Pages 391-392

Compute for the earnings per share, return on equity and book value per share given the
following independent situations:
a) Assets 2 500 000
Liabilities 450 000
Capital Stock, par P50 1 500 000
Retained Earnings (including net income of P250 000 for the year) 550 000
Earnings per share:
250 000/ 30 000 = P8.33
Return on Equity:
250 000/ 2 050 000 = 12.20%
Book value per share:
2 050 000/ 30 000 = P68.33

b) Net Assets 1 750 000

Outstanding common shares 50 000
Retained Earnings of which Net Income is P500 000 1 500 000

Earnings per share:

500 000/ 50 000 = P10
Return on Equity:
500 000/ 1 750 000 = 28.57%
Book value per share:
1 750 000/ 50 000 = P35

c) 10% Preference Share, par P100, issued

and outstanding 5 000 shares 500 000
Ordinary Shares, par P10, issued and
outstanding 75 000 shares 750 000
 Retained Earnings of which P500 000 is net
income for the year 1 400 000
*Non-cumulative and non-participating*

Earnings per Share:

500 000 – 50 000/ 75 000 = P6
Return on Equity:
450 000/ 2 100 000 = 21.43%
Book value per share:

Particulars Total Net Assets Preference Ordinary

Par Value 1 250 000 500 000 750 000
Dividends (5 000 x 100 x .10) 50 000 50 000
Remainder (1 400 000 – 1 300 000) 100 000 100 000
Total 1 400 000 550 000 850 000

Preference book value

550 000/ 5 000 = P110
Ordinary book value
850 000/ 75 000 = P11.33

d) Cumulative and Participating, no dividends for 2 years

Particulars Total Net Assets Preference Ordinary

Par Value 1 250 000 500 000 750 000
Dividends 0 0
Remainder 150 000 150 000
Total 1 400 000 500 000 900 000

Preference book value

500 000/ 5 000 = P100
Ordinary book value
900 000/ 75 000 = P12
Page 227
#9 – The Stockholders’ equity section of Kay Corporation at the end of 2015.
a) What is the peso amount to be reported for preference shares?

- 6 000 shares issued x P50 par = P300 000

b) What is the average price for which ordinary shares were issued?

- [(# shares issued x par value) + paid in capital] / # of shares issued.

- [(50 000 x P10) + 120 000]/50 000
- P12.4

c) If preference shares were issued at an average price of P53 per share, what amount
should appear on the paid-in capital in excess of par?

- P50 par – P53 average = P3; 6 000 x P3 = P18 000

d) What is the average cost per share of treasury stock? (Round to the nearest cent)

- 8 400/ 350 = P24

e) What is the revised retained earnings if the net income for the year is P167 000 and total
dividends declared is P50 000?

- Retained Earnings, Jan 1 P86 000

Add: Net Income 167 000
Less: Dividends (50 000)
Total P203 000

f) Shareholders’ equity:

Paid In Capital
6% Preference shares, P50 par, 10 000 shares authorized and 6 000 shares issued P300 000
Ordinary shares, P10 par, 80 000 shares authorized and 50 000 shares issued 500 000
Total 800 000
Additional Paid In Capital
Paid-in capital in excess of par – Preference Share 18 000
Paid-in capital in excess of par – Ordinary Share 120 000
Total Paid In Capital 938 000
Retained Earnings, Dec 31 203 000
Less: Treasury Shares (350 ordinary shares at cost) (8 400)
Total Shareholder’s Equity 1 132 600
Page 228
#10 – At December 31, 2015, the records of Kosme Corporation provided the following selected
and incomplete data:
Common stock (par P5; no changes during 2015)
Shares authorized, P5 000 000
Shares issued _______; issued price P8 per share
Shares held as treasury stock, 10 000 shares, cost P6 per share.
Net Income for 2015, P481 000
Share Capital, P2 000 000
Cash Dividend declared and paid January 10, 2015 at P2 per share.
20% Stock Dividend distributed on December 20, 2015
Retained Earnings balance, January 1, 2015, P4 800 000
Answers:
a) Share authorized,1 000 000 and issued 400 000
(P5 000 000/ P5); (2 000 000/P5)

b) Shares outstanding, 390 000

(400 000 - 10 000)

c) Additional Paid in Capital, P1 200 000

(400 000 x P3)

d) Earnings per share, P1.23

(481 000/390 000)

e) Amount of dividends paid, P390 000

(390 000 x P5 x .20)

f) Amount of treasury shares, P60 000

(10 000 x P6)

g) Free retained earnings, P4 350 000

(4 800 000 – 60 000 – 390 000 = 4 350 000)
#11 – The following account balances were selected from the records of wine maker of Grace
Corporation at December 31, 2015, after adjusting and closing entries showed a net income of
P84 000;
Share Capital (par P15; authorized 100 000 shares, issued
35 000 shares of which 1 000 shares are held as treasury stock) P525 000
Additional paid-in capital 180 000
Dividends declared and paid 28 000
Retained Earnings, January 1, 2015 76 000
Treasury stock at cost, January 1 (1 000 shares) 20 000

Grace Corporation
Statement of Retained Earnings
For the year ended December 31, 2015

Unappropriated:
Balance, January 1 76 000
Add: Net Income 84 000
Total 160 000
Less: Dividends Declared 28 000
Appropriation Reserved for 20 000 (48 000) 112 000
Treasury Shares
Appropriated for Treasury Share 20 000
Retained Earnings, December 31 132 000

Stockholders’ Equity

Share Capital 525 000

Additional Paid In Capital 180 000
Retained Earnings 132 000
L: Treasury Shares (20 000)
Total Stockholders’ Equity 817 000

a) Number of shares of stock that received dividends is 34 000

b) Earnings per share, P2.47 (84 000/ 34 000)

Price-Earnings Ratio, P32.39 (80/2.47)

Returned on Equity, 10.28% (84 000/817 000)

Page 229
#12 – An examination of the ledger of Fernando Corporation revealed the following balances on
January 2, 2015.
Ordinary Share Capital, 30 000 shares authorized,
P50 par, 20 000 issued of which 1 000 are in treasury 1 000 000
Share Premium 600 000
Appropriation Reserve for Plant Expansion 50 000
Appropriation Reserve for Treasury Stock 36 000
Unappropriated Retained Earnings 750 000
Treasury Shares at cost, 1 000 shares 36 000

a) Entries
1/10 – Retained Earnings (19 000 x P20) 380 000
Cash Dividends Payable 380 000

1/25 – Record cash dividends of 380 000 to entitled shareholders

2/4 – Retained Earnings 100 000

Appropriation Reserved for Plant Expansion 100 000

2/10 – Cash 380 000

Cash Dividends Payable 380 000

5/15 – Cash 28 000

Treasury Shares 25 200
(36 000/ 1 000 = 36); (700 x P36)
Paid In Capital from Treasury Stock 2 800

6/1 – Retained Earnings 95 000

Scrip Dividends Payable 95 000
11/1 – Scrip Dividends Payable 95 000
Interest Expense (18% x 95 000 x 153/360) 7 267.5
Cash 102 267.5

12/31 – Investment in Ayala Corporation 250 000

Cash 250 000

12/31 – Income Summary 250 000

Retained Earnings 250 000

Fernando Corporation
Statement of Changes in Shareholders’ Equity
For the year ended December 31, 2015

Share Share Unappropriated Treasury

Capital Premium Retained Reserves Shares Total
Earnings
January 2 P1 000 000 P600 000 P750 000 P86 000 (P36 000) P2 400 000
Dividends (380 000) (380 000)
Appropriated
Plant Expansion (100 000) 100 000
Issuance of TS (25 200) 25 200
Dividends (95 000) (95 000)
Net Income 250 000 250 000
December 31 1 000 000 600 000 425 000 160 800 (10 800) 2 175 000
 Shareholders’ Equity
Share Capital 1 000 000
Share Premium 600 000
Retained Earnings
Unappropriated 425 000
Appropriated for Treasury Shares 150 000
Appropriated for Plant Expansion 10 800 585 800
Total 2 185 800
L: Treasury Shares (10 800)
Shareholders’ Equity 2 175 000

Return on Equity:
- 250 000/ 2 175 000 = 11.49%
Earnings per share
- 250 000/ 19 000 = P13.16
#13 - Ruth beer Corporation
Statement of Comprehensive Income
For the year ended December 31, 2015

Note
Net Sales 1 1 447 540
Cost of Sales 2 878 600
Gross Profit 568 940
Distribution Cost (105 000)
Administrative Expense 3 (253 500)
Operating Income 210 440
Interest Expense (38 800)
Net Income before Tax 171 640
30% Tax Provision 51 492
Net Income to Retained Earnings 120 148
Other Comprehensive Income
Interest Revenue 2 400
Dividend Income 12 500
Gain on Forward 50 000
Total Comprehensive Income 185 048
Note 1 – Net Sales
Sales 1 483 000
Less: Sales Return and Allowances (13 800)
Sales Discount (21 660)
Net Sales 1 447 540

Note 2 – Cost of Sales

Merchandise Inventory, January 1 265 000
Purchases 980 000
Freight in 7 500
Less: Purchase Return and Allowances (21 800)
Purchase Discount (19 600)
Merchandise Inventory, December 31 (332 500)
Cost of Sales 878 600

Note 3 – Administrative Expense

Salaries Expense 133 000
Supplies Expense 9 000
Telephone Expense 10 500
Utilities Expense 60 000
Insurance Expense 10 000
Depreciation Expense – Office Equipment 31 000
Freight Out 7 200
Total Administrative Expense 260 700
 Ruth beer Corporation
Statement of Retained Earnings
For the year ended December 31, 2015

Unappropriated:
Balance, January 1 1 375 000

Add: Net Income 185 048

Total 1 560 048

Less: Dividends Declared (500 000)
Retained Earnings, December 31 1 060 048

Evaluate profitability of the firm based on the following industry rates:

Gross profit rate is 40%
568 940/ 1 447 540 = 39.30%
- The gross profit given in the industry rate is 40% which is close enough with the
actual gross profit rate of 39.30%.
Return on sales or profit margin should be less than 10%
210 440/ 1 447 540 = 14.58%

- The return on sales or the profit margin is not less than 10% as given in the industry
rate.
Earnings per share
185 048/ 50 000 = P3.70
Page 230
#14 – On April 1 Blue Sea Corporation’s shareholders’ equity section showed the following:
Share Capital, P10 par, 50 000 shares authorized, 25 000 issued 250 000
Share Premium 375 000
Retained Earnings 450 000
Treasury Stock (8 000 shares at cost) (90 000)
Total 985 000

a) Journal entries
4/10 – Treasury Shares 100 000
Cash (5 000 x P20) 100 000

4/15 – Cash (5 000 x P30) 150 000

Treasury Share (5 000 x P20) 100 000
APIC from Treasury Share 50 000

5/15 – Retained Earnings (25 000 – 8 000); (17 000 x P.50) 8 500
Cash Dividend Payable 8 500

6/10 – Retained Earnings (17 000 x .10 x P32) 54 400

Stock Dividends Payable (17 000 x .10 x P20) 17 000
PIC from Stock Dividends 37 400

Stock Dividends Payable 17 000

Ordinary Shares 17 000

6/30 – Cash 8 500

Cash Dividend Payable 8 500
 7/30 – Income Summary 175 000
Retained Earnings 175 000

Retained Earnings 90 000

Appropriation Reserved for Treasury Shares 90 000

b) Shareholders’ equity section

Blue Sea Corporation

Statement of Changes in Shareholders’ Equity
For the month ended July 31, 2015

Share Share Retained Appropriatio Treasury

Capital Premium Earnings n Shares Total
Reserves
April 30 P250 000 P425 000 P450 000 (P90 000) P1 035 000
Dividends (8 500) (8 500)
Dividends 17 000 37 400 (54 400)
Income Summary 175 000 175 000
Reserved (90 000) 90 000
July 31 P267 000 P462 400 P472 100 P90 000 (P90 000) P1 201 500
#15 – The shareholders’ equity of THAI Corporation on December 31, 2015 appeared as
follows:
18% Cumulative Preference Shares, par P50, authorized
250 000 shares, issued 150 000 7 500 000
Ordinary Shares, par P100 authorized 100 000 shares,
issued 80 000 shares 8 000 000
Share Premium on Common Stock 500 000
Unappropriated Retained Earnings 4 750 000
Appropriation Reserve for Contingencies 725 000

a) Entries:
1/15 – Retained Earnings 2 500 000
Cash Dividends Payable – Preference 1 350 000
Cash Dividends Payable – Ordinary 1 150 000

Cash Dividends Payable – Preference 1 350 000

Cash Dividends Payable – Ordinary 1 150 000
Cash 2 500 000

Particulars Preference Ordinary Total

Preference 1 350 000
(150 000 x .18 x 50 x 1) 1 350 000
Ordinary 1 150 000 1 150 000
Total 1 350 000 1 150 000 2 500 000

2/15 – Treasury Ordinary Share (5 000 x P120) 600 000

Cash 600 000

4/1 – Retained Earnings 200 000

Appropriation for Contingencies 200 000

5/31 – Cash (1 000 x P125) 125 000

Treasury Ordinary Shares (1 000 x P120) 120 000
PIC from Treasury Shares 5 000
6/1 – Retained Earnings (10% x 76 000 x P120) 912 000
Stock Dividends Payable - Ordinary (10% x 76 000 x P100) 760 000
PIC from Stock Dividends 152 000

Stock Dividends Payable – Ordinary 760 000

Ordinary Share 760 000

7/1 – Appropriation for Contingencies 200 000

Retained Earnings 200 000

12/31 – Ordinary Share (2 000 x P100) 200 000

Share Premium (2 000/ 80 000 x 500 000) 50 000
Treasury Ordinary Shares (2 000 x P120) 240 000
PIC from Stock Retirement 10 000

Income Summary 1 750 000

Retained Earnings 1 750 000

Retained Earnings (2 000 x P120) 240 000

Appropriation Reserved for Treasury Shares 240 000
 SHAREHOLDERS’ EQUITY

Paid In Capital
18% Preference Share Capital, par value of P50
authorized 250 000 shares, issued 150 000 7 500 000

Ordinary Share Capital, par value of P100,

authorized 100 000 shares, issued 85 600 8 560 000
Total 16 060 000
Additional Paid in Capital
Ordinary Share Premium 500 000
PIC from Treasury Shares 5 000
PIC from Stock Retirement 10 000
PIC from Stock Dividends 152 000
Total Paid in Capital 16 727 000
Retained Earnings
Unappropriated 2 848 000
Appropriated for Treasury Shares 240 000
Appropriation Reserved for Contingencies 725 000 3 813 000
Total 20 540 000
Less: Treasury Shares (240 000)
Total Shareholders’ Equity 20 300 000