HO4 (Shareholders Equity) AUDITING PROBLEMS

1. Cyprus Company began operations on January 1. Authorized were 20,000 shares of P10 par,
ordinary share and 40,000 shares of 10%, P100 par convertible preference share. The
following transactions occurred during the first year of operations.

Issued 500 shares of ordinary share to the corporation promoters in exchange

1.1 for property valued at P170,000 and services valued at P70,000
Issued 10,000 shares of convertible preference shares with a par value of P100.
Each share can be converted to 5 ordinary shares. The share was issued at a
price of P150 per share and the company paid P75,000 to an agent for selling
2.28 the shares
3.31 Sold 3,000 ordinary shares for P390 per share. Issue costs were P25,000
4.30 4,000 ordinary shares were sold under share subscriptions at P450 per share
Exchanged 700 ordinary shares and 1,400 preference shares for a building with
a fair value of P510,000. In addition, 600 ordinary shares were sold for
7.30 P240,000 cash.
Received payments in full for half of the share subscriptions and payments on
8.30 account on the rest of the subscriptions. Total cash received was P1,400,000
Declared a cash dividend of P10 per share on preference share payable on
December 31 to shareholders of record on December 15 and a P20 per share
cash dividend on ordinary share, payable on January 5 of the following year to
12.1 shareholders of record on December 15
12.31 Paid the dividend to preference shares
12.31 Net income was 600,000

Compute the balances of each of the following accounts:

a) Preference shares= 1,140,000
b) Share premiumpreference shares= 515,000
c) Ordinary share= 68,000
d) Share premiumordinary shares= 3,617,000
e) Accumulated profits= 310,000

2. The Accumulated Profits account of Billy Jean Corp. shows the following debits and credits
for the year 2011:

UNAPPROPRIATED ACCUMULATE PROFIT

Date Debit Credit Balance
Jan
1 Balance 565,500
(a) Gain on life insurance policy settlement 50,000 615,500
(b) Write off of intangibles (goodwill) 30,000 585,500
Effect of a change in accounting principle (from FIFO to
(c) weighted average) 100,000 685,500
Loss on sale of treasury shares (APIC from treasury share
(d) transactions is enough to cover the loss) 20,000 665,500
10% share dividends on 100,000, P10 par value shares
(e) issued and outstanding (FMV at the same date at P12.50) 100,000 565,500
(f) 2010 unaccrued employee compensation 160,000 405,500
(g) Premium on ordinary shares issued 65,000 470,500
Stock issuance expenses related to ordinary shares issued
(h) above 5,000 465,500
(i) Defaults on ordinary share subscription 15,000 480,500
(j) Loss on sale of an equipment 25,000 455,500
Gain on retirement of preference shares at less than issue
(k) price 35,000 490,500
(l) Gain on early retirement of bonds 12,500 503,000
(m) Correction of a prior period error 45,000 548,000
HO4 (Shareholders Equity) AUDITING PROBLEMS

(n) Cash dividends payable 75,000 473,000

(o) Inventory loss from flood 10,500 462,500
(p) Proceeds from sale of donated shares 37,500 500,000
(q) Revaluation increase in land 150,000 650,000
(r) Appropriations for plant expansion 100,000 550,000
(s) Net income for the period 175,000 725,000

Required:
a) Adjusted net income= 172,000
b) Corrected unappropriated profits restated beginning balance= 550,500
c) Corrected unappropriated profits ending balance= 422,500

3. Nevada Square has the following selected accounts in its shareholders equity section as of
December 31, 2013:

Preference shares, P100 par, 10% cumulative, 100,000

shares issued and outstanding P10,000,000
Ordinary shares, P20 par, 1,000,000 shares authorized,
700,000 shares issued and outstanding 14,000,000
Share Premium 8,000,000
Accumulated Profits 30,000,000

There are no dividends in arrears on the preference shares. During 2014, the following
transactions occurred:
The board of directors declared a cash dividend totalling to P2,800,000 to be paid to
preference and ordinary shareholders. Later, a share dividend of 100,000 ordinary
shares were declared on ordinary shares. The market value of ordinary shares is P68
per share on the date the share dividends were declared.
Sometime after the above dividends were declared and settled, the board of directors
declared as property dividends one share of its investment in Bingo Corp. stocks being
held by the company as trading securities for every two ordinary shares outstanding.
Bingo Corp. stocks were originally purchased by the company at P12 per share and
have a carrying value based on their fair value as per the last remeasurement (balance
sheet) date, at P20 per share. Bingo Corp. shares were selling at P24 when the
property dividends were declared and were selling at P25 when the property dividends
were settled. The company had a total of 500,000 shares of Bingo Corp. shares.
At the end of 2014, the board declares a four-for-one share split. With the split, the
number of ordinary shares authorized to be issued increased to 4,000,000. At the date
of the share split, the market value of ordinary shares is P75 per share.
Net earnings during 2014 total P6,000,000.

Required:
a) Adjusted balance of the Accumulated Profit= P16,400,000
b) Balance of ordinary shares account= P16,000,000
c) Balance of share premium= P12,800,000
d) Adjusted balance of shareholders equity= P55,200,000