PROBLEM 1
XYZ Company is authorized to issue 200,000 of P10 par value ordinary shares, and 60,000 of 6%
cumulative and nonparticipating preference shares, par value P100 per share. The company engaged in
the following share capital transactions through December 31, 2022
A. 50,000 ordinary shares were issued for P650, 000
B. 20,000 preference shares for machinery valued at P2, 600,000.
C. Subscriptions for 9,000 ordinary shares have been taken and 40% of the subscription price of
P18 per share has been collected. The shares will be issued upon collection of the subscription
price in full
D. 2,000 treasury ordinary shares have been purchased for P12 and accounted for under the cost
method
The post-closing retained earnings balance at year-end is P420, 000.
PROBLEM 2
An entity reported the following data for the current year:
Net sales 8,500,000
Cost of goods sold 3,500,000
Selling expenses 1,000,000
Administrative expenses 900,000
Interest expense 600,000
Gain from expropriation of land 450,000
Income tax 700,000
Income from discontinued operations 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on futures contract designated as a cash flow hedge 400, 000
Increase in projected benefit obligation due to actuarial assumptions 300, 000
Foreign translation adjustment - debit 100,000
Revaluation surplus 2,500,000
PROBLEM 3
The following shareholders’ equity accounts are included in the statement of financial position of ABC Co.
on December 31, 2021
Preference share capital, 8%, P100 par (200,000 shares authorized,
60,000 shares issued and outstanding) 6,000,000
Ordinary share capital, P5 par (2,000,000 shares authorized,
600,000 shares issued and outstanding) 3,000,000
Share premium 3,750,000
Retained earnings 3,500,000
Total 16,250,000
During 2022, ABC took part in the following transactions concerning equity.
1. Paid the annual 2021 P8 per share dividend on preference shares and a P2 per share dividend
on ordinary shares. These dividends had been declared on December 31, 2021.
2. Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share.
3. Reissued 21,000 treasury shares for land valued at P900, 000.
4. Issued 15,000 preference shares at P105 per share.
5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares are selling
for P45 per share.
6. Issued the stock dividend.
7. Declared the annual 2022 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares. These dividends are payable in 2023.
8. Reported net income of P9, 900,000 for the current year.
PROBLEM 4
BTC Co. was organized at the beginning of the current year. The following shareholders’ equity accounts
are included in the entity’s year-end trial balance.
Preference share capital, P100 par, authorized 100,000 shares,
issued and outstanding, 66,000 shares 6,600,000
Preference share capital subscribed, 6,000 shares 600,000
Share premium – preference 240,000
Subscriptions receivable – preference 360,000
Ordinary share capital, P10 par value, authorized 200,000 shares,
issued and outstanding, 72,000 shares 720,000
Ordinary share capital subscribed, 72,000 shares 720,000
Share premium – ordinary 2,850,000
Subscriptions receivable – ordinary 1,080,000
The following current year transactions relate to BTC Co.’s shareholders’ equity:
1. Immediately after BTC Co. was organized, it received subscriptions to 60,000 preference shares.
Subscriptions to ordinary shares were also received on the same date.
2. During the year, subscriptions were received for an additional 12,000 preference shares at a price
of P120 per share.
3. Cash payments were received from subscribers at frequent intervals for several months after
subscription. The company’s policy is to issue share certificates only upon full payment of the
share subscription.
4. Also during the current year, BTC Co. issued 24,000 ordinary shares in exchange for a tract of
land with a fair value of P690, 000.
PROBLEM 5
At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The grant is
conditional upon the executive remaining in the entity’s employ until the end of year 3.
The share options can be exercised if the entity’s share price increases from P20 at the beginning of year
1 to above P30 at the end of year 3. If the share price is above P30 at the end of year 3, the share
options can be exercised at any time during the next five years, i.e., by the end of year 8.
The entity estimates the fair value of the share options on grant date to be P5 per option. This estimate
takes into account the following market condition:
The possibility that the share price will exceed P30 at the end of year 3, i.e., the share options
become exercisable; and
The possibility that the share price will not exceed P30 at the end of year 3, i.e., the share options
will be forfeited.
The following actual events occurred in years 1 to 3:
Year 1
The share price has increased to P24.
The entity’s estimate of the fair value of the options is P4 at the end of year 1. This takes into account
whether the market condition will be satisfied by the end of year 3.
Year 2
The share price has decreased to P22. However, the entity remains optimistic that the share price target
will be met by the end of year 3.
The estimated fair value of the share options is P3. Again, this estimate takes into account the market
condition noted above.
Year 3
The share price only reaches P28 by the end of year 3.
The estimated fair value of the share options is zero, as the market condition has not been satisfied.
