CPA REVIEW SCHOOL FOF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
MAY 2024 CPALE BATCH 95
SHAREHOLDERS’ EQUITY
1. An entity was organized at the beginning of current year with 100,000 authorized shares of P100 par
value. During the current year, the following transactions occurred:
January 1
Sold 30,000 shares at P150 per share.
March 1
Purchased 5,000 treasury shares at a cost of P120 per share.
October 31
Issued P5,000,000 convertible bonds at 120. The bonds are quoted at 98 without
the conversion feature.
November 15 Declared a 2 for 1 share split.
December 15 Sold 20,000 shares at P75 per share.
December 31 The net income for the year was P4,000,000.
31 Paid dividend of P25 per share
I. The share capital is P4,000,000 at the end of year.
II. The share premium is P3,100,000 at the end of year.
III. The retained earnings should be reported at P2,750,000 at the end of year.
IV. The shareholders’ equity is P9,850,000 at the end of year.
a. All statements are true
b. All statements are not true
c. Only three statements are true
d. Only two statements are true
2. During the current year, the entity had the following transactions affecting shareholders’ equity:
Number of shares Price per share
Issue of preference shares 10,000 200
Retirement of preference shares 5,000 250
Purchase of treasury ordinary shares 10,000 80
Share split, par value reduced to P25 2 for 1
Reissue of treasury ordinary shares 10,000 50
At the beginning of current year, the shareholders’ equity comprised the following:
Preference share capital P100 par, 30,000 shares, 10% 3,000,000
Ordinary share capital, 100,000 shares, P50 par 5,000,000
Preference share premium 1,500,000
Ordinary share premium 4,000,000
Retained earnings 6,000,000
At year-end, dividends were paid on ordinary shares at P20 per share and on the preference shares at the
10% preference rate. Net income for the year was P4,500,000.
I. The total share premium is P6,350,000 at the end of year.
II. The retained earnings should be reported at P5,850,000 at the end of year
III. The total shareholders’ equity is P20,700,000 at the end of year
a. Statements I, II and III are true
b. Statements I, II and III are false
c. Only statements I and II are true
d. Only statement III is true
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PROBLEM 1
Jan. 1 Cash (30,000 x 150) 4,500,000
Share capital (30,000 x 100) 3,000,000
Share premium 1,500,000
March 1 Treasury shares (5,000 x 120) 600,000
Cash 600,000
Oct. 31 Cash (5,000,000 x 120%) 6,000,000
Discount on bonds payable 100,000
Bonds payable 5,000,000
Share premium – conversion privilege 1,100,000
Nov. 15 Issued shares (30,000 x 2) 60,000
Treasury shares (5,000 x 2) (10,000)
Outstanding shares 50,000
Dec. 15 Cash (20,000 x 75) 1,500,000
Share capital (20,000 x 50) 1,000,000
Share premium 500,000
31 Income summary 4,000,000
Retained earnings 4,000,000
31 Retained earnings (50,000 x 25) 1,250,000
Cash 1,250,000
PROBLEM 2
1. Cash (10,000 x 200) 2,000,000
Preference share capital (10,000 x 100) 1,000,000
Preference share premium 1,000,000
2. Preference share capital (5,000 x 100) 500,000
Preference share premium (5,000 x 50) 250,000
Retained earnings (remainder) 500,000
Cash (5,000 x 250) 1,250,000
3. Treasury ordinary shares (10,000 x 80) 800,000
Cash 800,000
4. Issued (100,000 x 2) 200,000
Treasury (10,000 x 2) ( 20,000)
Outstanding shares 180,000
5. Cash (10,000 x 50) 500,000
Treasury ordinary shares (10,000 x 40) 400,000
Share premium - Treasury 100,000
6. Retained earnings (190,000 x 20) 3,800,000
Cash 3,800,000
7. Retained earnings (10% x 3,500,000) 350,000
Cash 350,000
8. Income summary 4,500,000
Retained earnings 4,500,000
End
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