Sol To Exer 5-2 - 5-3 - 5-4 - 5-5 - 5-6 - 5-7 - 5-8 - 5-9 N Problem Solving

SOLUTION TO EXERCISE 5-2 IDENTIFICATION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Preference Share
Articles of Incorporation
Board of Directors
Watered stock or share
By-Laws
Pre-emptive Right
Par Value
Authorized Capital Stock
Treasury Share or Stock
No Par and No Stated Value Share or Stock
SOLUTION TO EXERCISE 5-3 TRUE OR FALSE

1.
False
Owners of stock coporation are called shareholders or stockholders.

Members are for non-stock corporation.
2.
True
3.
True
4.
True
5.
False
6.
True
7.
False
8.
True
9.
False
The powers and restrictions conferred by the government upon the

corporation is found in the Articles of Incorporation.
10.
False
The value of a no par value share is stated in the articles of incorporation o

and not on the stock certificate.
The manner of electing the board of directors is found in the By-Laws

An entry is made under the journal-entry method.
It is in memorandum entry method that no formal journal entry is made.
tockholders.
n the By-Laws
al entry is made.
nt upon the
s of incorporation only
SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE

Date
Jul
Account Title
Debit
15 MEMO ENTRY
Authorized to issue 50,000 shares at P100 par
value.
Subscription Receivable-Share Capital
Subscribed Share Capital
To records 12,500 shares subscribed by five (5)
incorporators at P100.00 par value.
Cash
1,250,000
312,500

To record 25% payment of five (5) incorporators
of their subscription.
Aug
1 Subscription Receivable-Share Capital

To record Ms. Elcee subscription of 10,000
shares at par.
14 Cash
1,000,000
20,000
Share Capital
To record issuance of 200 shares at par for cash.
Sept
15 Cash
1,000,000

To record collection in full of the Aug 1
subscription of Ms. Elcee.
Share Capital
To record issuance of 10,000 shares at part to
Ms. Elcee.
Sept
22 Land
1,000,000
500,000
Share Capital
To record issuance of 5,000 shares at par to
Ms. Mariebic in exchange for land received
Oct
31 Organizational Costs & Expenses

Share Capital
To record 50 share issued at par to Ms. Jina
for promotional services rendered during the
formation of the corporation.
Nov
18 Merchandise Inventory
5,000
40,000
Equipment
Share Capital
To record issuance of 1,000 shares at par to Ms.
Akino in exchange for merchandise and
equipment received.
Dec
1 Cash
60,000
937,500

To record collection from five (5) incorporators
of the balance of their subsciption.
Share Capital
To record issuance of 12,500 shares at par to five
(5) incorporators after they paid in full their
subscription.
1,250,000
Credit
1,250,000
Supporting Computations
(12,500 shares x P100)
(P1,250,000 x 25%)
312,500
1,000,000
20,000
(10,000 shares x P100)
(200 shares x P100)
1,000,000
1,000,000
500,000
5,000
(10,000 shares x P100)
(5,000 shares x P100)
(50 shares x P100)
100,000
(1,000 shares x P100)
(P1,250,000-P312,500)
937,500
1,250,000
(12,500 shares shares x P100)
SOLUTION TO EXERCISE 5-5. ISSUANCE OF SHARE CAPITAL ABOVE PAR VALUE

Date
2012
July
Account Title
Debit
1 MEMO ENTRY
Authorized to issue 50,000 share at P100 par
value.
To record shares subscribed by five (5)
incorporators at 2,500 shares each at par.
Cash
1,250,000
312,500

To record the payment of five (5) incorporators
of 25% of their subscription.
2 Prepaid Expenses
Cash
To record incorpotation fees paid to SEC.
3 Cash
4,000
240,000
Share Capital
Premium on share issuance
To record issuance of 200 shares at P120 to
Dominic.
6 Cash
562,500

To record payment in full of Agatha, Priscilla and
Kaye of the balance of their subscriptions.
Subscribed Ordinary Share Capital
Ordinary Share Capital
To record issuance of shares to Agatha, Priscilla
and Kaye after payment of their subscriptions
in full.
750,000
12 Subscription Receivable-Share Capital

Premium on Share Subsctiption
To record subscription of David of 1,500 shares
at P125.
187,500
18 Land
450,000
Share Capital
Premium on Share Issuance
To record issuance of 3,000 shares to Darren in

exchange for a piece of land.
24 Cash
187,500

To record payment of David in full of his
subscription.
Share Capital
To record issuance of 1, 500 shares at P100 par to
David after paying his subscription in full.
31 Cash
150,000
375,000

To record payment in full of Amiel and Jhun
of their subscription.
Share Capital
To record issuance of shares to Amiel and Jhun
after they paid their subscription in full.
500,000
Credit
1,250,000
(5 x 2,500 shares = 12,500 shares x P100)
(P1,250,000 x 25%)
312,500
4,000
200,000
40,000
(2000 shares x P100)

(P240,000 - P200,000)
(=3 x 2,500 shares x P100 x 75%)

562,500
750,000
(3 x 2,500 shares x P100)
150,000
37,500

(1,500 shares x P100)
(1,500 shares x P5)
300,000
150,000
(3,000 shares x P100)

(P450,000 - P300,000)
187,500
150,000
(1,500 shares x P100)
(2 x 2,500 x P100 x 75%)

375,000
500,000
(2 x 2,500 shares x P100)
SOLUTION TO EXERCISE 5-6. TWO CLASSES OF SHARES

Date
June
Account Title
1 MEMORANDUM ENTRY
Debit
Authorized to issue 400,000, 9% preference

shares at P40 par value.
Authorized to issued 500,000 ordinary shares at
P30 par value.
Aug
5 Subscriptions Receivable-Ordinary
Subscribed Ordinary Shares
Share Premium-Ordinary
Cash
12,600,000
2,520,000
Subscriptions Receivable-Ordinary
7 Cash
528,000
Share Premium-Ordinary
9 Subscriptions Receivable-Preference
Subcribed Preference Share
Share Premium-Preference
Cash
5,400,000
810,000
Subscriptions Receivable-Preference
Sept
1 Cash
5,040,000
Subscribed Ordinary Share

5 Cash
3,600,000
22,500
Preference Share Capital
Oct
1 Cash
2,295,000
Subscribed Preference Share

Nov
1 Cash
2,040,000
26,400
Dec
1 Cash
5,040,000
Subscribed Ordinary Share

9,000,000
Cash
2,295,000
Subscribed Preference Share

4,800,000
Credit
9,000,000
3,600,000
2,520,000
495,000
33,000
4,800,000
600,000
810,000
5,040,000
3,600,000
20,000
2,500
2,295,000
2,040,000
24,000
2,400
5,040,000
9,000,000
2,295,000
4,800,000
(300,000 shares x P42)

(300,000 shares x P30)
(P12,600,000-P9,000,000)
(P12,600,000 x 20%)
(16,500 shares x P32)
(16,500 shares x P30)
(120,000 shares x P45)

(120,000 shares x P40)
(P5,400,000 x 15%)
(P5,400,000 x 15%)
(P12,600,000 - P2,520,000 = P10,080,000 x 50%)

(300,000 shares - 60,000 shares = 240,000 shares x 50% = 120,000 shares x P30)
(500 shares x P45)
(500 shares x P40)
(P22,500 - P20,000)
(P5,400,000 - P810,000 = P4,590,000 x 50%)
(P5,400,000 - P810,000 = P4,590,000 x 50%)
(600 shares x P44)
(600 shares x P40)
(P26,400 - P24,000)
(P12,600,000 - P2,520,000 - P5,040,000)

(P12,600,000 - P2,520,000 - P5,040,000)
(300,000 shares x P30)
(P5,400,000 - P810,000 - P2,295,000)
(120,000 shares x P40)

(120,000 shares x P40)
SOLUTION TO EXERCISE 5-7. TWO CLASSES OF SHARES

a.
Minimum subscription and paid-up capital
Authorized number of shares

Par value
Value of authorized shares
Multiply by 25% minimum requirement
Minimum subscribed share capital
Multiply by 25% minimum requirement
Minimum paid up share capital
b.
Number of preference shares issued

Paid-up preference shares
Divide by par value
Number of preference shares issued
c.
7,500,000
262,500
7,762,500
75,000
103.50
Issue price of ordinary shares

Paid-up ordinary shares
Share premium on ordinary shares
Total value received for ordinary shares issued
Divide by number of ordinary shares issued
Issue price of ordinary shares
f.
12,500,000
50
250,000
Issue price of preference shares

Paid-up preference shares
Share premium on preference shares
Total value received for preference shares issued
Divide by number of preference shares issued
Issue price of preference shares
e.
7,500,000
100
75,000
Number of ordinary shares issued

Paid-up ordinary shares
Divide by par value
Number of ordinary shares issued
d.
Preference
100000
100
10,000,000
25%
2,500,000
25%
625,000
Total amount of legal capital

Paid up capital
12,500,000
1,750,000
14,250,000
250,000
57.00
Preference shares
Ordinary shares
Total legal capital
g.
7,500,000
12,500,000
20,000,000
Total amount of contributed capital
Paid-up share capital

Share premium
Total amount of contributed capital
Preference
7,500,000
262,500
7,762,500
Ordinary
500000
50
25,000,000
25%
6,250,000
25%
1,562,500
Total
35,000,000
8,750,000
2,187,500
Ordinary
12,500,000
1,750,000
14,250,000
Total
20,000,000
2,012,500
22,012,500
SOLUTION TO EXERCISE 5-8. TRUE OR FALSE

1.
True
2.
False
3.
True
4.
True
5.
True
6.
True
7.
True
8.
False
The market value of a share is independent of its par or stated value.
9.
False
Unissued share capital is credited when stocks are issued under the journal en
10.
True
Any shares can be acquired through subscription.
Legal capital constitues stated or par value only.
stated value.
ed under the journal entry method.
SOLUTION TO EXERCISE 5-9. NO PAR VALUE SHARES

a.
Cash
5,500,000
Share Capital
b.
Cash
5,500,000
5,500,000
Share Capital
Premium on Shares
c.
Cash
5,000,000
500,000
5,500,000
Share Capital
Premium on Shares
2,500,000
3,000,000
Computations
(500,000 shares x P11)
(500,000 shares x P11)
(500,000 shares x P11)
(500,000 shares x P10)
(P550,000 - P500,000)
(500,000 shares x P11)
(500,000 shares x P5)
(P550,000 - P250,000)
SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE

Date
Jan
Account Title
1 MEMO ENTRY
Authorized to issue 100,000 ordinary shares
at P10 stated value per share.
Cash
10 Subscription Receivable-Ordinary
Ordinary Share Capital in Excess of Stated Value
Cash
Subscription Receivable-Ordinary
22 Land
Equipment
Merchandise Inventory
25 Cash
Subscription Receivable-Ordinary
30 Cash
Debit
Credit
250,000
250,000
125,000
100,000
25,000
37,500
37,500
350,000.00
100,000.00
95,000.00
500,000.00
45,000.00
87,500
87,500
100,000
100,000
210,000.00
150,000.00
60,000.00
(25,000 share x P10)

(25,000 share x P10)
(10,000 shares x P12.50)
(10,000 shares x P10)
(P125,000 x 20%)
(P125,000 x 20%)

[(P350,000 + P100,000 + P95000) - P500,000]
(P125,000 - P37,500)
(P125,000 - P37,500)
(10,000 shares x P10)
(100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P14)
(100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P10)
SOLUTION TO PROBLEM 5-1

a.
Amount of contributed capital

Total
Amount received for shares sold
(40,000 shares x P25)
1,000,000
Market value of equipment received for stocks issued

Contributed Capital
b.
Authorized number of shares

Less number of shares issued
For cash
In exchange of equipment
1,018,600
120,000
40,000
600
Number of unissued shares

Amount of cash collected from share capital transactions
Authorized share capital
Unissued share capital
Issued share capital
Add: Share Premium
Subscribed capital stock
Less: Subscription receivable
Cash collected from share capital transactions
Contributed capital as of December 31, 2011
Preference shares, P10 par value,
10,000 shares authorized (6,000 shares x P10)
Ordinary shares, P40 stated value per share,
40,000 shares authorized (24,000 shares x P40)
Paid-up shares
18,600
40,600
79,400
Share premium
Preference shares [6,000 shares x (P16 - P10)]
Ordinary shares (P1,200,000 - P960,000)
Contributed capital
Premium
Par
Value
Value
Per Share
Number
of Shares
400,000
600,000
15
40,000
9,600
9,000
15
600
409,600
609,000
15
40,600
300,000
120,000
180,000
8,000
60,000
32,000
28,000
216,000
60,000
960,000
1,020,000
36,000
240,000
276,000
1,296,000

Sol To Exer 5-2 - 5-3 - 5-4 - 5-5 - 5-6 - 5-7 - 5-8 - 5-9 N Problem Solving

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Sol To Exer 5-2 - 5-3 - 5-4 - 5-5 - 5-6 - 5-7 - 5-8 - 5-9 N Problem Solving

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SOLUTION TO EXERCISE 5-2 IDENTIFICATION

SOLUTION TO EXERCISE 5-3 TRUE OR FALSE

Owners of stock coporation are called shareholders or stockholders.

The powers and restrictions conferred by the government upon the

The value of a no par value share is stated in the articles of incorporation o

The manner of electing the board of directors is found in the By-Laws

SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE

Subscription Receivable-Share Capital

1 Subscription Receivable-Share Capital

Subscription Receivable-Share Capital

31 Organizational Costs & Expenses

Subscription Receivable-Share Capital

(12,500 shares x P100)

(10,000 shares x P100)

(200 shares x P100)

(10,000 shares x P100)

(5,000 shares x P100)

(50 shares x P100)

(1,000 shares x P100)

(12,500 shares shares x P100)

SOLUTION TO EXERCISE 5-5. ISSUANCE OF SHARE CAPITAL ABOVE PAR VALUE

Subscription Receivable-Share Capital

Subscription Receivable-Share Capital

12 Subscription Receivable-Share Capital

To record issuance of 3,000 shares to Darren in

Subscription Receivable-Share Capital

Subscription Receivable-Share Capital

(5 x 2,500 shares = 12,500 shares x P100)

(2000 shares x P100)

(=3 x 2,500 shares x P100 x 75%)

(3 x 2,500 shares x P100)

(1500 shares x P125)

(3,000 shares x P100)

(1,500 shares x P100)

(2 x 2,500 x P100 x 75%)

(2 x 2,500 shares x P100)

SOLUTION TO EXERCISE 5-6. TWO CLASSES OF SHARES

Authorized to issue 400,000, 9% preference

Subscribed Ordinary Share

Subscribed Preference Share

Subscribed Ordinary Share

Subscribed Preference Share

(300,000 shares x P42)

(120,000 shares x P45)

(P12,600,000 - P2,520,000 = P10,080,000 x 50%)

(P12,600,000 - P2,520,000 - P5,040,000)

(120,000 shares x P40)

SOLUTION TO EXERCISE 5-7. TWO CLASSES OF SHARES

Minimum subscription and paid-up capital

Authorized number of shares

Number of preference shares issued

Issue price of ordinary shares

Issue price of preference shares

Number of ordinary shares issued

Total amount of legal capital

Total amount of contributed capital

Paid-up share capital

SOLUTION TO EXERCISE 5-8. TRUE OR FALSE

The market value of a share is independent of its par or stated value.

Any shares can be acquired through subscription.

Legal capital constitues stated or par value only.

ed under the journal entry method.

SOLUTION TO EXERCISE 5-9. NO PAR VALUE SHARES