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PROBLEM NO.

1 - Conviction Corporation
Question Nos. 1, 3 to 5 - B
Authorized common stock
Unissued common stock
Common stock issued
Subscribed common stock
Subscriptions receivable
Additional paid-in capital
Donated capital
Gain on sale of treasury stock
Premium on capital stock
Stock warrants outstanding
Retained earnings
Appropriated for sinking fund
Appropriated for treasury stock
Total appropriated retained earnings
Unappropriated (P720,000 - P144,000)
Revaluation surplus
Total
Less : Treasury stock
Net unrealized loss on AFS
Total stockholders equity

4,000,000
(800,000)
3,200,000
480,000
(120,000)
800,000
80,000
320,000
200,000
400,000
144,000
544,000
576,000

(144,000)
(96,000)

360,000

1,400,000

1,120,000
800,000
6,880,000
(240,000)
6,640,000

Question No. 2 - B
Common stock issued
Subscribed common stock
Legal capital

3,200,000
480,000
3,680,000

AP-5801

PROBLEM NO. 2 - Determination, Inc.


2005
Transactions

12.31.04
Common stock

Additional paid in capital

Retained earnings
Total stockholders' equity

1,125,000

10,800,000

720,000

2/1
7/31
10/1
2/1
2/1
4/1
7/31
10/1
10/1
12/1
12/1
12/31

20,250
111,825
18,000
(33,750)
249,750
12,000
1,379,175
(12,000)
234,000
(191,250)
191,250
375,750

12,645,000

12.31.05
1,275,075

(1)

12,629,175

(2)

1,095,750

(3)

15,000,000

(4)

Journal entries for 2005


2/1

4/1

Cash (6,750 options x P35)


APIC-stock options (6,750 x P5)
Common stock (6,750 shares x P3)
APIC - excess over par
Cash
Bond discount [P3,000,000 - (3,000 x P996)]
Bonds payable
APIC-stock warrants

236,250
33,750
20,250
249,750
3,000,000
12,000
3,000,000
12,000

7/1

Memorandum: Issued rights to shareholders permitting holder to acquire for a


30-day period one share at P40 with every 10 rights submitted
a maximum of 38,175 shares (381,750 shares 10).

7/31

Cash {[38,175 - (9,000/10)] x P40}


Common stock (37,275 shares x P3)
APIC - excess over par

10/1

12/1

1,491,000
111,825
1,379,175

Cash (3,000 x 2 x P40)


APIC-stock warrants
Common stock (3,000 shares x 2 x P3)
APIC - excess over par

240,000
12,000

APIC-stock options [P225,000 - (6,750 x P5)]


APIC - expired stock options

191,250

12/31 Income summary


Retained earnings

18,000
234,000
191,250
375,750
375,750

PROBLEM NO. 3 - Resilience Corporation


2005
Transactions

12.31.04
Preferred stock
Common stock

1,800,000
5,150,000

APIC - Preferred
APIC - Common

90,000
3,500,000

Retained earnings

4,000,000

Treasury stock
Net unrealized loss on AFS
Total stockholders' equity

(270,000)
(245,000)

a
c
d

(150,000)
1,050,000
400,000

a
c
d
b
e
g
h
a
f

(120,000)
1,260,000
240,000
(750,000)
(180,000)
(275,000)
2,600,000
270,000
110,000

14,025,000

12.31.05
1,800,000
6,450,000 (11)

90,000
4,880,000 (12)

5,395,000 (14)

(135,000)
18,480,000 (15)

Journal entries for 2005


a

Common stock (30,000 shares x P5)


APIC-common
Treasury stock

150,000
120,000

Retained earnings
Trading securities

750,000

270,000
750,000

Memorandum: Issued rights to shareholders permitting holder to acquire at P11


with every 4 rights submitted a maximum of 250,000 shares (1,000,000 shares 10).

Cash [(840,000/4) x P11]


Common stock ([(840,000/4) x P5)
APIC-common

e
f
g

2,310,000
1,050,000
1,260,000

Cash (80,000 x P8)


Common stock (80,000 x P5)
APIC-common

640,000

Retained earnings
Dividends payable-PS

180,000

Net unrealized loss on AFS


Available for sale securities

110,000

Retained earnings
Income tax payable
Rent income

275,000
225,000

Income summary
Retained earnings

400,000
240,000
180,000
110,000

500,000
2,600,000
2,600,000

PROBLEM NO. 4 - Fortitude Company

Requirement no. 1
01/02/05 Capital stock [50,000 shares (P120-P100)]
Additional paid-in capital

1,000,000
1,000,000

08/30/05 Treasury stock


Capital stock

550,000

12/01/05 Retained earnings


Treasury stock (2,500 shares x P110)
APIC from reissuance of treasury stock

287,500

12/29/05 Retained earnings (P617,500 - P545,000)


Capital stock
Stock dividends distributable (4,750 x P100)
APIC - excess over par value

72,500
545,000

Shares issued
Treasury stock (5,000 -2, 500)
Shares outstanding
Dividend rate (small stock dividend)
Shares to be issued
Market value per share
Total amount to be charged to RE
Total par value of stock dividend payable
APIC - excess over par
12/31/05 Retained earnings (2,500 shares x P110)
Retained earnings appropriated for treasury stock

550,000

275,000
12,500

475,000
142,500
50,000
(2,500)
47,500
10%
4,750
130
617,500
475,000
142,500
275,000
275,000

Requirement no. 2
Capital stock (P5,995,000-P1,000,000+P550,000-P545,000)
Stock dividends distributable
APIC (P1,000,000+P12,500+P142,500)
Retained earnings-appropriated
Retained earnings (P3,742,500-P287,500-P72,500-P275,000)
Total
Treasury stock (P550,000-P275,000)
Total stockholders' equity

5,000,000
475,000
1,155,000
275,000
3,107,500
10,012,500
(275,000)
9,737,500

(1) C
(2) C
(3) C
(4) C
(5) C

PROBLEM NO. 5 - Endurance Company


Requirement no. 1
a
b
d
g
h
i
j
k
l
q
r

Fire loss
Retained earnings

5,250

Goodwill write off


Retained earnings

52,500

Loss on sale of equipment


Retained earnings

48,300

5,250
52,500
48,300

Retained earnings
APIC-excess of par

129,500

APIC-excess of par
Retained earnings

10,000

Retained earnings
APIC from forfeited subscriptions

129,500
10,000
8,470
8,470

Retained earnings
APIC from retirement of preferred stock

25,900

Retained earnings
Gain on early retirement of bonds

15,050

Retained earnings
Gain on life insurance settlement

10,500

Retained earnings
Donated capital

40,000

Retained earnings
Revaluation increment in property

25,900
15,050
10,500
40,000
250,000
250,000

Requirement no. 2

Jan. 1
c
e
f
m
n
o
p
s

Unadjusted retained earnings balance


a
b
d
g
h
i
j
k
l
q
r
Correct amount of RE before net income(loss)
OR
Balance
Stock dividend
Officers compensation related to income
of prior periods accrual overlooked
Loss on retirement of preferred shares
at more than issue price
Correction of prior-period error
Effect of change in accounting principle
from FIFO to weighted average
Dividends payable
Loss on sale of treasury stock
Appropriated for property acquisition
Correct amount of RE before net income(loss)

559,320
5,250
52,500
48,300
(129,500)
10,000
(8,470)
(25,900)
(15,050)
(10,500)
(40,000)
(250,000)
195,950
726,400
(140,000)
(325,500)
(70,000)
50,050
100,000
(25,000)
(20,000)
(100,000)
195,950

PROBLEM NO. 6 - Guts Company


Requirement No. 1
Capital stock
Preferred stock
Common stock
APIC
Premium on preferred stock
Premium on common stock
Retained earnings
Retained earnings, appropiated - bond retirement
Retained earnings, unappropiated
Total
Less treasury stock, at cost
Stockholders' equity

400,000
800,000

1,200,000

150,000
165,000

315,000

320,000
458,600

778,600
2,293,600
84,000
2,209,600

Requirement No. 2

Balances
Preferred dividend (P340,000 x 6%)
Liquidation premium (3,400 x P15)
Balance to common
Total
Divide by outstanding shares
Book value per share

Excess
over par
1,069,600 *
(20,400)
(51,000)
998,200

Preferred
340,000
20,400
51,000

**

998,200
1,798,200
8,000
224.78

411,400
3,400
121.00

* Premium on preferred stock


Premium on common stock
Retained earnings, appropiated - bond retirement
Retained earnings, unappropiated
Excess of cost of TS over par (P84,000 - P60,000)
Excess over par

Common
800,000

150,000
165,000
320,000
458,600
(24,000)
1,069,600

Note: For computation of BV/share purposes, TS is treated as a retired stock.

Shares
4,000
(600)
3,400

** Preferred stock issued


Tresury stock, at par (600 x P100)
Outstanding preferred stock

Amount
400,000
(60,000)
340,000

Requirement No. 3

Balances
Preferred dividend (P340,000 x 6%)
Liquidation premium (3,400 x P15)
Common dividend (P800,000 x 6%)
Balance for participation

Excess
over par
1,069,600 *
(20,400)
(51,000)
(48,000)
950,200

Preferred
340,000
20,400
51,000

**

Common
800,000

48,000

Preferred (340/1,140 x P950,200)


Common (800/1,140 x P950,200)

283,393

Total
Divide by outstanding shares
Book value per share

694,793
3,400
204.35

666,807
1,514,807
8,000
189.35

Page 1 of 1

PROBLEM NO. 7 - Courage Company


Basic earnings per share for 2004:
Net income for 2004
Less preferred stock dividend (270,000 x 12%)
Net income identified with common stock
Divide by weighted average number of common shares
Basic earnings per share

1,345,040
32,400
1,312,640
153,360
8.56

*Computation of weighted average


Jan. 1 (65,000 x 1.08* x 2**)
May 1 (9,000 x 1.08* x 2**)
Total
Divide by
Weighted average number of shares for 2004
*Stock dividend issued on 7.31.04
**2-for-1 stock split issued on 5.31.05

No. of shares
140,400
19,440

Basic earnings per share for 2005


Net income for 2005 (see computation below)
Less preferred stock dividend (see computation below)
Net income identified with common stock
Divide by weighted average number of common shares
Basic earnings per share
Computation of net income for 2005
Retained earnings, 12/31/05
Retained earnings, 12/31/04
Increase in retained earnings
Add dividends declared in 2005:
Preferred (P330,000 x 12%)
Common (P1,642,400/P10 =
164,240 - 1,000 treasury shares =
163,240 shares x P4)
Net income for 2005

Mos. o/s
12
8

Total
1,684,800
155,520
1,840,320
12
153,360

991,520
39,600
951,920
163,707
5.81

1,884,800
1,585,840
298,960
39,600

652,960

692,560
991,520

**Computation of weighted average


Jan. 1 (79,920 x 2*)
Feb. 1 (2,200 x 2*)
Sept. 1
Nov. 1
Total
Divide by
Weighted average number of shares for 2005
*2-for-1 stock split issued on 5.31.05
PROBLEM NO. 8
1) A
6) C
2) A
7) D
3) D
8) A
4) B
9) D
5) C
10) A

No. of shares
159,840
4,400
(1,000)
1,000

Mos. o/s
12
11
4
2

Total
1,918,080
48,400
(4,000)
2,000
1,964,480
12
163,707