UNIVERSITY OF THE EAST – Caloocan

College of Business Administration

Department of Accountancy, Business Law and Taxation
Financial Accounting & Reporting, Part 2 (BAC 214)
Quiz – Shareholders’ Equity (TH)

Name: ___________________________________________Yr. and Section: ___________________

Instructions: In the following questions, provide the best answer in the space provided. Strictly no erasures.
Provide solutions when necessary.

Items 1 through 5 are based on the following information:

The shareholders’ equity of Stone Corp. for the year ended December 31, 2016 is presented below. Stone
Corp. was incorporated in early 2015 when it was authorized by the Securities and Exchange Commission
to issue 100, 000 ordinary shares (P100 par) and 50, 000 preference shares (P50 par). The following
schedule reflects the company’s capital balances as of December 31, 2015:

Ordinary shares, 50, 000 shares issued during the

company’s incorporation at P150 per share. P 7,500,000
Preference shares, 20, 000 shares issued in June
30, 2015 in exchange of a building with a fair
market value of P1, 200, 000 1,200,000
Retained earnings, which is the company’s net
income 2015 5,540,000
Total shareholders’ equity P 14,240,000

The transactions which occurred in 2016 are as follows:

a. In early 2016, the company reacquired 20,000 from its share and previously issued ordinary shares at
P160 per share and reverted treasury since it has an intent of reissuing the same.

b. On March 10, the company issued 10,000 ordinary shares (from previously unissued shares) and
10,000 preference shares for a total lump sum of P2,000,000. On this date, ordinary share is quoted in
the market at P175 per share while preference shares are quoted at P75 per share.

c. On June 19, the company issued, through a broker, additional 5,000 preference shares at P85 per
share. The company incurred P25,000 in broker’s fees and commission.

d. On July 1, the company issued 15,000 ordinary shares with a 3 year – P2,000,000, 12% face value
bonds for a total consideration of P5,000,000. The bonds which pay semi-annual interest every
January 1 and July 1, are currently quoted at 110 while the ordinary shares are quoted in market at
P180 per share.

e. On October 11, the company reissued 8,000 treasury shares at P185 per share.

f. On December 1, the retired 7,000 treasury shares and reverted them to unissued basis.

g. The company registered an adjusted net income in 2016 at P4,530,000.

Required:

1. How much should be credited to Share Premium from Preference Shares as result of the transaction
on March 10?

2. How much should be credited to Share Premium from Ordinary Shares as a result of the transaction on
July 1?

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3. The entry to record the retirement of the treasury shares on December 1, shall involve a debit to Share
Premium from treasury share transaction at:

4. What is the total additional paid-in capital as of December 31, 2016?

5. What is the correct Accumulated profit- unappropriated balance as of December 31, 2016?

Items 6 through 10 are based on the following information:

Overkill Inc. had the following selected information in its December 31, 2015 Stockholder’s Equity portion
of its balance sheet:

10% Preference shares, P100, par value, 50, 000

shared authorized, 10, 000 shares issued and
outstanding P 1, 000, 000
Ordinary shares, P50 par value, 100, 000 shares
authorized, 50, 000 shares issued, 5, 000 shares
reacquired at P75 per share 2, 500, 000
Share premium on preference shares 250, 000
Share premium on ordinary shares 250, 000
Accumulated profits 2, 350, 000

Transactions in 2016 are as follows:

a. On January 2, the company issued 5, 000, P1, 000 12% bonds payable with detachable warrants. One
warrant is attached to each P1, 000 bond. The bonds which pay semi-annual interest every June 30
and December 31 were issued at total lump sum of P5, 700, 000. On the date of issuance, the bonds
were quoted at 105 without the warrants while each warrant can be sold in the market at P25. Five
warrants surrendered together to acquire one ordinary share. Warrants can be exercised 2 years from
the date of the issuance.

b. On March 1, 4, 000 treasury shares were reissued at P70 per share. The remaining treasury shares
were retired and reverted to unissued basis.

c. On April 15, stock rights were issued to ordinary shareholders. Ten stock right plus P62 per share
entitle the holder to acquire one additional ordinary share.

d. On June 1, 60% of the warrants issued with bonds were exercised.

e. On August 15, all out 9, 000 stock rights were exercised by the ordinary shareholders.

f. Adjusted net income for the year amounted to P1, 250, 000.

Based on the information above, answer the following:

6. The entry to recognize the retirement of the treasury shares on March 1 shall involve a debit to
accumulated profits at:

7. What is the credit to the share premium account as a result of the exercise of the stock rights on
June1?

8. What is the credit to the share premium account as a result of the exercise of the stock rights on
August 15?

9. What is the Additional paid in capital as of December 31, 2016?

10. What is the total stockholders’ equity as of December 31, 2016?

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Items 11 through 15 are based on the following information:
The equity section of your client, G CORPORATION, showed the following data on December 31, 2011.
Share capital, Php3 par, 300,000 shares authorized, 250,000 issued and outstanding, Php750,000; Share
premium excess over premium, Php7,050,000; Share premium - share options, Php150,000; Retained
earnings, Php480,000. The share options were granted to key executives and provided them the right to
acquire 30,000 ordinary shares at Php35 per share. Each option has a fair value of Php5 at the time the
options were granted.

The following transactions occurred during 2012:

Feb. 1 Key executives exercised 4,500 options outstanding at December 31, 2011. The market price per
share was Php44 at this time.

Apr. 1 The company issued bonds of Php2,000,000 at par, giving each Php1,000 bond a detachable
warrant enabling the holder to purchase two ordinary shares t Php40 each for a 1-year period.
The bonds would sell at Php996 per Php1,000 bond without the warrant.

July 1 The company issued rights to shareholders (one right on each share, exercisable within 30-day
period) permitting holders to acquire one share at Php40 with every 10 rights submitted. All but
6,000 rights were exercised on July 31, and the additional shares were issued.

Oct. 1 All warrants issued in connection with the bonds on April 1 were exercised.

Dec. 1 The market price per share dropped to Php33 and the options came due. Because the market
price was below the option price, no remaining options were exercised.

Dec. 31 Profit for the year was Php250,500.

Based on the above, as of December 31, 2012:

11. Share capital

12. Total share premium

13. Total Contributed Capital

14. Retained Earnings

15. Total shareholders’ equity

Items 16 through 20 are based on the following information:

On January 1, 2014, Dumaguete Co. issued its 3,000, ₱ 1,000, 12%, 5-year at the prevailing rate of
interest of the bonds of 9% interest is payable every December 31.

On December 31, 2015, after payment of interest ½ of the bonds were retired at ₱ 1,900,000 when the fair
value of the securities is ₱450. The prevailing rate of interest of the bonds is 11%.

On December 31, 2016, after payment of interest, the remaining bonds were converted into ₱40 par value,
5,000 ordinary shares when the fair value of the securities is ₱460. The bonds were converted because of
the equity swap.

Questions:
Based on the above data, answer the following: (Carry all decimal places in computing for the present
value)

16. Issue price of the bonds on January 1, 2014.

17. The gain or loss on the retirement of the bonds on December 31, 2015.
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18. The interest expense in 2016

19. The gain (or loss) on the conversion of the bonds on December 31, 2016

20. The net increase (or decrease) in the share premium as a result of the conversion of the bonds on
December 31, 2016.

“That in all things, GOD maybe glorified”

“Salvation is found in Christ alone, for there is no other name given under heaven, by which man might be
saved. Believe in Christ, and you will be saved, you and your entire household” Acts 4:12; 16:31

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