BATCH 2021: CORPORATION ACCOUNTING

SAN BEDA UNIVERSITY - BS ACCOUNTANCY

OUTLINE
I. CORPORATION FORMATION AND VI. DONATED SHARES AND DONATED ASSETS
SHAREHOLDER’S EQUITY VII. FORMAT OF SHAREHOLDERS EQUITY
II. BASIC CORPORATION ACCOUNTING SECTION OF A CORPORATION BALANCE SHEET
RULES VIII. RETAINED EARNINGS
III. ADDITIONAL EQUITY TRANSACTIONS IX. EXERCISES
IV. DELINQUENT SHARES
V. TREASURY SHARES, RETIRED SHARES,
AND REDEEMABLE SHARES

[Link] FORMATION AND SHAREHOLDER’S EQUITY

CORPORATION
● is an artificial being created by operation of law having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its existence.
● (Section 2 of the Revised Corporation Code of the Philippines) revised February 2019 under Republic
Act 11232.
● These laws describe the requirements for: Incorporation, Issuance of shares, limitations on dividends,
Definition of legal capital, and procedures for retirement of stocks, among others.

Attributes of a Corporation:
➔ Artificial Being
➔ Legal Personality
➔ Perpetual Existence
➔ Corporation Ownership
➔ Limited Liability
➔ Transferability of Interest

● SHAREHOLDERS - owners of a corporation, or corporators in a stock corporation. It may be a

natural person, or a juridical entity like a partnership or a corporation. An investor buys shares of
stock to become a shareholder
● BOARD OF DIRECTORS - responsible for the overall supervision of the firm. Has the final
authority on policy making and control of corporate activities.
● PRESIDENT - usually called the Chief Executive Officer or CEO and the other officer.
● VICE PRESIDENT - who are given specific areas of responsibility as ma\nagers of the following
department: production, finance, marketing and human resources.
● CORPORATORS- corporators are the members of the corporation that are entitled to enjoy the
benefits and rights of the corporation. A corporator may be a member or a stockholder.

1 I CORPORATION I HIPOLITO and SAN JUAN

 ● INCORPORATORS- incorporators are those who started the corporation and whose names are
written in the articles of incorporation. These are common when a partnership decides to dissolve and
turn it into a corporation.

Kinds of Corporation:

● PRIVATE CORPORATION - is one owned and organized for a private purpose or objective.
❏ Stock Corporation
❏ Non - stock Corporation
● Corporation Code of the Philippines is the general law by and under whose authority private
corporations are created.
● PUBLIC CORPORATION - is a government corporation organized for the accomplishment of its
public functions such as the national gov’t, provincial, city pr municipal gov’t.
● CLOSE CORPORATION - is a family corporation or one which stock is held by a selected few and
not open to any person.
● OPEN CORPORATION - is one where the stock is listed in the stock market available for purchase
by any one person or entity.

Kinds of Stocks:
AS TO VALUE:
● Par Value Stock - fixed value and minimum basis for the amount of contribution of a shareholder.
(Stock can be issued at par and above par)
● No Par Value Stock - one without a designated value in stock certificate but it cannot be sold less than
P5.00.
AS TO RIGHT:
● Ordinary Share/Common Stock - this entitles the owner to a pro rata dividend without any priority
or preference over any other stockholders.
● Preference Stock/Preferred Stock - class of stock with preferential rights or claims over the common
stock.

● LEGAL CAPITAL - or minimum permanent, represents the minimum assets of the corporation which
cannot be distributed to the shareholders in the lifetime of the corporation
● Investment at PAR VALUE represents legal capital. All proceeds from the issue of no par value shares
are treated as legal capital.
● A doctrine holding that corporate assets are held as a trust fund for the benefit of shareholders and
creditors and that corporate officers have a fiduciary duty to deal with them properly.
● To protect the creditors during the life of the corporation, the law prohibits the distribution of dividends
or assets at an amount that will reduce the shareholder’s equity below the legal capital.
● The Corporation Code states that the legal capital is measured by:

2 I CORPORATION I HIPOLITO and SAN JUAN

 ➢ The aggregate of par value of all issued par value shares
➢ The aggregate of the cash and the value of any contributions paid for all issued no par value shares.
➢ Using the Statement of Financial Position, legal capital consist of:

Share Capital-Preference PXXX

Subscribed Share Capital-Preference XXX

Share Capital-Ordinary XXX

Subscribed Share Capital-Ordinary XXX

Share Premium-Preference XXX

Share Premium-Ordinary XXX

PIC in excess of stated value XXX

TOTAL PXXX*

● This amount represents the minimum assets which cannot be distributed to the shareholders as this will
serve as the cushion of protection for the corporate creditors following the Trust Fund Doctrine.
● Share premium can be included in the legal capital if and only if it has a stated value, but if there is a
par value, you may not include it.
● Par Value Shares
o Share Capital
o Subscribed Share Capital
● No Par Value but with stated value
o Share Capital
o Subscribed Share Capital
o Additional Paid In Capital
● No Par and No Stated Value
o SC (All contributions paid are credited to SC)

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 ● AUTHORIZED SHARE CAPITAL - represents the maximum number of shares or amounts the
corporation is allowed to issue.
● STOCK SUBSCRIPTION - it is an agreement to purchase shares of stock and states the number of
shares being subscribed, the sub. price, and the terms of payment and call dates.
- In the absence of FIXED CALL DATES, payment is made upon call by the BOD.
● SHARE CAPITAL - this represents the amount paid in by the shareholders whether in cash, property
or service and for which a certificate of stock is issued as evidence of stock ownership.
● SUBSCRIBED SHARE CAPITAL- The portion of the authorized share capital that has been
subscribed but not yet fully paid.
● SHARE SUBSCRIPTION AGREEMENT- Subscription contract is a legally binding contract which
provides for the number of the shares subscribed, the subscription price, the terms of payment and
other conditions of the transaction.
● CERTIFICATE OF STOCK - written acknowledgment by the corporation of the shareholder’s
interest in the corporation and its net assets. Stock certificates enhance ownership over the shares of
stock.
● ORGANIZATION EXPENSES - these are called organization costs or pre-incorporation costs and
are to be recorded as organization expenses.
- Shares of stocks may be sold directly to the shareholders or indirectly through a brokerage firm or
stock barrier.

Assets = Liabilities + Shareholder’s Equity

Parts of Shareholder’s Equity:
● Contributed/Paid in Capital - represents total contributions made by the shareholders.
- The “capital” (needed investment) of the corporation is divided into units called shares of stocks.
- The shareholder’s equity over the corporation is called Share Capital or Capital Stock.
● Accumulated Earnings/Retained Earnings - represents accumulated profit earned or losses incurred
in the operation of the business.
- Against which dividends are drawn.
- Distribution of profit (dividends) to all shareholders can only be made upon declaration by the Board
of directors.

ACCOUNT TITLES used for Stock Transactions:

● Share Capital - for a par value stock, credited at the par value when shares sold or subscribed have
been fully collected.
- Credited for the total amount collected
● Subscription Receivable - debited at the subscription price based on the number of shares subscribed
and credited to decrease when it is collected.
- If there is no call date, it is treated as a contra shareholder’s equity account deducted from Subscribed
Share Capital to arrive at Paid In or Contributed Capital.
● Subscribed Share Capital - credited for the total par value of the shares subscribed and debited when
subscription has been fully collected.

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 - If no par, it is credited for the total subscription price, similar to Share Capital.
● Paid in Capital In Excess of Par - credited for contribution in excess of the par value.
● Treasury Shares - debited for the shares purchased by the corporation from the shares it has originally
issued out.
● The first section of the shareholder’s equity will appear as follows for par value shares:

Paid In Capital
Share Capital PXX
Subscribed Share Capital XX PXX
Additional Paid in Capital
Paid in Capital in Excess of Par XX
Total Contributed Capital PXX

TAKE NOTE:
● Asset contribution may be in the form of cash, property or service.
● Following the COST PRINCIPLE, properties must be recorded at its fair market value or the FMV of
the shares to be issued whichever is more clearly determinable.
● Services must be recorded at its billed price.
● For par value stock, Share Capital and Subscribed Share Capital must be recorded at the PAR VALUE.
Share Capital is CREDITED when stock certificate is issued otherwise the title should be Subscribed
Share Capital.
● Stock Certificate is issued ONLY when the shares are fully paid.
● Excess contribution is recorded as an ADDITIONAL PAID IN CAPITAL account, Paid in Excess of
Par or Share Premium.
● Organization Expense, being a NOMINAL account, is charged against ACCUMULATED PROFIT or
RETAINED EARNINGS.
● Subscription Receivable is a CURRENT ASSET when it is callable within “n” days. If callable
LONGER THAN ONE YEAR, it is presented as a NON CURRENT ASSET account.
● When a subscription is NOT ON CALL, it would be as CONTRA SHAREHOLDER’S EQUITY
account decreasing the subscribed share capital stock.
● All contributions are considered Legal Capital for no par value stock.

II. BASIC CORPORATION ACCOUNTING RULES

In Recording Share Capital Transactions, always use the point of view of the Corpo. (I’M THE
BUSINESS)

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 Transaction: ABC Corporation issued 1000 shares , P100 par at P120,000 to Mr. Cerdena. Books of
Shareholder (Mr. Cerdena):

Investment in ABC Corp. 120,000

Cash 120,000

Books in Issuing Corp (ABC):

Cash 120,000
Share Capital 100,000
Share Premium 20,000

● There are Two Methods of Accounting for Par Value Share Capital
❏ Memorandum Entry Method- the memorandum entry is a method of accounting for PAR value stock
that is made for authorization of capital. The transactions including the issuance of shares will now be
credited to the share capital account.

❏ Journal Entry Method-Journal entry method entry is a method of accounting for PAR value stock. It
differs from the memorandum entry method by the usage of accounts in recording the capital. In this
method, the accountant credits the “authorized share capital” and debits the “unissued share capital”.
The transactions including the issuance of shares will now be credited to the unissued share capital.
The difference now between the authorized and unauthorized share capital will be representing the
issued share capital.

● When shares of stock are issued, it should always be recorded at PAR VALUE. The par value is
the minimum amount by which the share can be issued to prospective shareholders.

Transaction: ABC Corporation issued 10 shares at P100 par.

Cash 1,000
Share Capital (10 sh x P100 par.) 1,000

● When shares of stock are issued above the par, recognize a SHARE PREMIUM for excess of par
value.

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 Transaction: ABC Corporation issued 10 shares at P110 par.

Cash 1,100
Share Capital (10 sh x P100 par) 1,000
Share Premium (10 sh x 10 par) 100

● Properties must be recorded at FAIR MARKET VALUE (fmv) or FMV of the shares to be issued
whichever is determinable

Transaction: Aug. 1 - ABC Corporation bought equipment with a FMV of P52,000 by issuing shares of stock,
1000 shares, P50 par value.

Equipment 52,000
Share Capital (1000 sh x P50) 50,000
Share Premium 2,000

Aug. 5 - Received architectural service billed for P75,000 in exchange for 1000 shares, P50 par value.
Architectural Service Expense 75,000
Share Capital (1000 sh x P50) 50,000
Share Premium 25,000

Aug.10 - Issued 400 shares of ordinary shares, P100 par, with an FMV of P50,000, in exchange for an
equipment.
Equipment 50,000
Ordinary Shares (400 sh x P100) 40,000
Share Premium 10,000

● If there are two or more classes of stock issued, namely: PREFERENCE SHARES and
ORDINARY SHARES, these have to be recorded separately.

Transaction: ABC Corporation issued for cash, P23,000, Preference, P20 par, 1000 shares; Ordinary, P15 par,
100 shares.

Cash 23,000
Preference Shares (1000sh x 20) 20,000
Ordinary Shares (100sh x 15) 1,500

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 Share Premium (23,000-21,500) 1,500

● Subscription Receivable is recognized at subscription price (sp) which may be at par or above
par, and broken down into preference and ordinary subscriptions.

Transaction: June 2 - Moreno subscribed to 100 preference shares, P100 par for P110 and to 50 ordinary
shares, P80 par for P82, payable on June 30.

June 30 - Moreno paid in full the above subscription and issued stock certificate

Entry: 6/2- Subscription Receivable- Preference (100shx P110sp ) P11,000

Subscription Receivable-Ordinary (50shxP 82 sp). 4,100

Subscribed Preference Share (100shxP100par) 10,000

Subscribed Ordinary Share (50shx P80par). 4,000
Share Premium(P15,100- P14,000) 1,100

June 30
Cash 15,100
Subscription Receivable-Preference 11,000
Subscription Receivable-Ordinary 4,100

to record collection of payment of subscribers.

Subscribed Preference Share 10,000

Subscribed Ordinary Share. 4,000
Preference Share 10,000
Ordinary Share 4,000
to issue stock certificates.

● Subscription Receivable and Subscribed Share Capital

➢ CURRENT ASSET: with call date and collectible within the period

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 ➢ NON-CURRENT ASSET
➢ CONTRA-CAPITAL: If there is no NO CALL DATE

Subscribed Share Capital P 40,000

Less: Subscription Receivable 2,000
Subscribed Share Capital- net P 38,000

● Only 2 Difference of Memorandum Entry and Journal Entry (Recording of Authorization of

Issuance of stocks and Issuance of stock certificate)

Transaction: ABC Corporation is authorized to issue: Preference Shares, P100 par, 5000 shares and
Ordinary Shares, P10 par, 1000 shares.

MEMORANDUM ENTRY JOURNAL ENTRY

Authorized to issue Unissued Preference Share 500,000

Preference, P100 par, 5000
shares, P500,000 and Unissued Ordinary Share 10,000
ordinary shares P10 par, Authorized Preference Share 500,000
P10,000. Authorized Ordinary Share 10,000

Transaction: Subscribed to 3,000 Preference at P100 and 600 ordinary at P11.

MEMORANDUM ENTRY JOURNAL ENTRY

Subscription Receivable-Preference 300,000 Subscription Receivable - Preference 300,000

Subscription Receivable - Ordinary 6,600
Subscribed Preference Share 300,000 Subscription Receivable - Ordinary 6,600
Subscribed Ordinary Share 6,000 Subscribed Preference Share 300,000
Share Premium 600 Subscribed Ordinary Share 6,000
Share Premium 600

Transaction: Collected in full the above subscriptions and issued corresponding stock certificates.

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 MEMORANDUM ENTRY JOURNAL ENTRY

Cash 306,000 Cash 306,000

Subscription Receivable - Preference 300,000 Subscription Receivable - Preference 300,000
Subscription Receivable - Ordinary 6,600 Subscription Receivable - Ordinary 6,600

Subscribed Preference Share 300,000 Subscribed Preference Share 300,000

Subscribed Ordinary Share 6,000 Subscribed Ordinary Share 6,000
Preference Share 300,000 Unissued Preference Share 300,000
Ordinary Share 6,000 Unissued Ordinary Share 6,000
For stock issuance.

TWO CLASSES OF STOCK WERE ISSUED

ORDINARY SHARES PREFERENCE SHARES

● or common stock issued by the ● is a type of share with preferential rights

corporation which entitles the owner to a or claims over the common stock. The
pro rata dividend without any priority or most common preferential right is its
preference over any other shareholders. priority claim over dividend.
● when only one type of stock is issued by
the corporation, it is presumed to be a
common stock or ordinary share.

The rate of dividend on ordinary shares is Preference Shares are entitled to a fixed rate of
not fixed and depends upon the availability dividend.
of net profit.

Dividend on equity shares is paid only after the Dividend on preference shares is paid in
preference dividend has been paid. priority to the equity shares.

Equity share capital cannot be paid before Preference shares have preference as regards
preference capital. to refund of capital over equity capital.

Equity shares cannot be redeemed. Redeemable Pref. share are redeemed by the
company on expiry of the stipulated period.

The bonus shares and rights shares can be A company cannot issue bonus shares and
issued to existing equity shares. rights shares to preference shareholders.

10 I CORPORATION I HIPOLITO and SAN JUAN

 Any equity shareholder can vote on all matters. Voting right of preference shares is restricted.

These shares cannot be converted. These shares can be converted.

There is no provision to pay arrears of dividend. Arrears of dividend may accumulate in certain
cases.

Equity shareholders have the right to participate No right to participate in management.

in management.

III. ADDITIONAL EQUITY TRANSACTIONS

INCORPORATION OF A PARTNERSHIP
● Partnership → Dissolve → Corporation (further discussed in partnership accounting)
● (Revised Corporation Code of the Philippines) It permits that an individual may now form a
ONE-PERSON corporation- REASON: to make it easier for small to medium-sized business owners
to incorporate, thus providing a viable alternative to sole proprietors. EXEMPTIONS: natural persons
must be of legal age and the majority must be residents of the Philippines (Sec. 10 of the Corporation
Code).
● The revised code took out the minimum capital stock requirement for stock corporations, unless
specifically provided by special law, to make it easy for small to medium-sized businesses to
incorporate. It is stated that at least 25% of the authorized capital stock must be subscribed and at least
25% of these subscriptions must be paid. The Corporation Code does not mention any minimum
authorized number of shares for as long as the paid up capital is not less than P5,000.
● The assets and liabilities of a partnership have to be adjusted and revalued before these are
transferred to the corporate book.

Pro-Forma Illustration for Incorporation:

1. To record authorization
Authorized to issue 100,000 common shares with a par value of
P50.

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 2. To record the assets and
liabilities transferred to
the corporation and the
issuance of common Cash 350,000
shares with par value of
P50 to the incorporators Accounts Receivable 500,000

Inventories 675,000

Furniture and Equipment 350,000

Allowance for Bad Debts 25,000

Accounts Payable 100,000

Notes Payable 200,000

1,500,000
Share Capital

3. To record the cash

received from the other
incorporators for 20,000
more shares issued at par Cash 1,000,000

Share Capital 1,000,000

IV. DELINQUENT SHARES

● The Revised Corporation Code provides that the Board of Directors may at any time declare due and
payable unpaid subscriptions. (CALL)
● The law provides for a 30-day period from subscription date. (Sec 67, BP Blg. 68)
● The shareholder will be declared delinquent if he/she does not pay on the fixed date.
● The delinquent shares (unpaid remaining shares) may be sold in a public auction to the highest bidder
within 30 to 60 days. (Sec 67, BP Blg. 68).
● Delinquency sale -the board of directors may, by resolution, order the sale of delinquent stock and shall
specifically state the amount due on each subscription plus all accrued interest, and the date, time and

12 I CORPORATION I HIPOLITO and SAN JUAN

 place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the
date the stocks become delinquent. (Sec 68 , BP Blg. 68)
● Payment includes:

Full Amount of the unpaid subscription PXXX

Accrued Interest XXX

Advertising and Selling cost of the Delinquent share XXX

TOTAL: PXXX

● Excess shares shall be issued to the defaulting subscriber.

● What is the effect of delinquency?
○ No delinquent stock shall be voted for be entitled to vote or to representation at any
stockholder's meeting, nor shall the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in accordance with the provisions of this Code, until
and unless he pays the amount due on his subscription with accrued interest, and the costs and
expenses of advertisement, if any. (Sec 71, BP Blg. 68)
● What happens when there is no Bidder?
○ Should there be no bidder at the public auction who offers to pay the full amount of the balance
on the subscription together with accrued interest, costs of advertisement and expenses of sale,
for the smallest number of shares or fraction of a share, the corporation may, subject to the
provisions of this Code, bid for the same, and the total amount due shall be credited as paid in
full in the books of the corporation. (Sec 68, BP Blg. 68)
● Rights of the Unpaid Shares
○ Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of
a stockholder. (Sec 72, BP Blg. 68)

Illustrative Problem-Delinquent Shares

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Problem: Assume that A subscribed to 100 common shares on June 1, 2018 at par value of P100. A
25% down payment was given by A, the balance payable in two equal installments on June 30 and
July 30. He paid the first installment but defaulted in the second installment. The unpaid
subscription was offered for sale in a public auction. Advertising cost amounted to P500. D made a
bid for 90 shares, E for 75 shares, and F for 80 shares. E being the highest bidder paid the amount due
plus interest of P425. Stock certificates were issued to A and E.

DATE TRANSACTION ENTRY

2018 Assume that A subscribed to Subscription Receivable-Ordinary Share P10,000

100 common shares on June Subscribed Share Capital-Ordinary P10,000
JUN 1 1, 2018 at par value of P100

A 25% down payment was Cash P2,500

given by A Subscription Receivable-Ordinary Share P2,500

JUN 30 the balance payable in two Cash P2,500

equal installments on June
Subscription Receivable-Ordinary Share P2,500
30 and July 30

JULY 30 2ND INSTALLMENT DID NOT PAY - Delinquent

P3,750

He paid the first installment Due from the Highest Bidder P3,750
but defaulted in the second
Subscription Receivable-Ordinary Share P3,750
installment. The unpaid
subscription was offered for
sale in a public auction.

Advertising cost amounted to Due from the Highest Bidder P500

P500
Cash P500

14 I CORPORATION I HIPOLITO and SAN JUAN

 D made a bid for 90 shares, Cash P4,675
E for 75 shares, and F for 80
Due from the Highest Bidder P4,250
shares. E being the highest
bidder (per share) paid the Interest Income 425
amount due plus interest of
P425

Stock certificates were Subscribed Share Capital-Ordinary P10,000

issued to A and E.
Share Capital- Ordinary P10,000

WHAT IF THERE IS NO BIDDER? - Under Section 68 of the Corporation Code, the corporation may
bid to pay for the delinquent shares, in which entries 6 and 7 will be:

Record the requisition of 100 Treasury Shares P4,250

shares of the corporation’s
Due from Highest Bidder P4,250
own stock.

To record the issuance of 100 Subscribed Share Capital-Ordinary P10,000

common shares to the
Share Capital- Ordinary P10,000
corporation

From the above entries, 100 common shares were reacquired by the corporation and placed in the
treasury. The defaulting subscriber will not receive any share of stock.

V. TREASURY SHARES, RETIRED SHARES, AND REDEEMABLE SHARES

CORPORATION ACCOUNTING RULES FOR TREASURY SHARES

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 ● These are the corporation’s own shares
● These have been issued to shareholders as fully paid with corresponding stock certificates.
● These have been reacquired by the issuing corporation from shareholders.
● These shares will not be retired
● These shares have no voting rights and no dividend rights.
● Decrease in asset and shareholder’s equity
● Amount of treasury shares must not exceed the retained earnings- because if you sell treasury shares
and you had loss, first in line is share premium, next to retained earnings appropriated.

ILLUSTRATIVE PROBLEM:

Investment in Stocks Treasury Shares

Transaction: Rustans Corp bought 1,000 SM Transaction: Rustans Corp bought its own 500
shares, P15par for P20. shares, P50 par from its stockholder at P60.

Investment in Stocks-SM. (1000sh x P20). 20,000 Treasury Shares( 500 sh x P60). 30,000

Cash Cash 30,000

20,000
● Per PAS 1, the difference between par and cost above, shall be debited or credited depending on the ff
conditions:
○ if Share Capital(at par) is GREATER THAN the Treasury Share, (gain) the difference is to
be credited to APIC from Stock Retirement.
○ If Share Capital(at par) is LESS THAN the Treasury Share, the difference is to be debited
to:

a. 1st -Share Premium (apportioned)

b. 2nd- APIC from Treasury, if any
c. 3rd- Retained Earnings- started from the revenue (temporary) so as we close, we close it to income
summary-pwedeng kunin ng owner or palakihin nalang ang capital so napuopunta sya sa retained
earnings. (CREDIT Normal balance) - Debited if there is a loss. You also debit it if babawasan mo to pay.
● When shares are to be RETIRED or CANCELLED, the ff steps shall be done: a) Close Share Capital
and Treasury Shares:
○ RETIRED SHARES: If the intention of the company in reacquiring its shares is to
immediately retire or cancel the shares.
○ RULES ON ACCOUNTING FOR RETIRED SHARES
■ Credit the treasury shares and Immediately debit Share Capital and corresponding Share
Premium, if any.

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 Share Capital XXX (@Par/Stated Value)
Treasury Share (10 sh x P100 par.) XXX (@cost)

■ If Purchase Price is HIGHER than Par Value of Shares to be Retired , the difference
should be debited to Retained Earnings.
■ If Purchase Price is LOWER than Par Value of Shares to be retired, the difference
should be credited to Paid in Capital from Stock Retirement.

Illustrative Problem-Retired Shares

Issued Shares 50,000, P10 par P500,000

Share Premium 60,000

The corporation purchased and immediately retired:

a. 5,000 shares at P13

Share Capital (5,000 x 10) P50,000
Share Premium (5,000/50,000 x 60,000) 6,000
“ If Purchase Price is HIGHER Retained Earnings 9,00
than Par Value of Shares to be Cash (5,000 x 13) P65,000
Retired , the difference should
be debited to Retained
Earnings.”

2. 12,000 shares at P8
Share Capital (12,000 x 10 par) P120,000
“If Purchase Price is LOWER Cash (12,000 x 8) P96,000
than Par Value of Shares to be Paid In Capital from Stock Retirement 24,000
retired, the difference should be
credited to Paid in Capital from
Stock Retirement.”

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 Illustrative Problem-Treasury Shares

San Miguel Corporation has the following data in its Shareholders’ Equity:

Preference Share, P100 par, 100,000 shares authorized, 20,000 shares P2,000,000
issued

Ordinary Shares, P10 par, 50,000 shares authorized, 10,000shares issued 100,000

Share Premium-Preference 10,000

Share Premium-Ordinary 5,000

Retained Earnings 500,000

D TRANSACTION ENTRY
A
T
E

J 1,000 preference shares Treasury Shares-Preference (1,000 shares x P101). 101,000

U were reacquired at P101 per Treasury Shares-Ordinary (2,000shares xP 20). 40,000
N share and 2,000ordinary Cash 141,000
E shares at P20 per share were
8 placed in the treasury.

J 20 treasury preference Cash(20shares x 105). 2,100

U shares were sold for P105 Treasury Shares-Preference (20shares x 101) 2,020
L each Paid in Capital from Treasury Shares 80
Y
5

18 I CORPORATION I HIPOLITO and SAN JUAN

 A 10 treasury shares were sold Cash( 10sh x 90). 900
U for P90 each Paid in Capital from Treasury Shares 80
G Retained Earnings (P1,010- P80). 30
8 Treasury Shares-Preference( 10sh x P 101) 1,010

S Retired 60 treasury Ordinary Shares(60TS xP10 par). 600

E shares-Ordinary Share Prem-O(P5000 Pm x 60TS x P10par / P100k) 30
P Retained Earnings 570
T Treasury Shares-Ordinary(60 x P20). 1,200
1
0

REDEEMABLE SHARES
● These are shares issued on terms that the company will or may buy them back at some future date.
● The date may be fixed or at the director’s discretion.

Illustration: The following data pertain to Bueno Corporation

P550,000
Redeemable Preference Share Capital P110
par 6,000 shares issued and outstanding

55,000
Preference Share Premium

110,000
Retained Earnings

19 I CORPORATION I HIPOLITO and SAN JUAN

J Redeemed and Retired (DR) REDEEMABLE PREFERENCE SHARE CAPITAL (500 X 110) P55,000
U 500 preference shares at (DR) PREFERENCE SHARE PREMIUM (P55,000 X 500 /6,000) 4,583.33
(DR) RETAINED EARNINGS (80,000 – 55,000 – 4,583.33) 20,416.67
N P160 per share
(CR) CASH (500 X 160) P80,000
E
5

Redeemed and retired (DR) REDEEMABLE PREFERENCE SHARE CAPITAL (500 X 110) P55,000
3 500 preference shares at (DR) PREFERENCE SHARE PREMIUM (P55,000 X 500 /6,000) 4,583.33
(CR) CASH (500 X 95) P47,500
0 P95
(CR) PAID IN CAPITAL FROM STOCK RETIREMENT 12,083.33
(55,000-4,583.33-45,000)

VI. DONATED SHARES AND DONATED ASSETS

● These are shares or assets received by the corporation as a donation from shareholders or another party
● RULES ON ACCOUNTING FOR DONATED SHARES/ASSETS:
○ Prepare a memo entry for the donated shares.
○ “Received from shareholders 500 shares as donation.”
● Credit to DONATED SHARE CAPITAL in case these shares will be sold eventually.
○ DR-CASH; CR-DONATED CAPITAL/PAID IN CAPITAL FROM DONATED STOCK
● Donated Assets are recorded at FMV, and credited to a PAID IN CAPITAL FROM DONATED
STOCK, any expenses related to donation will be debited to this PIC account.

Example:

Land 500,000
Paid in Capital from Donated Stock 500,000

Received Land from Ph. Gov.

Paid in Capital from Donated Stock 15,000

20 I CORPORATION I HIPOLITO and SAN JUAN

 Cash 15,000

VII. FORMAT OF SHAREHOLDERS EQUITY SECTION OF A CORPORATION

BALANCE SHEET

CORPORATION

STATEMENT OF FINANCIAL POSITION

MONTH XX, XXXX

ASSET

Current Assets

Cash xxx

Supplies xxx xxx

Total Current Assets

Plant Property and Equipment

Equipment xxx

Building xxx

Land xxx xxx

Total Asset Pxxx

SHAREHOLDERS’ EQUITY

Paid in Capital

Authorized to issue xxx shares of xxx par, xxx

preference shares

Subscribed Shares – preference xxx xxx

Less: subscription receivable preference (xxx) xxx

21 I CORPORATION I HIPOLITO and SAN JUAN

 Authorized to issue xxx shares of xx par ordinary xxx
shares

Subscribed share capital – ordinary xxx xxx

Less: subscription receivable – ordinary (xxx) xxx

Additional Paid in Capital

Share Premium – preference xxx

Share Premium – ordinary xxx

Paid in Capital from Treasury Shares xxx

Paid in Capital from Stock Retirement xxx

Paid in Capital from Donated Shares xxx

Donated Shares xxx xxx

Total Paid in Capital xxx

Retained Earnings

Unappropriated Retained Earnings xxx

Appropriated Retained Earnings for Treasury xxx

Shares

Appropriated Retained Earnings for Plant xxx

Expansion

Appropriated Retained Earnings for Plant xxx

Expansion

Appropriated Retained Earnings for xxx xxx

Contingencies

Total xxx

Less: Treasury Shares – Preference xxx

22 I CORPORATION I HIPOLITO and SAN JUAN

 Treasury Shares – Ordinary xxx (xxx)

Total Shareholders’ Equity Pxxx

EXAMPLE PROBLEM-PREPARING THE SHAREHOLDER’S EQUITY PART:

18% Preference Share Capital, par value of p100 authorized 10,000 shares, P800,000
issued and outstanding 8,000 shares.
Ordinary Share Capital, no par authorized 25,000 shares stated value of p100, 1,500,000
issued 15,000 shares of which 1,000 shares are in the treasury.
Subscribed Preference Share Capital 100,000
Subscribed Ordinary Share Capital 50,000
Subscription Receivable –Preference Share Capital 40,000
Subscription Receivable –Ordinary Share Capital 20,000
Preference Share Premium 10,000
Ordinary Share Premium 15,000
Donated Capital –Land 75,000
Treasury Shares (at cost) 1,000 ordinary shares 120,000
Retained Earnings 45,000
Appropriation Reserve for Treasury Shares 120,000

Shareholder’s Equity
PAID IN CAPITAL
18% Preference Share Capital, par value of p100 authorized P800,000
10,000 shares, issued and outstanding 8,000 shares.
Subscribed Preference Share Capital P100,000
Less: Subscription Receivable –Preference Share Capital 40,000 60,000 P860,000

23 I CORPORATION I HIPOLITO and SAN JUAN

 Ordinary Share Capital, no par authorized 25,000 shares 1,500,000
stated value of P100, issued 15,000 shares of which 1,000
shares are in the treasury.
Subscribed Ordinary Share Capital 50,000
Less: Subscription Receivable –Ordinary Share Capital 20,000 30,000 1,530,000

ADDITIONAL PAID IN CAPITAL

Preference Share Premium 10,000
Ordinary Share Premium 15,000
Donated Capital –Land 75,000
TOTAL PAID IN CAPITAL P2,490,000
RETAINED EARNINGS
Unappropriated 45,000
Appropriation 120,000 165,000
TOTAL P2,655,000
LESS: Treasury Shares (1,000 shares at cost) 120,000
TOTAL SHAREHOLDER’S EQUITY P2,535,000

VIII. RETAINED EARNINGS

● CREDIT- normal balance

● This represents the cumulative balance of periodic income, dividend distributions, and special
distributions to shareholders resulting from capital adjustments

CAPITAL/EQUITY SECTION

SOLE PROPRIETORSHIP CORPORATION

24 I CORPORATION I HIPOLITO and SAN JUAN

In a sole-proprietorship, the In a corporation, the INVESTMENT of the owner is recorded under
INVESTMENT of the owner PAID IN CAPITAL while NET INCOME/LOSSES of the entity is
and the NET recorded in the RETAINED EARNINGS account. The Corporation
INCOME/LOSS of the Code requires the separate recording of Investments (Contributed
business are lumped in the Capital) since this represents the LEGAL CAPITAL of the corporation
CAPITAL account. which cannot be returned to the shareholders during the lifetime of the
corporation, embodied in the TRUST FUND DOCTRINE.

IX. EXERCISES

1. Transaction: LA Bamba Corporation was organized on January 5, 2015. The firm’s charter authorized
the issuance of the following:
· 18% Cumulative Preference Shares, P100 par, 20,000 shares
· Ordinary Shares, no par, 50,000 shares
The BOD has established a P50 stated value on the ordinary share. The following transactions occurred
during the first three months of the year:
Jan. 05 - The organizers subscribed to ordinary shares to comply with the pre-incorporation
requirement. They gave 25% down payment. The organizers also subscribed to 5,000
preference shares at par and paid 50%
30 - Sold 750 shares of preference shares to Allied Corp. for P105 per share. Cash was
received and the shares
were issued.
Feb. 21 - Received land costing P50,000. Appraised value of land is 220% of the
original cost. The required number of preference shares were issued.
25 - Legal and promotion costs were paid in cash, P75,000.
28 - A call from the ordinary subscribers resulted in a total payment of 50% of the balance.
Mar. 1 - Received subscription contracts from various investors to purchase 2,000 ordinary
shares at P62 per share with a 25% down payment.
10 - Received P70,400 from the subscribers of Mar 1 representing full payment for 1,200
shares and partial payment for 800 shares. The appropriate certificates of stocks were
issued.
18 - A call for the balance of the preference subscribers resulted in the issuance of stock
certificates.
31 - Operation started in March with the Income Summary resulting in a credit balance of
P85,000

Jan 05

25 I CORPORATION I HIPOLITO and SAN JUAN

Unissued preference share (20,000 x P100) 2,000,000
Authorized Preference share capital 2,000,000
Unissued Ordinary Share (50,000 x P50) 2,500,000
Ordinary Share 2,500,000
Subscription Receivable-ordinary shares 625,000
Subscribed Ordinary shares (25% x 500,000 sh. x 50%) 625,000
Cash (25% x 625,000) 156,250
Subscription Receivable-ordinary shares 156,250
Subscription Receivable-preference share (5,000xP100) 500,000
Subscribed preference share 500,000
Cash (500,000 x 50%) 250,000
Subscription Receivable- preference share 250,000

30
Cash (750 x P105) 78,750
Unissued preference share (750 x P100) 75,000
Preference Share Premium 3,750

Feb 21
Land (P50,000 x 2.20) 110,000
Unissued preference share (1,100 x P100) 110,000

25
Organization Expense 75,000
Cash 75,000

28
Cash 234,375
Subscription Receivable – Ordinary shares 234,375

26 I CORPORATION I HIPOLITO and SAN JUAN

Mar 1
Subscription Receivable – Ordinary Share (2,000 x P62) 124,000
Subscribe Ordinary Share (2,000 x P50) 100,000
Paid in capital excess of stated value-ordinary share 24,000

Cash (124,000 x 25) 31,000

Subscription Receivable – ordinary share 31,000

10
Cash 70,400
Subscription Receivable – ordinary share 70,400

Subscribed ordinary share (1,200 x P50) 60,000

Unissued ordinary share 60,000

18
Cash 250,000
Subscription Receivable – preference share 250,000
Preference Subscription 500,000
Less: Payment (250,000)
250,000
Subscribed preference share 500,000
Unissued preference share 500,000

31
Income Summary 85,000
Retained Earnings 85,000

2. Transaction: Refer to Exercise 1 of September [Link] was given a week to pay but was not able to do
so. To continue with Exercise 1, the following additional transactions took place:
Oct. 08 - Rex was declared delinquent and the shares were offered for sale at a public auction.
Advertising and legal expenses amounted to P5,000.

27 I CORPORATION I HIPOLITO and SAN JUAN

 Oct. 15 - Three bidders offered to pay the amount dues plus 18% interest charge on the unpaid
subscription from date of last call: Perez for 600 shares, Gonzales for 750 shares and Adela for
500 shares.
Oct. 30 - Collected all the amounts due from the highest bidder and stock certificates were
issued accordingly.

Oct. 08
Due from Highest Bidder 38,000
Subscription Receivable – Ordinary Share 33,333
Cash 5,000

S/R – Rex (2000 sh. x 50) 100,000

Less: Down payment (1/3 x 100,000) (33,333)
1st Installment (33,333)
Balance 33,333

Oct. 15
Cash 38,583
Due from Highest Bidder 38,333
Interest Income 250

I = Prt = 33,333 x 18% x 15% / 360

(Sept. 30 – 0ct 15) = P250

Oct. 30
Subscribed Ordinary Shares 100,000
Ordinary Share Capital (200 x P50) 100,000
Two Certificates: Rex for 1,500 shares and Adela for 500 shares
(2000 sh – 500 sh)

3. Transaction: Refer to Exercise no.2 but assume there are no bidders. Make all the necessary entries
from October 08 to October 30 if the corporation reacquired the delinquent shares.

Oct. 08

28 I CORPORATION I HIPOLITO and SAN JUAN

Ordinary Treasury Shares 38,333
Due from Highest Bidder 38,333

Oct. 30
Subscribed Ordinary shares 100,000
Ordinary Shares (All shares of Rex go to Corporation) 100,000
4. Transaction: On January 1, 2018 Rainbow Corporation received authorization to issue 50,000
ordinary shares at a par value of P100 per share. The shares were offered at a subscription price of
P125. Subsequently a subscription for a total of P10,000 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 to the announcement: A with a bid for 400 shares, B
for 350 shares, adn C for 300 shares. The highest bidder paid on July 5 and stock certificates were
issued.
2018 Jan 1 Authorized to issue 50,000 common shares at P100 par value
Subscription Receivable – Ordinary 1,250,000
Subscribed Ordinary Share Capital 1,000,000
Ordinary Share Premium 250,000

Cash 312,500
Subscriptions Receivable – Ordinary Shares 312,500

Mar. 31
Cash 468,750
Subscription Receivable – Ordinary Shares 468,750

Cash 445,312.5
Subscription Receivable – Ordinary Shares 445,312.5

Subscribed Ordinary Share Capital 950,000

Ordinary Share Capital 950,000

Due from Highest Bidder 24, 812.5

Subscription Receivable – Ordinary 23,437.5
Cash 1,375

Cash 24,812.5

29 I CORPORATION I HIPOLITO and SAN JUAN

 Due from Highest Bidder 24,812.5

Subscribed Ordinary Share Capital 50,000

Ordinary Share Capital 50,000
● RETIRED SHARES, TREASURY SHARES, AND DONATED

EXERCISE NO. 7
Transaction: The following data pertain CHACHA Corporation:
Ordinary Share Capital, with a par value of P100,
10,000 shares issued and outstanding 1,000,000
Share Premium 50,000
Retained Earnings 1,200,000
The following transactions took place:
July 10 - Reacquired 500 common shares for treasury at P80 per shares.
12 - 50 treasury shares were sold @ P75 per share
15 - 100 treasury shares were sold for P10,000
20 - 150 treasury shares were sold @ P70 per share
25 - 100 treasury shares were retired
30 - An appropriation for treasury stock was recorded

June 10 - Treasury Shares (500 sh x P80). 40,000

Cash 40,000

June 12 - Cash (50 sh x P75). 3,750

Retained Earnings 250

Treasury Shares (50 sh x P80) 4,000

June 15 - Cash (100sh x P100) 10,000

Treasury Shares( 100 sh x P80) 8,000

Paid in Capital from Treasury Shares. 2,000

June 20 - Cash (150sh X PP70) 10,500

Paid in Capital from Treasury Share (12,000-10500) 1,500

Treasury Shares( 150sh x P80) 12,000

June 25 - Ordinary Shares Capital (100sh x P100). 10,000

30 I CORPORATION I HIPOLITO and SAN JUAN

 Treasury Shares (100sh x P80). 8,000
PIC from Stock Retirement 2,000

EXERCISE NO. 8
Transaction: The following data pertain to Kool Corporation:

Ordinary Share Capital, with a par value of P50

18,500 shares issued of which 3,500 are in the treasury P925,000
Share Premium 125,000
Retained Earnings 4,500,000
Treasury Shares, at cost (210,000)

The following transaction took place:

Aug 12 - 1,500 treasury shares were sold at P55 per share

20 - Another 1,500 treasury shares were sold at P62 per share

31 - The remaining shares were retired

Aug 12 - Cash (1,500 sh x P55) 82,500

Retained Earnings(90,000-82,500) 7,500
Treasury Shares(1,500 sh x P60)*. 90,000
*P210,000 TS / 3,500 treasury shares = P60

Aug 20 - Cash(1,500 sh x P62). 93,000

Treasury Shares (1,500sh x P60) 90,000
PIC from Treasury Shares 3,000

Aug 31- Ordinary Shares 500 remaining t sh x P50 par) 25,000

Share Premium( P125,000 x 500sh/ 18,500) 3,378
PIC from Treasury Shares( P30,000- 25,000-3378) 1,622
Treasury Shares (500 sh x P60) 30,000

EXERCISE NO. 9
Transaction: The following data pertain to BUENO Corporation:
Redeemable Preference Share Capital Capital, P100 par;
5,000 shares issued and outstanding P500,000
Preference Share Premium 50,000

31 I CORPORATION I HIPOLITO and SAN JUAN

 Retained Earnings 100,000
June 5 - Redeemed and retired 500 preference shares at P150 per share
30 - Redeemed and retired 500 preference shares at P90

June 5 - Redeemable Preference Share Capital (500ps x P100par) 50,000

Preference Share Premium (P50,000 x 500/5,000) 5,000
Retained Earnings (P75,000-50,000-5,000) 20,000
Cash (500 sh x P150 redemption price) 75,000

June 30 - Redeemable Preference Share Capital (500PS x P100) 50,000

Preference Share Premium ( P50,000 x 500/5,000) 5,000
Cash (500sh x P90 redemption Price) 45,000
Paid in Capital from Stock Retirement(50,000-5,000-45000) 10,000

EXERCISE NO. 11

Transaction: The following data pertain to the Nina Corporation as at March 1:

Share Capital Stock, par P10 P5,500,000

Share Premium 150,000
Retained Earnings 500,000
The following transaction took place:
Mar 10- 3,000 shares were reacquired at P13 per share

Treasury Shares (3,000sh x P13) P39,000

Cash P39,000

May 15- 1,200 of the reacquired shares were sold at P15 per share

Cash (1,200 ts x P14) P16,800

Treasury Shares (1,200sh x P13). P15,600
PIC from Treasury Shares (16,800-15,600) 1,200

June 12- 300 of the treasury shares were sold at P11 per share

Cash (300ts x P 11) P3,300

PIC from Treasury Shares (3,900-3,300) 600
Treasury Shares (300 ts x P13) P3,900

32 I CORPORATION I HIPOLITO and SAN JUAN

July 25- Some shareholders donated 1,000 shares

Memo Entry: Received from shareholders 1,000 shares as donated stock.

Aug 1- Donated shares were sold at P17 per share

Cash (1000 sh x P17) P17,000

Donated Share Capital P17,000

Nov 1- 2,000 shares were reacquired in exchange for merchandise with a cost price of P15,000 and market
value of P38,000.

Treasury Shares (2,000sh x P10) P15,000

Merchandise Inventory P15,000

Dec 5- 800 of the shares acquired on Nov. 1 were sold at P20 per share

Cash (800 SH X P20) P16,000

Treasury Shares (800 sh x P13) P10,400
PIC from Treasury Shares 5,600

10- The remaining Mar. 10 treasury shares were retired.

Ordinary Shares (1,500sh x P11) P16,500

Share Premium (1,500sh/500,000 x P150,000) 450
PIC from Treasury Shares (19,500-16K-450) 2,550
Treasury Shares (1,500sh x 13) P19,500

References:
● Manuel, Z., (2020). Financial Accounting And Reporting Partnership and Corporation.
● Valix, C., Peralta, J., & Valix, C. (2020). Intermediate Accounting vol. 2
● Alajar, J (2020).

33 I CORPORATION I HIPOLITO and SAN JUAN