ACC 221 – 2nd Exam (MSA1)

1. Statement 1: If shares are issued for noncash consideration, the proceeds shall be measured by the
fair value of the shares issued.
Statement 2: If shares are issued to extinguish a financial liability, the initial measurement of the
shares issued is based on the fair value of the shares issued.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.

2. Characteristics of the corporate form that have led to the growth of this form of business ownership
include all of the following, except
a. Ease of raising capital.
b. Low government regulation.
c. Limited liability.
d. Ease of ownership transfer.

3. Statement 1: In accounting for shareholders’ equity, the accountant is primarily concerned with
determining the total amount of shareholders’ equity.
Statement 2: Recording the source of each of the various elements of shareholders’ equity is the
accountant’s primarily concerned in accounting for shareholders’ equity.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.

4. Statement 1: The preemptive right of an ordinary shareholder is the right to share proportionately in
any new issue of shares of the same class.
Statement 2: If the preference shares carry a redemption privilege, the shareholders may surrender
the preference shares for a specified amount of cash.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.

5. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by
a. Fair value of the treasury shares.
b. Fair value of the noncash consideration received.
c. Carrying amount of the noncash consideration received.
d. Carrying amount of the treasury shares.

PROBLEM SOLVING – 2 POINTS EACH

At the beginning of current year, Devzon Company was organized and authorized to issue 100,000
shares with P50 par value. During the current year, the entity had the following transactions relating
to shareholders’ equity:

• Issued 10,000 shares at P70 per share.

• Issued 20,000 shares at P80 per share.
• Reported net income of P1,000,000.
• Paid cash dividend of P200,000.
• Purchased 3,000 treasury shares at P100 per share.

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6. How much is the contributed capital?

Capital Shares Share Premium Retained Earnings Treasury Shares

10,000 500,000 200,000
20,000 1,000,000 600,000
1,000,000
( 200,000)
(3,000) (300,000)
30,000 1,500,000 800,000 800,000 (3,000) (300,000)

Capital Shares 1,500,000

Share premium 800,000
Contributed Capital 2,300,000

7. What is the total shareholders’ equity at year-end?

a. P2,000,000 b. P2,800,000 c. P3,000,000 d. P3,300,000

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Zion Company reported the following shareholders’ equity on January 1, 2022:

Ordinary share capital, P100 par; 200,000 shares authorized;

50,000 shares issued and outstanding 5,000,000
Share premium 1,000,000
Retained earnings 3,000,000

On May 31, 2022, the entity issued bonds of P5,000,000 at 120, giving with each P1,000 bond a
warrant enabling the holder to purchase 3 shares at P120 per share for a one year period. Shares
were selling for P140 at this time. The market value of bond ex-warrant is 105.

By December 31, 2022, 10,000 shares had been issued in connection with warrants issued on the sale
of bonds. Net income for 2022 was P2,000,000.

On July 15, 2023, the entity issued rights to shareholders, 1 right on each share, permitting holders to
acquire for a one-year period 1 share at P130 with every 5 rights submitted. Shares were selling for
P150 at this time.

All rights were exercised and the additional shares were issued on December 31, 2023. The remaining
share warrants issued to the bondholders expired. Net income for 2023 was P3,000,000.

8. What is the journal entry on December 31, 2022 transaction?

5/31/2022 Cash (P5M x 120) 6,000,000

Bonds Payable 5,000,000
Bonds premium 250,000
SP – warrants 750,000

Proceeds 6,000,000
Issue price of bonds 5,250,000 (P5M x 105)
Warrants 750,000

12/31/2022 Cash (10,000 x 120) 1,200,000

SP – warrants 499,950

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 Ordinary shares 1,000,000
SP – ordinary shares 699,950

10,000/3 = 3,333 / 5,000 x P750,000

Income Summary 2,000,000

Retained earnings 2,000,000

WHEN WE CHECK THIS NUMBER, MY SUGGESTION IS JUST TO CHECK THE EXERCISE OF THE
WARRANT AND NOT ANYMORE THE NET INCOME OF THE YEAR. CONSIDER ALSO THE ROUNDING
OFF. SOME MAY RECORD THE SP – WARRANTS (DEBIT) 500,000 AND SP – ORDINARY SHARES
(CREDIT) 700,000.

9. What is the journal entry on July 15, 2023 transaction? Memo Entry only

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Jocelyn Company issued 10,000 ordinary shares with P200 par value and 20,000 preference shares
with P200 par value for a total consideration of P8,000,000. At the date of issue, the ordinary share
was selling for P360 and the preference share was selling for P270.

10. What amount of the proceeds should be allocated to the preference shares?
a. P4,400,000 b. P4,800,000 c. P5,400,000 d. P6,000,000

OS 10,000 x P360 = 3,600,000 36/90 x P8M = 3,200,000

PS 20,000 x P270 = 5,400,000 54/90 x P8M = 4,800,000
= 9,000,000

11. What is the journal entry to record the above transaction?

Cash 8,000,000
Ordinary shares (10,000 x P200) 2,000,000
Share premium – OS 1,200,000
Preference shares (20,000 x P200) 4,000,000
Share premium – PS 800,000

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Bacasmot Company has two classes of share capital outstanding consisting of 12%, P100 par value
preference share and P50 par value ordinary share. The entity reported the following balances at the
beginning of the current year:

Preference share capital – 5,000 shares 500,000

Ordinary share capital – 50,000 shares 2,500,000
Share premium – preference shares 200,000
Share premium – ordinary shares 500,000
Retained earnings 2,000,000

The following data summarize the transactions for the current year:

Shares Per Share

1. Issue ordinary share capital 20,000 P50
2. Purchase of treasure share – ordinary 5,000 60
3. Share split – ordinary 2-for-1
4. Reissue of treasury share 3,000 40

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 5. Shareholders donated 15,000 ordinary shares to the corporation. Subsequently, 10,000 donated
shares were reissued at P40 per share.
6. Net income for the year was P500,000.
7. Appropriate retained earnings equal to the cost of treasury shares.

12. What is the journal entry for the reissue of treasury share?

Split Total Amount

Ordinary Shares: Beg. bal. 50,000 50,000 - 100,000 2,500,000 par
1 20,000 20,000 - 40,000 1,000,000 par
2 (5,000) (5,000) - (10,000) 300,000 cost

Cash (3,000 x P40) 120,000

Treasury shares
(3,000/10,000 x P300,000) 90,000
Share premium – TS 30,000

13. What is the journal entry for the reissue of 10,000 donated shares?

Date of donation of shares - memo entry

Date of reissuance - Cash (10,000 x P40) 400,000

Share premium – donated shares 400,000

14. What is the journal entry for the appropriation of treasury shares?

Retained Earnings 270,000

RE – appropriated 270,000

15. What is the total shareholders’ equity at year-end? P7,330,000

PS OS SP – PS SP – OS RE TS
5,000 500,000 50,000 2,500,000 200,000 500,000 2,000,000
20,000 1,000,000
(5,000) (300,000)
X2 x 2_____________
5,000 500,000 140,000 3,500,000 200,000 500,000 2,000,000 (10,00)) (300,000)
3,000 90,000
400,000
500,000_____________________
5,000 500,000 140,000. 3,500,000 200,000 900,000 2,500,000 (7,000) (270,000)

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