PALCON, Penelope C.

BSA-1B

CHAPTER 15: CORPORATION_Problem 4: Multiple Choice_Page 569-572

1. Entity A received a subscription for 2,000 shares at 18 per share on March 31, 20x1. Entity A’s
share have a par value 5 per share. Entity A collected the subscription receivable on May 15,
20x1. Which of the following statement is correct?
a. Entity A should credit share premium for 13,000 on March 31, 20x1.
b. Entity A should credit share premium for 26,000 on March 31, 20x1.
c. Entity A should credit share premium for 13,000 on March 15, 20x1.
d. Entity A should credit share premium for 26,000 on March 15, 20x1.

SOLUTION

Subscription receivable 36,000

Subscribed shares 10,000
Share premium 26,000

2. Entity A has the following share capital transactions during the year:
• Issued 10,000 shares with par value of 10 per share for a total consideration of 160,000.
• Received share subscriptions for 20,000 shares at the subscription price of 22 per share.
Only half of the subscriptions were collected by the end of the year.

How much is the total share premium arising from the share transactions above?

a. 60,000
b. 320,000
c. 300,000
d. 180,000

SOLUTION

Cash 160,000
Shared capital 100,000
Shared premium 60,000
Subscription receivable 440,000
Subscribed shared capital 200,000
Shared premium 240,000
Cash 220,000
Subscription receivable 220,000

Share premium (60k +240k) = 300,000

 3. Entity A was incorporated on January 1, 20x1 with an authorized capitalization is 1,000,000
divided into 100,000 shares with par value of 10 per share. The following were the share related
transactions of Entity A during the year.
• Cash subscriptions of 30,000 shares at 12 per share
• Subscriptions of 40,000 shares at 18 per share. Seventy-five percent of the subscription
price were collected during the year.

How much is the Entity A’s total shareholders’ equity after recording the transaction above?

a. 900,000
b. 680,000
c. 540,000
d. 360,000

SOLUTION

Cash 360,000
Shared capital 300,000
Shared premium 60,000
Subscription receivable 720,000
Subscribed share 400,000
Shared premium 320,000

Cash 540,000
Subscription receivable 540,000

Share capital 300,000

Share premium (60k +320k) 380,000
Subscribed shares 400,000
Subscription receivable (720k-540k) (180,000)
Total Shareholder Equity 900,000
 4. Entity A’s total shareholders’ equity was 900,000 before recording the following share
transactions:
• Received cash subscriptions for 10,000 shares with par value of 1 at 14 per share. Share
issuance costs amounted to 2,000.
• Received subscriptions for 20,000 shares at 20 per shares. Twenty-five percent down
payment was collected on subscription date.
• Collected the remaining unpaid subscription price for 15,000 subscribed and issued the
related share certificates. Share issuance costs amounted to 3,000.

How much is the balance of Entity A’s total shareholders’ equity after recording the
transactions above? (Hint: preparing the journal entries makes this problem easier to solve.)

a. 1,490,000
b. 1,510,000
c. 1,360,000
d. 1,610,000

SOLUTION

Cash (10k x 14) 140,000

Share capital (10k x 1) 10,000
Share premium 130,000
Share premium 2,000
Cash 2,000
Subscriptions receivable (20k x20) 400,000
Subscribed share capital (20k x 1) 20,000
Share premium 380,000
Cash (20k x 20 x 25%) 100,000
Subscription receivable 100,000
Cash (15k x 20 x 75%) 225,000
Subscriptions receivable 225,000
Subscribed share capital 15,000
Share capital 15,000
Share premium 3,000
Cash 3,000

Total Shareholder equity before transactions 900,000

Share capital (10k +15k) 25,000
Subscribed share capital (20k-15k) 5,000
Subscriptions receivable (400k-100k-225k) (75,000)
Share premium (130k-2k+380k-3k) 505,000
Total Shareholder equity after transactions 1,360,000
 5. On February 26, 20x1. Entity A acquires 10,000 of its own shares for 3 per share. The shares
have a par value of 1 and were selling in the stock market at 4 per share on this date. To record
the reacquisition, Entity A should
a. Debit Treasury shares account for 30,000.
b. Credit Treasury shares account for 30,000.
c. Debit Share premium account for 10,000.
d. Credit Treasury shares account for 40,000.

SOLUTION

Treasury shares (10k x 3) 30,000

Cash 30,000

6. Two years ago, Entity A reacquired 2,000 of its own shares with par value of 100 per share for
240,000. Today, entity A reissues half of the treasury shares at 160 per share. The journal entry
to record the reissuance includes which of the following?
a. Credit to Retained earnings- unrestricted account for 240,000.
b. Debit to Treasury shares account for 120,000
c. Credit to Share premium- treasury shares for 80,000
d. Credit to Share premium- treasury shares for 40,000

SOLUTION

Cash (1k x 160) 160,000

Treasury shares (240k x 1/2) 120,000
Share premium- treasury shares 40,000
Retained earnings-appropriated 120,000
Retained earnings-unrestricted 120,000
 7. Entity A acquires 10,000 of its own shares for 50. The shares have par value of 10 and were
originally issued at 15 per share. Subsequently, Entity A reissue the 10,000 shares at 48 per
share. The journal entry to record the reissuance involves which of the following?
a. Debit to Retained earnings for 20,000.
b. Credit to Cash for 480,000.
c. Debit to Share premium for 50,000.
d. Debit to Treasury shares for 50,000.

SOLUTION

Cash (10k x 48) 480,000

Share premium-treasury shares -
Retained earnings 20,000
Treasury share (10k x 50) 500,000

8. Entity A reacquires 10,000 of its own shares for 50. The shares have par value of 10 and were
originally issued at 15 per share. Subsequently, Entity A reissues half of the reacquired shares at
58 per share and then retires the other reacquires shares at 58 per share and then retires the
other half. The journal entry to record the retirement of the shares includes which of the
following? (hint: Provide the entries for both the reissuance and the retirement.)
a. Debit to retained earnings for 175,000.
b. Credit to Share premium – retirement for 40,000.
c. Debit to Share premium for 50,000.
d. Debit to Retained earnings for 135,000.

SOLUTION

Cash (10k x 15) 150,000

Shared Capital 100,000
Share premium 50,000
Treasury share (10k x 50) 500,000
Cash 500,000
Cash (10k x 1/2 x 58) 290,000
Treasury share (10k x1/2 x 50) 250,000
Share premium-treasury share 40,000
Share capital (5k x 10) 50,000
Share premium-original issuance (5k x5*) 25,000
(a) Share premium -treasury share 40,000
(b) Retained earnings 135,000
Cash (10k x 1/2 x 50) 250,000
*Total share premium before retirement 50,000
Divide by: Total issued shares before retirement
(100k Share capital / 10 par value) 10,000
Share premium per share from original issuance 5

9. Entity A reacquires 1,000 of its own shares for 25 and immediately retires them. The shares have
par value of 10 and were originally issued at 30 per share. The journal entry to record the
retirement of the share. The journal entry to record the retirement of the shares includes which
of the following?
a. Debit to Retained earnings for 5,000.
b. Credit to Treasury share for 30,000.
c. Credit to Share capital for 10,000.
d. Credit to Share premium – retirement for 5,000.

SOLUTION

Cash (1k x 30) 30,000

Share capital (1k x 10) 10,000
Share premium 20,000
Treasury share (1k x 25) 25,000
Cash 25,000
Share capital (1k x10) 10,000
Share premium-original issuance 20,000
Cash (1k x 25) 25,000
Share premium-retirement 5,000

Total share premium before retirement 20,000

Divide by: Total issued shares before retirement
(Share capital 10k / 10 par value) 1,000
Share premium per share from original issuance 20
 10. Entity A receives 20,000 shares with par value of 100 and fair value of 210 on November 2, 20x1.
The shares have fair value of 220 per share on December 31, 20x1. How much additional capital
is recognized in Entity A’s December 31, 20x1 balance sheet in having resulted from the receipt
of the donated shares?
a. 2,000,000
b. 4,200,000
c. 4,400,000
d. 0

SOLUTION

Cash (200k x 100) 2,000,000

Share premium-donated capital 2,000,000