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BALIWAG POLYTECHNIC COLLEGE

FINAL EXAMINATION

FINANCIAL ACCOUNTING AND REPORTING

Name : _______________________________________ Section : ____________________

I. Solve the following questions with LOVE. Select the letter of your choice before the number.

PROBLEM 1

ALMINE COMPANY was formed on July 1, 2013. It was authorized to issue 600,000 shares of P10 par value ordinary
shares and 200,000 shares of 8% P25 par value, cumulative and nonparticipating preference shares. Almine Company
has a July 1-June 30 fiscal year.

The following information relates to the shareholders’ equity accounts of Almine Company :

Ordinary Shares

Prior to the 2015-2016 fiscal year, Almine Company had 220,000 of outstanding ordinary shares issued as follows:

1. 190,000 shares were issued for cash on July 1, 2013, at P31 per share.
2. On July 24,2013, 10,000 shares were exchanged for a plot of land which cost the seller P140,000 in 2007
and had an estimated market value of P440,000 on July 24,2013.
3. 20,000 shares were issued on March 1, 2015; the shares had been subscribed for P42 per share on October
31, 2014.

During the 2015-2016 fiscal year, the following transactions regarding ordinary shares took place :

2015

Oct. 1 4,000 shares were issued for cash at P46 per share.

Nov. 30 Almine purchased 4,000 of its own ordinary shares on the open market at P39 per share.

Dec. 15 Almine declared a 5% stock dividend for shareholders of record on January 15, 2016, to be issued

on January 31, 2016. Almine was having a liquidity problem and could not afford a cash dividend

at the time. Almine’s ordinary shares were selling at P52 per share on December 15, 2015.

2016

June 20 Almine sold 1,000 of its own ordinary shares that it had purchased on November 30, 2015, for

P42,000.

Preference Shares

Almine issued 100,000 preference shares at P44 per share on July 1, 2014.

Cash Dividends

Almine has followed a schedule of declaring cash dividends in December and June with payment being made to
shareholders of record in the following month. The cash dividends which have been declared since inception of
the company through June 30, 2016 are shown below:

Declaration Date Ordinary Shares Preference Shares

12/15/14 P0.30 per share P1.00 per share

06/15/15 P0.30 per share P1.00 per share

12/15/15 -------------- P1.00 per share

No cash dividends were declared during June 2016 due to the company’s liquidity problems.

Retained Earnings

As of June 30, 2015, Almine’s retained earnings account had a balance of P1,380,000. For the fiscal year ending
June 30, 2016, Almine reported net income of P80,000.

In March 2015, Almine received a term loan from JST National Bank. The bank requires Almine to establish a
sinking fund and restrict retained earnings for an amount equal to the sinking fund deposit. The annual sinking
fund payment of P100,000 is due on April 30 each year; the first was made on schedule on April 30, 2016.
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1. What is the ordinary share capital account balance at June 30, 2016?
a. P2,350,000
b. P2,320,000
c. P2,510,000
d. P2,500,000
2. The total share premium – ordinary shares at June 30, 2016, is
a. P5,435,000
b. P5,579,000
c. P4,970,000
d. P5,693,000
3. The unappropriated retained earnings at June 30, 2016, should be
a. P788,000
b. P571,000
c. P217,000
d. P1,033,000
4. The total number of ordinary shares issued and outstanding at June 30, 2016, should be
a. 248,000
b. 251,000
c. 232,000
d. 235,000
5. The total shareholders’ equity at June 30, 2016, should be
a. P13,117,000
b. P13,576,000
c. P12,783,000
d. P13,000,000

On December 31, 2014 and 2015, Apex Company had 30,000 P100 par value 5% cumulative preference shares
outstanding. No dividends were in arrears on December 31, 2013. The entity did not declare a dividend during
2014. During 2015, the entity paid a cash dividend of P100,000 on preference shares.

6. How is the preference dividend in arrears reported in 2015?

a. Accrued liability of P150,000
b. Disclosure of P150,000
c. Accrued liability of P200,000
d. Disclosure of P200,000

Tarr Company reported the following shareholders’ equity on December 31, 2015:

Preference share capital – 12%, P50 par, 20,000 shares P1,000,000

Ordinary share capital, P25 par, 100,000 shares 2,500,000
Share premium 200,000
Retained earnings, unappropriated 400,000
Retained earnings, appropriated 100,000
Revaluation surplus 300,000

Dividends on preference share have not been paid since 2013. The preference share has a liquidating value of P55
and a call price of P58.

7. What is the book value per preference share?

a. 61
b. 56
c. 55
d. 58

At the beginning of the current year, Sol Company declared a 10% stock dividend. The market price of the
entity’s 30,000 outstanding shares of P80 par value was P75 per share on that date. The stock dividend was
distributed on July 1, when the market price was P100 per share.

8. What amount should be credited to share premium for the stock dividend?
a. 0
b. 150,000
c. 600,000
d. 750,000

On November 1, 2015, Grande Company declared a property dividend of equipment payable on March 1, 2016.

The carrying amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1, 2015.

However, the fair value less cost to distribute the equipment is P2,200,000 on December 31, 2015 and P2,000,000
on March 1, 2016.

9. What is the dividend payable on December 31, 2015?

a. 2,500,000
b. 2,200,000
c. 3,000,000
d. 0
10. What is the measurement of the equipment (noncurrent asset held for distribution) on December 31, 2015?
a. 2,500,000
b. 2,200,000
c. 3,000,000
d. 2,000,000
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11. What amount of loss on distribution of property dividend is recognized on March 1, 2016?
a. 300,000
b. 200,000
c. 500,000
d. 0

Kalinga Company reported the following shareholders’ equity on January 1, 2015:

Preference share capital, 100,000 shares, P10 par 1,000,000

Ordinary share capital, 500,000 shares, P10 par 5,000,000
Share premium - preference 50,000
Share premium - ordinary 200,000
Retained earnings 100,000

During the current year, the following transactions were completed:

 Retirement of 5,000 preference shares at P11 per share.

 Purchase of 5,000 ordinary shares of treasury at P12 per share.
 Share split, ordinary share 2 for 1.
 Reissue of 2,000 shares of treasury at P8 per share.
 Net income for the year, P300,000.
12. What is the total shareholders’ equity on December 31, 2015?
a. 6,251,000
b. 6,350,000
c. 6,551,000
d. 6,556,000

East Company had sufficient retained earnings in 2015 as a basis for dividends but was temporarily short of
cash. The entity declared a dividend of P1,000,000 on April 1, 2015, and issued promissory notes to the
shareholders in lieu of cash. The notes, which were dated April 1, 2015, had a maturity date of March 31,2016
and a 10% interest rate.

13. How should the scrip dividend and related interest be accounted for?
a. Debit retained earnings P1,100,000 on April 1,2015
b. Debit retained earnings P1,100,000 on March 31, 2016
c. Debit retained earnings P1,000,000 on April 1, 2015 and debit interest expense P100,000 on March 31,
2016
d. Debit retained earnings P1,000,000 on April 1, 2015 and debit interest expense P75,000 on December
31, 2015

Long Company had 10,000 shares issued and outstanding on January 1, 2015. On March 15, the entity declared a 2
for 1 share split when the fair value was P80. On December 15, the entity declared a P5 per share cash dividend.

14. What amount should be reported as dividends?

a. 50,000
b. 100,000
c. 850,000
d. 950,000

Elvis Company was organized on January 1, 2013. After 2 years of profitable operations, the entity reported the
following shareholders’ equity:

Contributed capital:

Share capital, P5 par, 600,000 shares authorized,

200,000 shares issued and outstanding 1,000,000

Share premium 6,000,000

Retained earnings 2,800,000

Total shareholders’ equity 9,800,000

During 2015, the following chronological transactions affected shareholders’ equity:

 Reacquired 10,000 shares at P30 per share to be held as treasury.

 Declared and issued a 30% stock dividend.
 Declared and paid cash dividend of P10 per share.
 Net income for 2015 amounted to P3,000,000

15. What amount should be reported as unappropriated retained earnings on December 31, 2015?
a. 2,745,000
b. 3,045,000
c. 2,700,000
d. 2,600,000