Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
(Use the 21st Century Partnership and Corporation Accounting 20th Edition by Zenaida Vera Cruz Manuel as
a reference)
OBJECTIVES
At the end of the review, the students should be able to:
OUTLINE
I. Corporate Formation and The Shareholder's Equity
a. Definition
b. Corporation Attributes
c. Advantages and Disadvantages of a Corporation
d. Corporate Structure
e. Kinds of Corporation
f. Kinds of Stock
g. Rights of Shareholders
h. Incorporation Requirement
i. Articles of Incorporation
j. Stock Transactions
i. Memorandum Entry Method (See page 155-158 for illustration 1)
ii. Journal Entry Method (See page 159-160 for illustration 2)
k. Accounting for Par Value Shares and No Par Value Shares (See page 161-167 for
illustrations 3&4)
l. Stock and Transfer Book (See page 171 for illustration)
f. Retired Shares
g. Donated Shares
Corporation
- is an artificial being created by operation of law having the rights of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence
( Section 2 of the Corporation Code of the Philippines )
Corporation Attributes:
1. Artificial being
- A corporation is a separate and distinct personality
2. Legal Personality
- A juridical entity created by operation of law
3. Right of Succession
- It has a capacity of continuous existence and cannot be dissolved due to death or
incapacity of a member or shareholder
4. Corporate Ownership
- Interest and right over the corporation is divided into shares of stocks
5. Limited Liability
- A shareholder's liability is limited to their shares only, they are not either liable for
corporate acts or corporate debts
6. Transferability of Interest
- The shares of stock owned by a shareholder may be transferred without prior
consent to other stockholders
Advantages of a Corporation
1. Capital
- large amount of resources can be acquired by selling shares through the
investment market such as PSE
2. Liability to corporate creditors
- a shareholder's liability is limited only to the extent of his/her investment
3. Transferability of Interest
-shares are easily transferable
4. Continued Existence
- it's legal life is 50 yrs and can be renewed
5. Skilled Management
- it is managed by a team of professionals with specific specialization in marketing,
finance, accounting, and production
Disadvantages of a Corporation
1) Tax Liability
- income tax is 30%
2) Legal Requirements
- Subjected to governments scrutiny due to the large amount of capital. They have to
file for approval of their Articles of Incorporation and Corporate By-Laws to SEC.
They are also required to file financial reports and report other activities to be
approved by the SEC.
3) Lack of Control
- Shareholders have no direct or active control over the affairs of the corporation
Corporate Structure
OWNERS SHAREHOLDERS
MANAGERS PRESIDENT
Corporators/Owners - have the ultimate control over the corporation and have a
right to elect the Board of Directors or Board of Trustees ( if non-stock)
Board of Directors - responsible for the overall supervision of the firm and have the
final authority on policy making and control of corporate activities
President/ CEO- responsible for implementing the policies set up and the plans
drawn by the BOD
Vice Presidents - they are given specific areas of responsibility as managers of
different departments
Kinds of Corporation
PRIVATE
- owned and organized for private purposes
a) Stock
-organized for profit
- ownership is sold in units called shares
- profits distributed as dividends
b) Non-Stock
-non-profit in nature
- owners are called members
-civic or social in nature
PUBLIC
- government organized for public functions
- ex. national gov't, provincial, city or municipal gov't
CLOSE/Privately-held
- family corporation
- not open to any person
OPEN/Publicly-held
- stock is listed in the stock market and is available for public
Kinds of Stocks
As to Value
PAR VALUE STOCK
- fixed value is stated/ minimum basis
- stock can be issued at par and above par but not below par (allowed only on
second sale)
- basis for legal capital
NO PAR VALUE STOCK
- without designated value stated
- cannot be sold at less than P5.00
- the law allowed to have fix value at some time later which is called no par
but with an issued value stock
As to Right
COMMON STOCK/ORDINARY SHARE
- entitles the owner to a pro rata ( proportional rate as to owned stocks)
dividend without any priority or preference
PREFERRED STOCK/PREFERENCE SHARES
- class of stock with preferential rights or claims over the common stock such
as priority claim over dividend distribution
Legal Capital
- Because of the limited liability of the shareholders, the law requires a minimum
permanent investment from the shareholders to protect the creditors
- This is called legal capital, which cannot be distributed to the shareholders in the
lifetime of the corporation.
* Trust Fund Doctrine - the corporate creditors have a right for satisfaction of their
claims
Investments at par represent legal capital
a.) X Corporation issued 1,000 shares with a par value of P100 for P120,000 cash
Legal Capital is P100,000 ( 1,000x100)
All proceeds from the issue of no par value are treated as legal capital
b.) X Corporation issued 1,000 shares of no par value stock in exchange for
120,000. Legal Capital is 120,000
Rights of Shareholders
A. For the protection of shareholders and minority interests, the Board shall be committed to
respect the following rights of the stockholders:
(1) Voting Right
a. Shareholders shall have the right to elect, remove and replace directors and vote on
certain corporate acts, in accordance with the Corporation Code.
b. Cumulative voting shall be used in the election of directors.
c. A director shall not be removed without cause, if it will deny minority shareholders
of representation in the Board.
(2) Pre-Emptive Right
All stockholders shall have pre-emptive rights, unless the same is denied in the Articles of
Incorporation, or an amendment thereto, of the Company. (See page 146 for example)
(3) Power of Inspection
Subject to reasonable restrictions in accordance with the Corporation Code and jurisprudence,
all shareholders shall be allowed to inspect the corporate books and records of the Company,
including minutes of Board meetings and stock registries, and shall be furnished with annual
reports, including financial statements, without cost.
(4) Right to Information
a. The shareholders shall be provided, upon request, with periodic reports which
disclose personal and professional information about the directors and officers of
the Company, and certain other matters such as the directors’ and officers’ holdings
of the Company’s shares, dealings with the Company, relationships among directors
and key officers of the Company, and the aggregate compensation of the directors
and officers.
b. The minority shareholders shall have the right to propose the holding of a
stockholder’s meeting, and the right to propose items in the agenda of the meeting,
provided that the items in the agenda are for legitimate business purposes.
Legitimate business purposes shall include information on matters under the
immediately succeeding subsection.
c. The minority shareholders shall have access to any and all information relating to
matters for which the management is accountable for and should disclose to the
shareholders.
(5) Right to Dividends
a. All shareholders shall have the right to receive dividends, subject to the discretion of
the Board.
b. The Company shall be compelled to declare dividends when its retained earnings
shall be in excess of one hundred percent (100%) of its paid-in capital stock except
in the following cases:
(b.1) When justified by definite corporate expansion projects or programs
approved by the Board, or
(b.2) When the Company is prohibited under any loan agreement with any
financial institution or creditor, whether local or foreign, from declaring dividends
without its consent, and such consent has not been secured, or
(b.3) When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the Company, such as when there is a need for a special
reserve for probable contingencies.
(6) Appraisal Right
The shareholders shall have appraisal right or the right to dissent and demand payment of the fair
value of their shares in the manner provided for under Section 82 of the Corporation Code of the
Philippines, under any of the following circumstances:
a. In case an amendment to the Articles of Incorporation of the Company has the effect
of changing or restricting the rights of any stockholders or class of shares, or of
authorizing preferences in any respects superior to those of outstanding shares of
any class, or of extending or shortening the term of corporate existence;
b. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in the
Corporation Code; and
c. In case of merger or consolidation.
B. It shall be the duty of the Board to promote shareholder rights, remove impediments to
exercise of shareholders’ rights, and allow possibilities to seek redress for violation of their rights.
The Board shall encourage the exercise of shareholders’ voting rights and the solution of collective
action problems through appropriate mechanisms. The Board shall pave the way for the electronic
filing and distribution of shareholder information necessary to make informed decisions, subject to
legal constraints.
Incorporation Requirements
1) Incorporators must be not less than 5 and not more than 15, to form a private
corporation. They must be of legal age, majority of them residents of the Philippines
2) At least 25% of the authorized capital stock must be subscribed and at least 25% of
these subscription must be paid
ex. 2,000,000 authorized capital stock
2,000,000x25% = 500,000 ( must be subscribed)
500,000x25% = 125,000 (must have been paid)
Stock Subscription
- a subscription is an agreement to purchase shares of stock and states the number
shares being subscribed, the subscription price, and terms of payment and call dates.
Share Capital
- amount paid in by shareholders for which a certificate of stock is issued
Stock Transactions
a. Memorandum Entry Method (See page 155-158 for illustration 1)
b. Journal Entry Method (See page 159-160 for illustration 2)
Accounting for Par Value Shares and No Par Value Shares (See page 161-167
for illustrations 3&4)
Stock Transfer
- Shares may be transferred by a shareholder to another person or entity without the
consent of the shareholders
- Stock certificate is surrendered to the corporate secretary who marks the stock
certificate "cancelled" on its face ( if only part is sold, 2 new certificates are issued )
- Requires recording in the stock and transfer book only, no formal entry is required
Stock and Transfer Book
a. Authorization ---- -----General Journal
b. Stock Subscription----General Journal
c. Collection of Subscription----Cash Receipts Journal ( cash payment)/ General Journal
(if non-cash)
d. Issuance of Shares-----General Journal
ASSESSMENT
CHAPTER 6 (CORPORATION)
ASSESSMENT #1
The Alchemist Corporation was organized and authorized by the Securities and Exchange
Commission to issue 100,000 shares of common stock with a par value of P100.00 per share on
June 28, 2015.
The following transactions transpired during the month of July, 2015:
July
1 Subscriptions at par value were received as follows:
5,000 shares subscribed by Mr. A
5,000 shares subscribed by Mr. B
12,000 shares subscribed by Mr. C
8,000 shares subscribed by Mr. D
10,000 shares subscribed by Mr. E
5 Mr. A paid his subscription in full and the corresponding stock certificate was
issued to him.
7 Collected 50% of the subscription of Mr. B and Mr. C.
10 Additional subscriptions:
4,000 shares were subscribed by Mr. F at P105 per share, collectible in two equal installments.
July 15 and July 31, and 1,000 shares were subscribed by Mr. G at P110.00 per share, 1/5 of
which was paid upon subscription.
]his subscription balance. The stock certificate for Mr. C was issued.
15 Mr. F paid his first installment
21 Atty. K sent his statement of account for his legal services amounting to P 20,000.
The corporation paid him in the form of 180 shares of stock. A certificate of stock
for 180 shares was issued to him.
29 A factory machine with a fair value of P850,000 was purchased from Miss. H.
Payment was made by issuing a stock certificate for 8,000 shares.
31 Collected from Mr. F his second and last installment.
Required: Using the Memorandum Entry Method, prepare the journal entries to record
the above transactions. Prepare a Statement of Financial Position.
ANSWER
Date Accounting Title Debit Credit
June 28 Authorized to issue 100,000 common
shares at P100 par value
5 Cash 500,000
Subscription Receivable 500,000
Received cash for 5,000 shares
issued
7 Cash 850,000
Subscription Receivable 850,000
To record 50% of Mr. B and Mr. C
balance
Cash 22,000
Subscription Receivable 22,000
Received 25% downpayment from
Mr. G
12 Land 1,500,000
Subscription Receivable 600,000
Share Premium 900,000
Received land in exchange for Mr.
C's subscription balance
15 Cash 210,000
Subscription Receivable 210,000
Received cash for Mr. F's first
installment payment
31 Cash 210,000
Subscription Receivable 210,000
Received cash for Mr. F's second
installment payment
ALCHEMIST CORPORATION
STATEMENT OF FINANCIAL POSITION
JULY 31, 2015
CURRENT ASSET
Cash 1,792,000
Subscription Receivable 2,138,000 3,930,000
NON-CURRENT ASSETS
Property, Plant & Equipment
Land 1,500,000
Factory Machine 850,000 2,350,000
TOTAL ASSETS 6,280,000
SHAREHOLDERS'
EQUITY
Paid in Capital
Authorized to issue 100,000
shares, P100 par value
Share Capital (29,180 2,918,000
shares)
Subscribed Share Capital 2,400,000
(24,000 shares)
TOTAL 5, 318,000
ADDITIONAL PAID IN
CAPITAL
Share Premium 982,000
TOTAL PAID IN 6,300,000
CAPITAL
Retained Earnings (20,000)
TOTAL
SHAREHOLDERS' 6,280,000
EQUITY
ASSESSMENT #2
A. Prepare the journal entries to record the foregoing facts using the Memorandum Entry.
June 1 Fox Corporation was incorporated on June 1 and was authorized to issue 1,000 common shares.
P100 par value.
2 Arturo bought 100 shares at P110 per share and paid cash. Stock certificate was issued.
3 Boy subscribed 100 shares at P110 per share and paid 50% in cash and the balance to be paid on
June 23.
4 Kikay subscribed 100 shares at P105 to be paid in two equal installments; the first installment is
on June 24 and the second installment will be on July 4.
5 Dorong subscribed 200 shares. Dorong offered to pay using an equipment which is currently
worth P25,000. Dorong delivered the equipment this day and stock certificate was issued.
23 Boy paid the balance in full. The stock certificate was issued.
24 Kikay paid the first installment of her subscription
25 Atty. Nokes was collecting for his legal services worth P15,000. He consented to be paid with 120
shares of stocks. A stock certificate for 120 common shares was issued.
B. Prepare the journal entries to record the foregoing facts using the Journal Entry.
June 1 Sisid Corporation was authorized to issue 10,000 common shares at P100 par value.
2 Arturo bought 1,000 shares at par and paid cash. Stock certificate was issued on the same date.
2 Mayaman bought 1,000 shares at par and paid cash. Stock certificate was issued.
4 Kiko subscribed 1,000 shares at par. Paid P60,000 and the balance on June 24.
5 Dondon subscribed 1,000 shares at par. The balance will be paid in August.
23 Collected from Benito in full. Stock certificate was issued on the same date.
24 Collected from Kiko the balance and stock certificate was issued in full.
ANSWER
A)
Date Account Title Debit Credit
June 1 Authorized to issue 1000 common shares at
P100 par value
2 Cash 11,000
Share Capital 10,000
Share Premium 1,000
Cash 5,500
Subscription Receivable 5,500
5 Equipment 25,000
Share Capital 20,000
Share Premium 5,000
23 Cash 5,500
Subscription Receivable 5,500
24 Cash 5,250
Subscription Receivable 5,250
B)
June 1 Unissued Capital 1,000,000
Authorized Capital 1,000,000
2 Cash 100,000
Unissued Share Capital 100,000
Cash 110,000
Unissued Share Capital 100,000
Share Premium 10,000
Cash 60,000
Subscription Receivable 60,000
CHAPTER 7
1. Rose de Lima Corporation was organized on May 1, 2015 with the following authorization:
100,000, 12% cumulative preference shares par P100 per share and 200,000 common shares par
P50. On this date, six incorporators subscribed at par to 30,000 preference shares and 60,000
ordinary shares. A down payment of 25% was required and the balance for both shares payable
in two equal installments, the first installment due on June 30 and the second installment on
July 30. The Securities and Exchange Commission approved its Articles of Incorporation.
Additional transactions follow:
June 05 Paid for organization expenses, P120, 000.
15 Received subscriptions from the various investors to 5,000 preference shares at
P110 per share, with a 25% down payment.
17 30,000 ordinary shares were subscribed at P52 with a 25% down payment.
30 Received the first installment due from the incorporators.
July 1 Received full payment from June 17 subscribers. Certificate were issued.
15 Received another 25% payment from the June 15 subscribers.
18 Received land worth P75,000 in exchange for 1,400 ordinary shares.
20 Two of the incorporators paid their subscription balance in full.
30 Received the balance due from the other incorporators.
Aug 31 Operation started August. Income Summary has a credit balance of P105,000.
Direction: Journal entries using the memorandum entry method. Prepare the shareholder’s
equity section.
Debit Credit
05 01 Authorized to issue 100,000, 12% cumulative
preference shares at P100 par and 200,000 common
shares at P50 par.
Cash 1,500,000
Subscription Receivable - preference 750,000
Subscription Receivable - ordinary 750,000
Cash 137,500
Subscription Receivable - preference 137,500
Cash 390,000
Subscription Receivable - ordinary 390,000
30 Cash 2,250,000
Subscription Receivable - preference 1,125,000
Subscription Receivable - ordinary 1,125,000
07 01 Cash 1,170,000
Subscription Receivable - ordinary 1,170,000
15 Cash 137,500
Subscription Receivable - preference 137,500
18 Land 75,000
Share Capital – ordinary 70,000
Share Premium – ordinary 5,000
20 Cash 750,000
Subscription Receivable – preference 375,000
Subscription Receivable - ordinary 375,000
30 Cash 1,500,000
Subscription Receivable – preference 750,000
Subscription Receivable - ordinary 750,000
ASSETS
Current Assets
Cash P7,715,000
Subscription Receivable – preference 275,000
Land P 75,000
SHAREHOLDER’S EQUITY
Paid In Capital
2. On January 1, 2015 Rainbow Corporation received authorization to issue 50,000 ordinary shares
at a par value of P110 per share. The shares were offered at a subscription price of P125.
Subsequently a subscription for a total of 10,000 shares were received from investors requiring
a 25% down payment with the balance payable in two installments within six months. The
subscribers paid the first installment on March 31. Subsequently on June 30 all paid in full
except for Abel, a subscriber for 500 shares, who defaulted. The company spent P1,375 for
advertising and legal expenses for the delinquency sale. Three bidders responded in the
announcement: A with a bid for 400 shares, B for 350 shares and C for 300 shares. The highest
bidder paid on July 5 and stock certificates were issued.
Direction: Give the journal entries to record the above transactions.
06 30 Cash 445,312.5
Subscription Receivable 445,312.5
(500 x P125 = 62500 x 25% = 15625)
(62500 – 15625 = 46875/ 2 = 23437.5)
(468750 – 23437.5 = 445, 312.5)
Cash 24,812.5
Due from the highest bidder 24,812.5
June 10 Reacquired 500 common shares for treasury at P80 per share
12 Cash 3,750
Retained Earnings 250
Treasury Shares 4,000
15 Cash 10,000
Treasury Shares 8,000
Additional Paid in Capital - treasury 2,000
20 Cash 10,500
Additional Paid in Capital – treasury 1,500
Treasury Shares 12,000
The following is the abstract of the shareholder’s equity of Shake Corporation before the declaration of
cash dividends:
The board declared dividends of 900,000. No dividends were distributed last year.
Direction: determine how much dividends the preference and ordinary shares will receive given the
following independent situations: