CORPORATION – PROBLEMS

True or False

1. Authorized share is the maximum number of shares that the corporation can issue.
2. Share capital is always recorded at market value stated in the Article of Incorporation and
Certificate of Shares.
3. Whenever there is authorization to issue shares, the corporation uses a memorandum
entry to record it.
4. Issued shares are subscribed shares plus treasury shares.
5. When the subscribed shares are already fully paid, the entry in the book of the
corporation will be debit- subscription receivable and credit- subscribed share capital.

Multiple Choices

1. It is the portion of paid-in capital that represents shareholder contributions in excess of par.

a. Share Capital
b. Share Premium
c. Retained Earnings
d. Outstanding shares

2. These are shares that are part of authorized shares sold and paid in full.

a. Subscribed Shares
b. Treasury Shares
c. Outstanding Shares
d. Issued Shares

3. It is a certificate granted to a corporation by the Securities and Exchange Commission

when the commission determines that the documents and information presented are fully
adhering to the RCCP and other applicable laws, rules, and regulations.

a. Certificate of Stocks
b. Certificate of Incorporation
c. Certificate of Compliance
d. Articles of Incorporation

4. To record the issued shares that have been repurchased by the corporation in cash, the
entry will be:
 a. Cash xx
Share Capital xx

b. Subscribed Share Capital xx

Share Capital xx

c. Treasury Shares xx
Cash xx

d. Income Summary xx
Retained Earnings xx

5. These are shares which are at the hands of the shareholders of the corporation.

a. Issued Shares
b. Authorized Shares
c. Outstanding Shares
d. Treasury Shares

Problem Solving

1. The condensed balance sheet of the partnership of Danny and Sandy as of December 31,
2022 showed the following:

Total assets P200,000

Total liabilities 40,000
Danny, capital 80,000
Sandy, capital 80,000

On this date, the partnership was dissolved and its net assets were transferred to a newly-
formed corporation. The fair value of the assets was P24,000 more than the carrying value of
the firm’s books. Each of the partners was issued 10,000 shares of the corporation’s P1 par
common stock. Immediately after effecting the transfer of the net assets, and the issuance of
stock, the corporation’s additional paid in capital account would be credited for:
 a. P136,000
b. P140,000
c. P154,000
d. P164,000

2. Lana, Dana, and Tana, partners sharing profits and losses equally, decided to form a
corporation. They have capital balances, respectively, ofP100,000, P100,000, and P200,000,
and all of their assets and liabilities will be transferred to the corporation. Their net assets
will be revalued from P400,000 to P550,000, with the substantial revaluation due to land
which was originally contributed by Nat at P100,000. At P10 par value, the partners are to
receive shares of stock as follows:

a. 10,000, 10,000, and 35,000, respectively

b. 12,500, 12,500, and 30,000, respectively
c. 15,000, 15,000, and 25,000, respectively
d. 18,333, 18,333, and 18,334, respectively

3. Partners Simba and Nala, who share equally in profits and loses, have the following balance
sheet as of December 31, 2022:

Cash P120,000 Accounts Payable P172,000

Accounts Receivable 100,000 Accumulated Depreciation 8,000
Merchandise Inventory 140,000 Simba, Capital 140,000
Equipment 80,000 Nala, Capital 120,000
Total P440,000 Total P440,000

They agreed to incorporate their partnership, with the new corporation absorbing the net
assets after the following adjustments: Provision of allowance for bad debts of P10,000;
Statement of the inventory at its current fair value of P160,000; and, Recognition of further
depreciation on the equipment of P3,000. The corporation’s capital stock is to have a par
value of P100, and the partners are to be issued corresponding total shares equivalent to their
adjusted capital balances.

The total par value of the shares of capital stock that were issued to partners Sun and Moon
was:

a. P260,000
b. P267,000
c. P273,000
 d. P280,000

4. Rick Company was organized on January 1, 2021. On that date, the entity issued 200,000,
P10 par value shares at P15 per share.

During the period January 1, 2021, through December 31, 2021, the entity reported net
income of P750,000 and paid cash dividends of P380,000.

On January 5, 2022, the entity purchased 12,000 treasury shares at P12 per share. On
December 31, 2022, 8,000 treasury shares were sold at P8 per share.

What is the shareholder’s equity on December 31, 2022?

a. 3,290,000
b. 3,306,000
c. 3,338,000
d. 3,370,000

5. Marty Company issued 100,000 ordinary shares. Of these, 5,000 shares were held as treasury
at the beginning of the current year.

During the year, the following transactions occurred:

Feb. 1 1,000 shares of treasury were sold.

Aug. 5 10,000 unissued shares were sold.
Nov. 8 A 2 for 1 share split took effect.

How many shares were issued and outstanding at year-end?

Issued Outstanding
a. 220,000 212,000
b. 220,000 216,000
c. 222,000 214,000
d. 222,000 218,000

6. At the beginning of the current year, Faith Company approved a 2-for-1 spilt of the entity’s
share capital.

The shareholder’s equity accounts immediately before the issuance of the share split were as
follows:
 Share capital, par value P20. 50,000 shares outstanding 1,000,000
Share premium, P3 per share on issuance 150,000
Retained earnings 1,350,000

What should be the balances in the share premium and retained earnings accounts
immediately after the share split is effected?

Share Premium Retained Earnings

a. 0 500,000
b. 150,000 350,000
c. 150,000 1,350,000
d. 1,150,000 350,000

7. Roma Company was organized at the beginning of the current year with an authorization of
1,200,000 ordinary shares with a par value of P6 per share.

During the current year, the entity had the following capital transactions:

Jan-05 Issued 675,000 shares at P10 per share.

Aug-28 Purchased 90,000 treasury shares at P11 per share.
Dec-31 Sold the 90,000 shares held in treasury at P18 per share.

The entity used the cost method to record the purchase and reissuance of the treasury shares.

What is the total amount of share premium at year-end?

a. 3,330,000
b. 2,070,000
c. 2,700,000
d. 0

8. Dayron Company reported the following shareholder’s equity at the beginning of the current
year:

Share capital, 250,000 shares authorized, P30 par,

100,000 shares issued and outstanding 3,000,000
Share premium 4,000,000
Retained earnings 8,000,000
 The Board of Directors declared a 10% share dividend on April 1 when the market value of
the share was P70.

The share dividend was issued on July 1 when the market value of the share was P100.

The entity sustained a net loss of P1,200,000 for the current year.

What amount should be reported as retained earnings at year-end?

a. 6,100,000
b. 6,500,000
c. 6,800,000
d. 5,050,000

9-10. Dream Company reported the following shareholder’s equity on December 31, 2022:

8% cumulative preference share capital, P50 par,

liquidating value of P55 per share, 20,000 issued
and outstanding shares 1,000,000

Ordinary share capital, P25 par, 100,000 issued and

outstanding shares 2,500,000

Retained earnings 400,000

Dividends on preference shares have been paid through 2020 but have not been declared for
2021 and 2022.

What is the book value per preference share?

a. 61.00
b. 59.00
c. 63.00
d. 67.00

What is the book value per ordinary share?

a. 25.00
b. 27.20
c. 26.40
d. 29.00