CHAPTER 8

Organization and Formation of a Corporation

E 8-1
a. Memorandum entry method
Jan. 1 Authorized to issue 250,000 shares of 10% preference share capital with a par value of
P100.

1 Authorized to issue 500,000 shares of ordinary share capital with a stated value of P20.

1 Cash 9,375,000
Preference Share Capital (62,500 x P100) 6,250,000
Ordinary Share Capital (125,000 x P20) 2,500,000
Ordinary Share Capital in Excess of Stated Value 625,000

May 1 Cash 3,000,000

Preference Share Capital (25,000 x P100) 2,500,000
Preference Share Premium 500,000

Dec. 1 Cash 600,000

Ordinary Share Capital (25,000 x P20) 500,000
Ordinary Share Capital in Excess of Stated Value 100,000

b. Journal entry method

Jan. 1 Unissued Preference Share Capital 25,000,000
Authorized Preference Share Capital 25,000,000

1 Unissued Ordinary Share Capital 10,000,000

Authorized Ordinary Share Capital 10,000,000

1 Cash 9,375,000
Unissued Preference Share Capital 6,250,000
Unissued Ordinary Share Capital 2,500,000
Ordinary Share Capital in Excess of Stated Value 625,000

May 1 Cash 3,000,000

Unissued Preference Share Capital 2,500,000
Preference Share Premium 500,000

Dec. 1 Cash 600,000

Unissued Ordinary Share Capital 500,000
Ordinary Share Capital in Excess of Stated Value 100,000
APC – Chapter 8 (2007 edition) page 2

E 8-2
a. Memorandum entry method
Apr. 1 Authorized to issue 500,000 shares of ordinary share capital with a par value of P20.

1 Cash 7,200,000
Ordinary Share Capital (200,000 x P20) 4,000,000
Ordinary Share Premium 3,200,000

25 Pre-Operating Expenses 150,000

Ordinary Share Capital (5,000 x P20) 100,000
Ordinary Share Premium 50,000

May 28 Equipment 400,000

Ordinary Share Capital (15,000 x P20) 300,000
Ordinary Share Premium 100,000

b. Journal entry method

Mar. 1 Unissued Ordinary Share Capital 10,000,000
Authorized Ordinary Share Capital 10,000,000

1 Cash 7,200,000
Unissued Ordinary Share Capital 4,000,000
Ordinary Share Premium 3,200,000

25 Pre-Operating Expenses 150,000

Unissued Ordinary Share Capital 100,000
Ordinary Share Premium 50,000

Apr. 28 Equipment 400,000

Unissued Ordinary Share Capital 300,000
Ordinary Share Premium 100,000

E 8-3
1. Authorized to issue 500,000 shares of ordinary share capital with a par value of P20

Cash 6,250,000
Ordinary Share Capital (250,000 x P20) 5,000,000
Ordinary Share Premium (250,000 x P5) 1,250,000

2. Authorized to issue 500,000 shares of Ordinary Share Capital with a stated value of P15.

Cash 6,250,000
Ordinary Share Capital (250,000 x P15) 3,750,000
Ordinary Share Capital in Excess of Stated Value 2,500,000

3. Authorized to issue 500,000 shares of no-par and no stated value Ordinary Share Capital.

Cash 6,250,000
Ordinary Share Capital (250,000 x P25) 6,250,000
APC – Chapter 8 (2007 edition) page 3

E 8-4
Authorized to issue 500,000 shares of ordinary share capital with a stated value of P20.

a. Cash 2,500,000
Ordinary Share Capital (125,000 x P20) 2,500,000

b. Pre-Operating Expenses 150,000

Ordinary Share Capital (2,500 x P20) 50,000
Ordinary Share Capital in Excess of Stated Value 100,000
Note: shares issued should be 2,500 and NOT 25,000

c. Pre-Operating Expenses 50,000

Ordinary Share Capital (2,000 x P20) 40,000
Ordinary Share Capital in Excess of Stated Value 10,000

d. Land 300,000
Ordinary Share Capital (10,000 x P20) 200,000
Ordinary Share Capital in Excess of Stated Value 100,000

e. Cash (50,000 x P24) 1,200,000

Ordinary Share Capital (50,000 x P20) 1,000,000
Ordinary Share Capital in Excess of Stated Value 200,000

E 8-5
June 1 OSC Subscription Receivable (35,000 x P50) 1,750,000
OSC Subscribed (35,000 x P20) 700,000
Ordinary Share Premium (35,000 x P30) 1,050,000

1 Cash (P1,750,000 x 60%) 1,050,000

OSC Subscription Receivable 1,050,000

Sept. 8 Cash 700,000

OCS Subscription Receivable 700,000

8 OSC Subscribed 700,000

Ordinary Share Capital 700,000

E 8-6
July 1 Cash 3,125,000
Ordinary Share Capital (125,000 x P10) 1,250,000
Preference Share Capital (12,500 x P100) 1,250,000
Ordinary Share Capital in Excess of Stated Value 625,000

8 Pre-Operating Expenses (1,250 x P120) 150,000

Preference Share Capital (1,250 x P100) 125,000
Preference Share Premium (1,250 x P20) 25,000

12 OSC Subscription Receivable (75,000 x P20) 1,500,000

OSC Subscribed (75,000 x P10) 750,000
Ordinary Share Capital in Excess of Stated Value 750,000
APC – Chapter 8 (2007 edition) page 4

12 Cash 900,000
OSC Subscription Receivable 900,000
P1,500,000 x 60% = P900,000

July 21 Merchandise Inventory 10,000

Land 150,000
Building 100,000
Equipment 20,000
Ordinary Share Capital (20,000 x P10) 200,000
Ordinary Share Capital in Excess of Stated Value 80,000

30 Cash (P1,500,000 – P900,000) 600,000

OSC Subscription Receivable 600,000

30 OSC Subscribed 750,000

Ordinary Share Capital 750,000

E 8-7
Sept. 1 OSC Subscription Receivable (125,000 x P30) 3,750,000
OC Subscribed (125,000 x P20) 2,500,000
Ordinary Share Premium (125,000 x P10) 1,250,000

1 Cash (P3,750,000 x 40%) 1,500,000

OSC Subscription Receivable 1,500,000

8 Land 750,000
Ordinary Share Capital (25,000 x P20) 500,000
Ordinary Share Premium 250,000

10 Cash 750,000
OSC Subscription Receivable 750,000
P2,200,000 / 3 = P750,000

20 Cash 750,000
OSC Subscription Receivable 750,000

30 Cash 750,000
OSC Subscription Receivable 750,000

30 OSC Subscribed 2,500,000

Ordinary Share Capital 2,500,000

E 8- 8
a. OSC Subscription Receivable (125,000 x P25) 3,125,000
OSC Subscribed (125,000 x P10) 1,250,000
Ordinary Share Capital in Excess of Stated Value 1,875,000

Cash (P3,125,000 x 60%) 1,875,000

OSC Subscription Receivable 1,875,000
APC – Chapter 8 (2007 edition) page 5

b. Cash (50,000 x P25 x 40%) 500,000

OSC Subscription Receivable 500,000

OSC Subscribed 500,000

Ordinary Share Capital (50,000 x P10) 500,000

c. Cash (60,000 x P25 x 40%) 600,000

OSC Subscription Receivable 600,000

OSC Subscribed 600,000

Ordinary Share Capital (60,000 x P10) 600,000

d. Receivable from Highest Bidder 150,000

OSC Subscription Receivable 150,000
15,000 sh x P25 x 40% = P150,000

e. Receivable from Highest Bidder 50,000

Cash 50,000

f. Cash 200,000
Receivable from Highest Bidder 200,000
OSC Subscribed 150,000
Ordinary Share Capital (15,000 x P10) 150,000

P 8-1
Aug. 1 Authorized to issue 50,000 shares of P100 par value preference share capital.

1 Authorized to issue 500,000 shares of P20 par value ordinary share capital.

2 PSC Subscription Receivable (15,000 x P120) 1,800,000

PSC Subscribed (15,000 x P100) 1,500,000
Preference Share Premium (15,000 x P20) 300,000

2 Cash 540,000
PSC Subscription Receivable 540,000
P1,800,000 x 30% = P540,000

2 OSC Subscription Receivable (175,000 x P30) 5,250,000

OSC Subscribed (175,000 x P20) 3,500,000
Ordinary Share Premium (175,000 x P10) 1,750,000

2 Cash (5,250,000 x 20%) 1,050,000

OSC Subscription Receivable 1,050,000

30 Cash (P1,800,000 x 30%) 540,000

PSC Subscription Receivable 540,000

31 Cash (100,000 x P30 x 80%) 2,400,000

OSC Subscription Receivable 2,400,000
APC – Chapter 8 (2007 edition) page 6

31 OSC Subscribed 2,000,000

Ordinary Share Capital (100,000 x P20) 2,000,000

31 Cash (75,000 x P30 x 40%) 900,000

OSC Subscription Receivable 900,000

Sept. 21 Cash 528,000

PSC Subscription Receivable 528,000
11,000 sh x P120 x 40% = P528,000
21 PSC Subscribed 1,100,000
Preference Share Capital (11,000 x P100) 1,100,000

21 Receivable from Highest Bidder 192,000

PSC Subscription Receivable 192,000
4,000 sh x P120 x 40% = P192,000
28 Cash 192,000
Receivable from Highest Bidder 192,000

28 PSC Subscribed 400,000

Preference Share Capital (4,000 x P100) 400,000
30 Cash 900,000
OSC Subscription Receivable 900,000
75,000 sh x P30 x 40% = P900,000

30 Ordinary Share Capital Subscribed 1,500,000

Ordinary Share Capital (75,000 x P20) 1,500,000

P 8-2
Nov. 2 OSC Subscription Receivable (50,000 x P60) 3,000,000
OSC Subscribed (50,000 x P50) 2,500,000
Ordinary Share Premium (50,000 x P10) 500,000

2 Cash (P3,000,000 x 40%) 1,200,000

OSC Subscription Receivable 1,200,000

5 Equipment 700,000
Ordinary Share Capital (10,000 x P50) 500,000
Ordinary Share Premium 200,000

16 OSC Subscription Receivable (30,000 x P60) 1,800,000

OSC Subscribed (30,000 x P50) 1,500,000
Ordinary Share Premium (30,000 x P10) 300,000

16 Cash (P1,800,000 x 20%) 360,000

OSC Subscription Receivable 360,000

28 Cash (35,000 x P60 x 60%) 1,260,000

OSC Subscription Receivable 1,260,000
APC – Chapter 8 (2007 edition) page 7

28 OSC Subscribed 1,750,000

Ordinary Share Capital (35,000 x P50) 1,750,000

Dec. 16 Cash 1,200,000

OSC Subscription Receivable 1,200,000
25,000 sh x P60 x 80% = P1,200,000

16 OSC Subscribed 1,250,000

Ordinary Share Capital (25,000 x P50) 1,250,000

16 Receivable from Highest Bidder 240,000

OSC Subscription Receivable 240,000
5,000 sh x P60 x 80% = P240,000

20 Receivable from Highest Bidder 15,000

Cash 15,000

26 Cash 255,000
Receivable from Highest Bidder 255,000

26 OSC Subscribed 250,000

Ordinary Share Capital (5,000 x P50) 250,000

P 8-3
Partnership Books
1. Inventories 90,000
Capital Adjustment Account 90,000

2. Accumulated Depreciation 160,000

Equipment 80,000
Capital Adjustment Account 80,000

3. Capital Adjustment Account 100,000

Goodwill 100,000

4. Goodwill 156,000
Capital Adjustment Account 156,000
FMV of OS issued (14,000 sh@P70) P980,000
Adj. NA, excluding cash
(P112,000+P296,000+P520,000-P104,000) 824,000
Goodwill P156,000

5. Capital Adjustment Account 226,000

Bautista, Capital (3/4) 169,500
Bernaldo, Capital (1/4) 56,500
APC – Chapter 8 (2007 edition) page 8

6. Rainbow Corp. Stocks 980,000

Allowance for Doubtful Accounts 12,000
Accounts Payable 104,000
Accounts Receivable 124,000
Inventories 296,000
Equipment 520,000
Goodwill 156,000

7. Bautista, Capital 563,500

Bernaldo, Capital 458,500
Cash 42,000
Rainbow Corp. Stocks 980,000

New Corporation’s Books

1. Authorized to issue 50,000 shares of P50 par value ordinary share capital.

2. Cash (10,000 x P70) 700,000

Ordinary Share Capital (10,000 x P50) 500,000
Ordinary Share Premium (10,000 x P20) 200,000

3. Accounts Receivable 124,000

Inventories 296,000
Equipment 520,000
Goodwill 156,000
Allowance for Doubtful Accounts 12,000
Accounts Payable 104,000
Ordinary Share Capital 700,000
Ordinary Share Premium 280,000

P 8-4
1.
a. Land 150,000
Preference Share Capital 100,000
Preference Share Premium 50,000

b. Cash 35,000
Preference Share Capital 25,000
Preference Share Premium 10,000

c. Pre-operating Expenses 5,400

Ordinary Share Capital 4,000
Ordinary Share Premium 1,400

d. Cash 78,000
Ordinary Share Capital 60,000
Ordinary Share Premium 18,000

2. PS = P125,000 /P50 par = 2,500 shares

OS = P 64,000 / P5 par = 12,800 shares
APC – Chapter 8 (2007 edition) page 9

P 8-5
1. Total preference shares issued (P1,000,000/P50 par) 20,000 sh
PS issued for equipment 10,000
PS issued for cash 10,000 sh

2. Preference share premium P120,000

Premium from issuance in exchange for equipt. (P550,000 – P500,000) 50,000
Share premium from issuance for cash P 70,000

Issuance price per share = P50 + (P70,000/10,000) P 57

3. OSC issued = P3,000,000/P10 300,000 sh

4. Issuance price per share = P7,500,000/300,000 sh P25.00

5. PIC from issuance of PS for equipment P50,000

P 8-6
1. P1,440,000/ P50 = 28,800 shares
2. P1,360,000/P10 = 136,000 shares
3. P720,000 / P50 = 14,400 shares
4. P280,000/P10 = 28,000 shares
5. (P2,160,000 + P216,000) / (28,800 + 14,400) = P55
6. (P1,640,000 + P328,000) / (136,000 + 28,000) = P12
7. P360,000 / 14,400 shares = P25
8. P12 – (P182,000/28,000 sh) = P5.50

Multiple Choice
8-1 D 25,000 sh x P24 x 25% = P150,000
8-2 A
8-3 D 4,000 sh x P110 x 25% = P110,000
8-4 C 2,000 sh x P17 = P34,000
8-5 A (25,000 + 1,000 + 5,000) x P20 = P620,000
8-6 D (25,000 x P2) + (1,000 x P4) + (5,000 x P6) = P84,000
8-7 D (P900,000 – P750,000) + (P100,000 x P15) + (5,000 x P5) = P1,675,000
8-8 D [(50,000 + 50,000 +100,000) x P15] + (5,000 x P50) + P1,675,000 = P4,925,000
8-9 B
8-10 D (100,000 x P30) + (3,000 x P50) =3,150,000
8-11 B (7,500 + 6,000 x P4) = P54,000
8-12 A
8-13 A
8-14 A
8-15 D

TM 28
1. T 6. T 11. T 16. F 21. T
2. F 7. F 12. T 17. T 22. T
3. F 8. F 13. F 18. T 23. T
4. T 9. T 14. F 19. F 24. F
5. F 10. T 15. T 20. F 25. T
APC – Chapter 8 (2007 edition) page 10

TM 29
1. Corporation 11. Outstanding share capital
2. Incorporation 12. Delinquent subscriber
3. Domestic corporation 13. 25%
4. Incorporators 14. 25%
5. Pre-operating costs/organization costs 15. Paid-in capital in excess of stated value
6. Stated value 16. P5.00
7. Ordinary share capital 17. 50 years
8. Preference share capital 18. Stock certificate
9. Par value 19. P Receivable from highest bidder
10 Ordinary share capital 20. Goodwill

TM 30
1. C 5. C 9. A 13. C 17. D
2. C 6. A 10. B 14. B 18. A
3. D 7. B 11. B 15. C 19. C
4. C 8. D 12. C 16. B 20. D

TM 31
Problems

A. 1. P50,000 P60,000 (total) – P10,000 (land) = P50,000

2. P55 P2,750,000 / 50,000 sh = P55
3. 500,000 sh P5,000,000 / P10 = 500,000 sh
4. P15 P7,500,000 / 500,000 sh = P15
5. P50,000 P550,000 – (10,000 sh x P50) = P50,000

B. 1. P100 / 325 sh P42,250/P130 = 325 shares; P32,500/325 sh = P100

2. P70,000 P120,000 – (1,000 x P50) = P70,000
3. P50,000
4. P2,460,000 (24,000 sh x P60) + (6,000 sh x P120) + (2,000 sh x P150)
5. P64,000 8,000 sh x P8 = P64,000

C.
1. 57,600 sh P2,880,000 / P50
2. 272,000 sh P2,720,000 / P10
3. 28,800 sh P1,440,000 / P50
4. 56,000 sh P560,000 / P10
5. P55 (P4,320,000 + P432,000) / (57,600 + 28,800) = P55
6. P12 (P3,280,000 + P656,000) / (272,000 + 568,000) = P12
7. P25 P720,000 / 28,800 = P25
8. P5.50 P12 – (P364,000/56,000)