)
(3,000,0Uc)
9,200,000
10,750,000 87. b.
150,000,
1,000,000
800,000
(850,000O)
declaration
Share premium from 15% Stock dividendsover
par
Gain on sale of ordinary shares as excess
Proceeds from sale of donated stocks
Loss on retirement of ordinary shares as treasury
Net adjustment to various APIC accounts
PROBLEM 23:
Date
Jaçuary, 2010
1,100,000
HEAT INC.
Ordinary
Particulars
40,000
Initial share issue
40,000
Dec 31, 2010
BALANCE
January 2011
Ordinary to preference shareho'ders
in lieu of cash dividends
Dec 31, 2011
May 1, 2012
Dec. 31, 2012
BALANCE
BALANCE
3 for 2 share
Dec 31, 2013
Jan 1, 2014
BALANCE
2 for 1 share
split
20,000
60,800
(60,800)
91,200
91,200
split
(91,200)
182,400
60,800/2 *3
91,200*2
7 of 8
Preference
20,000
20,000
800
40,800
Issue of share to Raptors
Jan. 1, 2013
market value on the
20,000
20,000
88. c.
QUIZZER 2
July
- SHE- SOLUTIONS (BATCH 31)
IRENEO/ESPENILLA/JAMES
Conversion of PS to OS
1
(20,00020%)*2
8,000
190,400
BALANCE
Dec. 31, 2014
89. ans.
Ordinary, 12/31/2011 (40,800* 10)
Preference 12/31/2011 (20,000* 100)
P408,00G
2,000,0Co
90.ans.
(4,000)
16,000
A
B
Cash dividends, 2013
P136,800
June 30, 2013 (91,203*1.50)
December 31, 2013 (91,200*2.50) 228,000
P364,30091.
Total
ans A.
Cash dividends, 2014
P223,000
June 30, 2014 (182,400*1.25)
December 31, 2014(190,400* i.00)_190,400
P418,40092. ans.
Tota!
D
PROBLEM 24: NEVADA SQUARE
Retaired earrings, Jan. 1, 2014
Cash dividends
Stock dividends (100,000*P68) (a)
Property dividends (800,000/2)*P25 (b)
Net income fcr the year3
Retaincd earnings, Dec. 31, 2014
P30,C00,000
(2,800,000)
(6,800,000)
(20,000,000)
6,009,0000
P16,400,000
(a) The stock dividends is small dividends (100,000/700,000 = 14%), thus
valued at fair market value.
(b) The property dividends' valuation (debit to RE) Shall be final at the
settlement date.
93. ANS. D.
94. ANS. B.
Ordinary shares, January 1, 2014
P14,000,000
Stock dividends issuance (100,000*20)
2,G00,000
Ordinary shares, December 31, 2014 ?16,000,000
*share split is accounted through meino entry only, aggregate par value remains
the sznc.
95. ANS. C.
Share premium, January 1, 2014
Sharc premium from sharedividends
(6,8C0,000
- 2,000,000)
P8,000,090
4,800,000
Share Premium, December 31, 2014 P12,800,000
96. ANS. B.
Preference shares
Ordirary shares (item 70)
Share premium (item 71)
Retained earnings (1tem 69)
Retaincd earnings, Dec. 31, 2C14
P10,000,000
16,000,000
12,500,000
16,403,000
P55,200,000
8 of 8