FINACC3_LQ1 ( 60 pts )

MULTIPLE CHOICE 2pts each a total of (20 pts)

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both are true
d. Both are false

1
Statement 1: A corporation is a separate legal entity distinguished from its owner. It is formed through operation of law and
not by mere agreement between the owners.
Statement 2: The operations of a corporation are subject to the highest degree of government regulation compared from
other forms of businesses.

2
Statement 1: Shareholders' Equity is the residual interest in the assets of a corporation after deducting all of its liabilities including
receivable to long-term capitalization
Statement 2: Sharepremium is just another subclassification of Additional Paid-in Capital

3
Statement 1 Subscription Receivable is a deduction to Equity, however, given the nature of the account, it should also be presented in
the notes to financial statement under Note 6: Trade receivables and others.
Statement 2: Only if there is sufficient retained earnings can there be a reacquisition of shares previously issued but not retired.

4
Statement 1 Mining corporations can declare and pay-out dividends out of only to the extend of unrestricted earnings in accordance of
trust fund doctrine.
Statement 2: Fair value principle is more appropriately considered in small share dividends distribution since it focuses on accounting
the changes on market value per share before and after declaration of such.

5
Statement 1 Dividends paid are disclosed either in the statement of changes in equity or in the notes.
Statement 2 Dividends declared are disclosed either in the statement of changes in equity or in the notes.

6
Statement 1 Allocation of consideration on share warrants issued with preference shares are based on fair value.
Statement 2 Allocation of consideration on share warrants issued with preference shares are based on par value if fair value is
indeterminable.

7
Statement 1 PFRS7. Quantitative disclosures are about summary of quantitative data about its exposure to risks at each reporting date.
Statement 2 PFRS7. Qualitative disclosures are about concentration of risks.

8
Statement 1 PFRS7. Quantitative disclosures focuses on any changes from the previous period in the entity’s exposure to risks, and
its objective, policy and process
Statement 2 PFRS7. Qualitative disclosures are entity’s objective, policy and process for managing the risks and its method of
measuring the risks.

9
Statement 1 For financial assets at fair value, no impairment testing is neccessary
Statement 2 For financial assets at amortized cost, impairment testing is necessary.

10
Statement 1 Stock rights recognized as embedded derivative means no cost is allocated to the stock rights
Statement 2 In case of Stock Dividends different from those held, allocate the cost of the original investment between the original
shares and the different stock dividends on the basis of par value.

PROBLEM Please provide solution, send via email and per instruction on format (a total of 30 pts)
Problem 1 Joseph Co. executed the following long-term investment transactions during the current year.

6-Feb Purchased 1,000 shares of Large Auto Co. for $40 per share plus brokerage costs of $225. These shares
were classified as trading securities.
 31-Mar Purchased 60,000 of the 200,000 outstanding common shares of New Tech Corp. for $600,000. The cost of
the investment exceed the book value of the net assets acquired by $160,000 which represents the investor's
interest in the excess of fair value over the carrying value of depreciable assets with a remaining life of twenty

20-Jun Received a $2.20 per share dividend on Large Auto Co. shares.

30-Jun New Tech Corp. reported second quarter earnings (total) of $40,000.

4-Sep Acquired 4,000 shares of Mega Conglomerate's stock for $30 per share plus $600 transaction costs. These
shares were classified as available-for-sale securities.

31-Dec Market values of Large Auto Co. and Mega Conglomerate stock were $45 and $28 per share, respectively.

P1.1 What would be the total cost recognized for Large Auto Co. at the end of the year? (2 pts)
P1.2 What would be the total cost recognized for Mega Conglomerate. at the end of the year? (2 pts)
P1.3 What would be the fair market value recognized for Large Auto Co. at the end of the year? (2 pts)
P1.4 What would be the fair market value recognized for Mega Conglomerate. at the end of the year? (2 pts)

Problem 2 Quiboloy Corporation provided the following information on shareholders Equity on December 31, 2021.

Ordinary Share Capital (500,000 of Php5.00 par authorized, 300,000 shares issued and outstanding) 1,500,000
Share Premium-Ordinary Shares 2,500,000
Preference Share Capital (100,000 shares authorized, 50,000 issued Php10 par) 1,000,000
Share Premium-Preference Shares 1,500,000
Retained Earnings 3,000,000
Total Shareholder's Equity 9,500,000

Quiboloy had the following transactions during 2022:

a. Issued 50,000 ordinary shares for Php15.00 and 20,000 preference shares for an equipment costing 400,000 pesos
and can be sold at the market for 350,000.

b. Issued 50,000 ordinary shares and 5,000 preference shares for services rendered by outside lawyers valued 700,000.
The ordinary and preference shares are selling in the market at 8 and 20, respectively.

c. Issued 25,000 ordinary shares for Php10. Incurred for the following costs for the issue:

Legal Fees 15,000

Underwriting fees 3,000
Filing fees with SEC 2,000
Transfer Agent Fees 5,000

d. Received 20,000 ordinary shares subscription at Php10.00. Later on, only half of the subscriptions were paid. The
unpaid subscriptions were offered at public auction for Php117,500 which includes interest of 10,000 and advances of
deliquency sale of 7,500. Received the following offers:

A 10,000
B 9,000
C 8,000

e. Reacquired 50,000 ordinary shares for Php11. The shares were originally issued at Php12.50. On a later date, half of
the shares were reissued for 375,000. The remaining shares were retired.

f. Received donations 10,000 of its own shares which were selling at that date at Php20.00 . The shares were then
reissued Php10.00

P2.1 2.1 How much is the total Ordinary Share Capital as of December 31, 2022? (3pts)
P2.2 2.2 How much is the total Preference Share Capital as of December 31, 2022? (3pts)
P2.3 2.3 How much is the total Share Premium as of December 31, 2022? (3pts)
P2.4 2.4 How much is the total Retained Earnings as of December 31, 2022? (3pts)
P2.5 2.5 How much is the total Shareholder's Equity as of December 31, 2022? (5pts)
 Problem 3 AYAW KO NA Co. issued 2,000 convertible bonds on January 1, 2022. The bonds have a three-year term and are issued
at par with a face value of Php1,000 per bond. Interest is payable annually in arrears at a nominal annual interest rate of
6 percent. Each bond is convertible at any time up to maturity into 250 ordinary shares. The entity has an option to settle
the principal amount of the convertible bonds in ordinary shares or in cash. When the bonds are issued, the prevailing
market interest rate for similar debt without a conversion option is 9 percent. At the issue date, the market price of one
ordinary share is P3. The issuance of convertible bonds increased the entity's equity by? (5pts)

ESSAY 5 pts each ( a total of 10 pts)

Essay 1 In most jurisdictions, decisions to pay dividends or redeem shares can be made by an entity’s ordinary shareholders in a
general meeting. Does this constitute a contractual obligation to deliver cash or another financial asset to another party,
thereby resulting in the ordinary shares being classified as financial liabilities? Please answer Yes or No and explain your
basis.

Essay 2 Entity A issues a perpetual debt instrument which bears notional interest at 5% per annum. The interest payment is at
the discretion of Entity A, but becomes mandatory if Entity A declares a dividend on its ordinary shares. Should Entity A
classify the instrument as a financial liability or equity? Please explain your basis.
h reporting date.