Intermediate accounting by robles empleo 1 answers v2chapter 3 2012

CHAPTER SHAREHOLDERS’ EQUITY PROBLEMS 3-1 (Budomo Company) • Cash (20,000 x 300) Ordinary share 6,000,000 6,000,000 • Legal expense/Professional fees Ordinary share (250 x 300) Share premium - Ordinary • Land Building Ordinary share (12,500 x 300) Share premium - Ordinary 1,000,000 2,950,000 Cash (6,500 x 380) Ordinary share (6,500 x 300) Share premium - Ordinary 2,470,000 Cash (10,000 x 200) Ordinary share (10,000 x 150) Share premium - Ordinary 2,000,000 • 90,000 75,000 15,000 3,750,000 200,000 1,950,000 520,000 3-2 a Share premium-Ordinary Cash b c d e Land (3,500 x 560) Ordinary share (3,500 x 200) Share premium – Ordinary Cash Preference share Ordinary share Share premium – Preference Share premium – Ordinary MV: Pref – 5,000 x 800=4M Ord – 100,000 x 120 = 12M Allocation: Pref: 18M x 4/16 = 4.5M Ord: 18M x 12/16 = 13.5M Subscription receivable Cash Subscribed ordinary share Share premium – Ordinary Land Cash Donated capital 1,500,000 500,000 60,000 60,000 1,960,000 700,000 1,260,000 18,000,000 2,500,000 10,000,000 2,000,000 3,500,000 450,000 150,000 500,000 100,000 5,000,000 40,000 4,960,000 Chapter – Shareholders’ Equity 3-3 (Blazing Red Corporation) Correction to the problem: RE balance on December 31, 2012, instead of 2010 Shareholders’ Equity Contributed capital 10% Preference share, cumulative and non-participating, P100 par 30,000 shares authorized; 12,000 shares issued and outstanding Ordinary share, P10 par, 100,000 shares authorized, 30,000 shares issued, 29,000 shares outstanding Subscribed ordinary share, 4,500 shares Subscription receivable – Ordinary Share premium – Preference Share premium –Ordinary Total contributed capital Retained earnings Appropriated for treasury share P 15,000 Unappropriated 335,000 Treasury shares, 1,000 ordinary shares, at cost Total shareholders’ equity P1,200,000 300,000 45,000 (43,200) 275,000 77,000 P1,853,800 350,000 ( 15,000) P2,188,800 The total amount of P2,048,800 may also be obtained without necessarily preparing the shareholders’ equity in good format (if not required) as follows: Issue of 30,000 ordinary shares Issue of preference shares in exchange of equipment Subscriptions for 4,500 ordinary shares at 16 Subscriptions receivable (60%) Purchase of 1,000 treasury shares at 15 Retained earnings Total shareholders’ equity, December 31, 2012 3-4 (Millennium Company) (a) (1) Treasury share Cash (2) (3) (4) (b) P 350,000 1,475,000 72,000 (43,200) (15,000) 350,000 P 2,188,800 140,000 140,000 Cash Treasury share Paid in capital from treasury chare 60,000 Cash Paid in capital from treasury share Retained earnings Treasury share 65,000 4,000 1,000 Ordinary share Share premium Retained earnings Treasury share 10,000 3,000 1,000 56,000 4,000 70,000 14,000 Total shareholders’ equity, December 31, 2011 (1) Purchase of treasury share (10,000 x 14) (2) Sale of treasury share (4,000 x 15) (3) Sale of treasury share (5,000 x 13) Net income for the year 26 P2,200,000 (140,000) 60,000 65,000 280,000 Chapter – Shareholders’ Equity Dividends declared Total shareholders’ equity, December 31, 2012 (200,000) P2,265,000 The total shareholders’ equity may also be obtained by determining the balance of the shareholders’ equity accounts, as follows: Ordinary Share, P10 par (99,000 shares issued and outstanding) P 990,000 Share Premium 297,000 Retained Earnings 978,000 Total shareholders’ equity P2,265,000 3-5 (Consuelo Enterprises, Inc.) (a) Preference share (4,000 x 20) Share premium – Preference (4,000 x 1.60) Retained earnings Cash (4,000 x 22) (b) (c) 80,000 6,400 1,600 88,000 Preference share (4,000 x 20) Share premium – Preference (4,000 x 1.60) Retained earnings Cash (4,000 x 26) 80,000 6,400 17,600 Preference share (4,000 x 20) Share premium – Preference (4,000 x 1.60) Cash (4,000 x 20.50) PIC from retirement of preference 80,000 6,400 104,000 82,000 4,400 Average preference share premium per share 160,000 / 100,000 shares = 1.60 3-6 (Concepcion Enterprises, Inc.) (a) Preference share (3,000 x 20) Share premium – Preference (3,000 x 1.60) Retained earnings Ordinary share (3,000 x 30) (b) 3-7 Preference share (3,000 x 20) Share premium – Preference (3,000 x 1.60) Ordinary share (1,500 x 30) Share premium – Ordinary share (Red Stone Company) (a) Retained Earnings ( 10,000 shares x P20) Share Dividends Distributable Share Premium (b) 60,000 4,800 25,200 90,000 60,000 4,800 45,000 19,800 200,000 100,000 100,000 Share Dividends Distributable Ordinary Share Capital 100,000 Retained Earnings (30,000 x 10) Share Dividends Distributable 300,000 Share Dividends Distributable Ordinary Share Capital 300,000 27 100,000 300,000 300,000 Chapter – Shareholders’ Equity (c) 3-8 Memo: Effected a for stock split on 100,000 shares P100 par previously issued and outstanding (Dark Red Company) Capital structure: Preference 20,000 P2,000,000 Number of shares outstanding Total par value (a) Preference share is non-cumulative and non-participating 2011 Current preference dividends (9% x 2,000,000 = 180,000; dividends declared were P150,000 only Dividend per share Preference 2012 Current preference dividends (9% x 2,000,000) Excess (240,000 – 180,000) Dividend per share Preference P 180,000 2013 Current preference dividends (9% x 2,000,000) Excess (540,000 – 180,000) Dividend per share Preference P 180,000 (b) Ordinary P0 P 150,000 P7,50 P9.00 P9.00 P0 Ordinary P60,000 P0.24 Ordinary P360,000 P1.44 Preference share is cumulative and non-participating 2011 Current on preference is P180,000 Arrears, end (P180,000 – 150,000 = 30,000) Dividend per share Preference P150,000 2012 Arrears, beginning P 30,000 Current year 180,000 Total P210,000 Excess to ordinary = 240,000 – 210,000 Preference P0 P0 Ordinary P210,000 P30,000 P10.50 2013 Current year Excess – to ordinary = 540,000 – 180,000 Dividend per share Ordinary P7.50 Dividend per share (c) Ordinary 250,000 P2,500,000 Preference P180,000 P9.00 P0.12 Ordinary P360,000 P1.44 Preference share is cumulative and fully participating 2011 Current dividends: 9% x 2,000,000 = P180,000 Arrears, end = 180,000 – 150,000 = 30,000 Dividend per share 28 Preference Ordinary P 150,000 P0 P 7.50 P0 Chapter – Shareholders’ Equity 3-9 2012 Arrears, beginning P30,000 Current on preference 180,000 To ordinary: initial limit 9% x P2,500,000 = P225,000, but remaining is only Total dividends Dividend per share Preference 2013 Current dividends: 9% x 2,000,000 9% x 2,500,000 Excess: P135,000 x 2.0/4.5 135,000 x 2.5/4.5 Total Dividend per share Preference Ordinary P 210,000 P210,000 P10.50 P30,000 P30,000 P 0.12 Ordinary P 180,000 P 225,000 60,000 P240,000 P12.00 75,000 P300,000 P1.20 Additional information: Preference has P100 par value per share Capital structure: Number of shares outstanding Total par value (a) Preference is participating up to 14% 2013 Current dividends: 9% x P2,000,000 9% x P2,500,000 Excess divided by total par 155,000/4,500,000 = 3.44%, which is less than the limit of additional 5%; therefore full excess is prorated P155,000 x 2M/4.5M P155,000 x 2.5M/4.5M Total Dividend per share (b) Preference is participating up to 12% 2013 Current dividends: 9% x P2,000,000 9% x P2,500,000 Excess divided by total par 155,000/4,500,000 = 3.44%, which exceeds the additional limit of 3%; therefore, additional to preference is limited to 3%; remainder goes to ordinary 3% x P2,000,000 P155,000 – 60,000 Total Dividend per share 29 Preference 20,000 P2,000,000 Ordinary 250,000 P2,500,000 Preference Ordinary P180,000 P225,000 68,889 P248,889 P12.44 Preference 86,111 P311,111 P1.24 Ordinary P180,000 P225,000 60,000 P240,000 P12.44 95,000 P320,000 P1.24 Chapter – Shareholders’ Equity 3-10 (Red Mama Company) Retained Earnings Share Dividends Distributable 50% x 100,000 x 10 = 500,000 3-11 500,000 500,000 Share Dividends Distributable Ordinary Shares Fractional Share Warrants Outstanding 500,000 Fractional Share Warrants Outstanding Ordinary Share PIC from Unexercised Fractional Share Warrants 100,000 (Red Ball Corporation) October 31, 2012 Trading Securities Unrealized Gain on Trading Securities 10,000 shares x (15 – 14) Retained Earnings Property Dividends Payable 10,000 shares x 15 400,000 100,000 80,000 20,000 10,000 10,000 150,000 150,000 December 31, 2012 Trading Securities Unrealized Gain on Trading Securities 10,000 shares x (17 – 15) Retained Earnings Property Dividends Payable 20,000 20,000 20,000 20,000 February 28, 2013 Retained Earnings Property Dividends Payable 30,000 30,000 Property Dividends Payable Trading Securities Gain on Disposal of Trading Securities 200,000 170,000 30,000 3-12 (Red Chili Company) 10/1/12 Depreciation Expense Accumulated Depreciation – Equipment 450,000/10 x 9/12 33,750 33,750 Retained Earnings Property Dividends Payable 190,000 Assets Held for Distribution Accumulated Depreciation – Equipment Property, Plant and Equipment Cost P450,000 Acc Deprn 450,000/10 x 270,000 Carrying value P180,000 180,000 270,000 30 190,000 450,000 Chapter – Shareholders’ Equity FV(because it is higher) P190,000 12/31/12 Impairment Loss Assets Held for Distribution 180,000 – 160,000 = 20,000 20,000 20,000 Property Dividends Payable 30,000 Retained Earnings 190,000 – 160,000 = 30,000 decrease 1/31/13 30,000 Retained Earnings Property Dividends Payable 175,000 – 160,000 = 15,000 increase 15,000 15,000 Property Dividends Payable Assets Held for Distribution Gain on Disposal of Assets 175,000 160,000 15,000 3-13 (Red Ribbon Corporation) Total SHE 12/31/11 Balances P16,500,000 2010 transactions: a) 4,000 x 280 (1,120,000) b) 8,000 x 75 (600,000) c) 2:1 share split d) 6,000 x 45 270,000 e) 4,000 x 46 f) 2,000 x 48 96,000 g) Profit 2,000,000 12/31/12 balances P7,146,000 *P600,000 x 6,000/16,000 = 225,000 (a) (b) (c) (d) Preference Shares Issued 30,000 Ordinary Shares Issued 100,000 Treasury Share Shares Cost (4,000) 100,000 26,000 200,000 8,000 8,000 (6,000) 4,000 (2,000) P600,000 (225,000)* 12,000 P375,000 Total shareholders’ equity P17,146,000 Number of preference shares issued and outstanding 26,000 Number of ordinary shares issued 200,000 Number of ordinary shares outstanding(200,000 – 12,000) 188,000 Cost of remaining treasury shares P 375,000 3-14 (Red Heart Corporation) 06/15/11 Cash Ordinary share Share premium – Ordinary 09/30/11 Retained earnings (80,000 x 5% x 110) 6,000,000 5,000,000 1,000,000 440,000 Share dividends distributable (4,000 x 100) 400,000 40,000 Share premium – Ordinary 11/10/11 12/31/11 Share dividends distributable Ordinary share Income summary Retained earnings 400,000 400,000 1,175,000 1,175,000 31 Chapter – Shareholders’ Equity 03/01/12 05/01/12 Treasury share (3,000 x 95) Cash Cash (1,500 x 120) Treasury share (1,500 x 95) PIC from treasury share 285,000 285,000 180,000 142,500 37,500 08/10/12 Issued 82,500 rights to shareholders entitling holders to purchase additional shares for P125 per share 09/15/12 Cash (30,000 x 125) Ordinary share (30,000 x 100) Share premium – Ordinary 3,750,000 Cash (80,000 x 125) Ordinary share (80,000 x 100) Share premium – Ordinary 10,000,000 10/31/12 12/10/12 12/20/12 12/31/12 3,000,000 750,000 8,000,000 2,000,000 Retained earnings Dividends payable (192,500 x 5) 962,500 Ordinary share (1,000 x 100) Share premium – Ordinary (1,000 x 10)* Paid in Capital from Treasury Shares Treasury share *Share premium per share 300,000/30,000 = 10 100,000 10,000 Income summary Retained earnings 962,500 15,000 95,000 1,200,000 1,200,000 3-15 (Red Carpet Company) (a) Total lump sum price is P147,000 (1,500 x 98), allocated as follows: Securities Preference Warrant Entry (b) Market value 90 10 Allocation 147,000 x 90/100 147,000 x 10/100 Cash Preference share (1,500 x 30) Share premium – Preference Share warrants outstanding Cash (600 x 40) Share warrants outstanding Ordinary share Share premium – Ordinary 32 Allocated Price 132,300 14,700 147,000 45,000 87,300 14,700 24,000 11,760 6,000 29,760 Chapter – Shareholders’ Equity 3-16 (Red Hot Company) (a) Value of each option Number of shares granted Total value assigned to share options Required service period Annual compensation expense (b) 1/1/12 12/31/12 12/31/13 12/31/14 12/31/15 P8 x 30,000 P240,000 ÷ 3years P 80,000 Memo: Granted share options to selected senior employees for the purchase of 30,000 ordinary shares at P50 per share, from January to December 31, 2015 Compensation Expense Share Options Outstanding 80,000 80,000 Compensation Expense Share Options Outstanding 80,000 Compensation Expense Share Options Outstanding 80,000 Share options outstanding Cash (30,000 x 50) Ordinary share (30,000 x 20) Share premium - Ordinary 80,000 80,000 240,000 1,500,000 600,000 1,140,000 3-17 (Fire Red Company) 01/02/12 Memo: granted 40,000 share options to certain officers for the purchase of the company’s P100 par ordinary shares at P430 per share 12/31/12 12/31/13 Compensation expense Share options outstanding (40,000 x 80) ÷ years 800,000 Compensation expense Share options outstanding (40,000 x 80) ÷ years 800,000 800,000 800,000 2014 Memo: 8,000 share options were cancelled 12/31/14 Compensation expense Share options outstanding Total accrued compensation expense (34,000 x 80) x 3/4 2,040,000 Less: previously accrued 1,600,000 Compensation expense-2008 440,000 12/31/15 01/01/14 Compensation expense Share options outstanding (34,000 x 80) / Cash (34,000 x 430) Share options outstanding (34,000 x 80) Ordinary shares (34,000 x 100) Share premium – Ordinary 33 440,000 440,000 680,000 680,000 14,620,000 2,720,000 3,400,000 13,940,000 Chapter – Shareholders’ Equity 3-18 (Red Fox Corporation) (a) Compensation Expense 2012 200 – 10 – 15 = 175 employees x 100 options=17,500 17,500 x 32 = 560,000; 560,000 x 1/3 2013 2014 (b) 01/01/12 12/31/12 12/31/13 12/31/14 2015 2016 186,667 200–10–12–5=173 employees x 100 options=17,300 17,300 x 32 x 2/3 = 369,067; 369,067 – 186,667 182,400 200-10-12-8=170 employees x 100 options=17,000 17,000 x 32 = 544,000; 544,000 – 369,067 174,933 Granted 100 share options to each of its 200 employees to buy P100 par ordinary share at P220 per share The options are exercisable starting January 1, 2011 provided that the employees are still in the service Options expire on December 31, 2012 Compensation expense Share options outstanding 186,667 Compensation expense Share options outstanding 182,400 Compensation expense Share options outstanding 174,933 Cash (140 x 100 x 220) Share options outstanding (14,000 x 32) Ordinary share (14,000 x 200) Share Premium - Ordinary 186,667 182,400 174,933 3,080,000 448,000 2,800,000 728,000 Cash (10 x 100 x 220) Share options outstanding (1,000 x 32) Ordinary share (1,000 x 200) Share premium – Ordinary 220,000 32,000 Share options outstanding (2,000 x 32) PIC from forfeited share options 64,000 200,000 52,000 64,000 3-19 (Cherry Red Company) (a) 01/01/12 Memo: Granted 10,000 share options for the purchase of P100 par ordinary shares at P120 per share The options vest once the market price of ordinary shares reached P200, up to Dec 31, 2014 Options expire at the end of 2015 12/31/12 12/31/13 Compensation Expense Share Options Outstanding (10,000 x 20) / years 66,667 Compensation Expense Share Options Outstanding (10,000 x 20) - 66,667 133,333 34 66,667 133,333 Chapter – Shareholders’ Equity 2014 Cash (10,000 x 120) Share Options Outstanding Ordinary Share Capital (10,000 x 100) Share Premium-Ordinary (b) 01/01/12 12/31/12 12/31/13 12/31/14 2015 (c) 1,200,000 200,000 1,000,000 400,000 Memo: Granted 10,000 share options for the purchase of P100 par ordinary shares at P120 per share The options vest once the market price of ordinary shares reached P200 Options expire at the end of 2013 Compensation Expense Share Options Outstanding (10,000 x 20) / years 66,667 Compensation Expense Share Options Outstanding 66,667 Compensation Expense Share Options Outstanding 66,666 66,667 66,667 66,666 Cash (8,000 x 120) Share Options Outstanding (80% x 200,000) Ordinary Shares (8,000 x 100) Share Premium-Ordinary 960,000 160,000 Share Options Outstanding (20% x 200,000) PIC from Forfeited Share Options 40,000 800,000 320,000 40,000 If the stock price reached P200 by June 2015, the same entries will be made for year 2012 through 2014, as given in (b) The recorded share options, however, will be cancelled at the end of 2015, as the options already expire 12/31/15 Share Options Outstanding PIC from Forfeited Share Options 200,000 200,000 3-20 (Red Day Company) (a) 01/01/12 Granted 80 share options to each of 400 employees for the purchase of P100 par ordinary shares at P140 per share Options shall vest in 2012 if earnings increase by 15% or at the end of 2013 if average annual earnings for 2012 and 2013 increased by an average of 12% 12/31/12 12/31/13 2014 Compensation Expense Share Options Outstanding 400 x 80 x 22 = 704,000 704,000/2 = 352,000 352,000 Compensation Expense Share Options Outstanding 352,000 Cash (32,000 x 140) 352,000 352,000 4,480,000 35 Chapter – Shareholders’ Equity Share Options Outstanding Ordinary Share (32,000 x 100) Share Premium – Ordinary (b) 704,000 3,200,000 1,984,000 The full amount of P704,000 is recognized as compensation expense since the options vest already in 2012 3-21 (Bloody Red Company) 01/01/12 Memo: Issued to its CEO share options for the purchase of ordinary shares at a strike price of P50 The options are exercisable beginning January 1, 2015 and expire on December 31, 2016 The number of share options will be based on the level of sales for 2014 12/31/12 Compensation Expense Share Options Outstanding 15,000 sh x 30 x 1/3 150,000 Compensation Expense Share Options Outstanding 150,000 12/31/13 15,000 sh x 30 x 2/3 Less: previously accrued Compensation expense 12/31/14 Compensation Expense Share Options Outstanding 18,000 sh x 30 x 3/3 Less: previously accrued Compensation expense 150,000 150,000 300,000 150,000 150,000 240,000 240,000 540,000 300,000 240,000 3-22 (Striking Red Corporation) (a) 12/31/12 Compensation Expense Share Appreciation Rights Payable 66,667 66,667 10,000 x (140 -120) x 1/3 12/31/13 Compensation Expense Share Appreciation Rights Payable 133,333 133,333 10,000 x (150 - 120) x 2/3 = 200,000 200,000 – 66,667 = 133,333 12/31/14 Compensation Expense Share Appreciation Rights Payable 10,000 x (165 - 120) = 450,000 450,000 –200,000 = 250,000 250,000 250,000 (b) (1) Assuming that the rights were exercised on January 1, 2015, when the market price is P165 01/01/15 Share Appreciation Rights Payable Cash 450,000 450,000 (b) (2) Assuming that the rights were exercised on December 31, 2015, when the market price is P172 36 Chapter – Shareholders’ Equity 12/31/15 Share Appreciation Rights Payable Compensation Expense 10,000 (172 – 165) Cash 10,000 x (172-120) 450,000 70,000 520,000 3-23 (Red Bull Corporation) (a) Liability at December 31, 2012 = P89,333 December 31, 2013 = P208,000 December 31, 2014 = P394,000 12/31/12 12/31/13 Compensation Expense Share Appreciation Rights Payable 10,000 x 26.80 x 1/3 89,333 Compensation Expense Share Appreciation Rights Payable 118,667 89,333 118,667 10,000 x 31.20 x 2/3 = 208,000 208,000 – 89,333 = 118,667 12/31/14 Compensation Expense Share Appreciation Rights Payable 186,000 186,000 10,000 x 39.40 = 394,000 394,000 –208,000 = 194,000 2015 Share Appreciation Rights Payable Compensation Expense Cash 10,000 x (165-120) 3-24 (Ruby Red Company) (a) Fair value of the equity alternative 4,000 shares x 150 Fair value of debt component 3,600 shares x 158 Fair value of equity component 1/1/12 (b) 394,000 56,000 450,000 600,000 568,800 31,200 2012: 3,600 x 160=576,000; 576,000/3 31,200/3 Total compensation expense 192,000 10,400 202,400 2013: 3,600 x 165 x 2/3 = 396,000 396,000 – 192,000 31,200/3 Total compensation expense 204,000 10,400 214,400 2014: 3,600 x 168 = 604,800 604,800 – 396,000 31,200/3 Total compensation expense 208,800 10,400 219,200 2013: 2,700 x (172-168) 37 10,800 Chapter – Shareholders’ Equity (b) Correction to the problem: One executive exercised his right to receive the cash alternative on December 31, 2014, instead of 2012 01/01/12 Granted each of the four executives the right to choose either 1,000 ordinary shares or to receive cash payment equal to 900 shares, conditional upon the completion of three years of service 12/31/12 Compensation Expense Share Options Outstanding Share Appreciation Rights Payable 202,400 Compensation Expense Share Options Outstanding Share Appreciation Rights Payable 214,400 Compensation Expense Share Options Outstanding Share Appreciation Rights Payable 219,200 Share Options Outstanding ¼ x 31,200 Share Appreciation Rights Payable Cash PIC from Unexercised Share Options 31,200 / = 7,800 604,800 / =151,200 7,800 151,200 12/31/13 12/31/14 12/31/14 12/31/15 12/31/13 3-25 Compensation Expense Share Appreciation Rights Payable 900 x x (172 – 168) Share Options Outstanding Share Appreciation Rights Payable Ordinary Share (3,000 x 100) Share Premium – Ordinary 31,200 x ¾ 10,400 192,000 10,400 204,000 10,400 208,800 151,200 7,800 10,800 10,800 23,400 464,400 300,000 187,800 (Red Santa Company) RE, January 1, 2012 2012 Transactions (1) 200,000 x 70% (2) Dividends On preference: 200,000 x P100 x 8% On ordinary: 300,000 x P5 (3) 10,000 (150 – 130) (4) Release of appropriation (5) 45,000/300,000 = 15% bonus issue 45,000 x P150 (6) Appropriation for bond redemption (7) Profit for the year Balance, December 31, 2012 Total retained earnings, (P2,000,000 unavailable for dividends) 38 Appropriated P 4,000,000 Unappropriated P9,000,000 (140,000) (4,000,000) 2,000,000 P2,000,000 (1,600,000) (1,500,000) (200,000) 4,000,000 (6,750,000) (2,000,000) 3,000,000 P3,810,000 P5,810,000 Chapter – Shareholders’ Equity 3-26 (Red Hat Company) Retained earnings balance as of December 31, 2012 3,900,000 – 600,000 – 240,000 Total shareholders’ equity as of December 31, 2012 6,000,000 + 8,000,000 + 3,060,000 P 3,060,000 P17,060,000 (a) Par value of preference share Dividends in arrears (6,000,000 x 9% x yrs.) Excess to ordinary (17,060,000 – 7,620,000) Total equity Divide by the number of shares outstanding Book value per share Preference P6,000,000 1,620,000 (b) Liquidation value (60,000 shares x P105) Dividends in arrears (P6,000,000 x 9% x yrs.) Excess to ordinary (17,060,000 – 7,920,000) Total equity Divide by the number of shares outstanding Book value per share Preference P6,300,000 1,620,000 3-27 (Red, Inc.) Retained Earnings Inventory P7,620,000 60,000 P 127 P7,920,000 60,000 P132 Ordinary P9,440,000 P9,440,000 800,000 P 11.80 Ordinary P9,140,000 P9,140,000 800,000 P11.425 300,000 300,000 Land Buildings Machinery and Equipment Accum Depreciation – Buildings Accum Depreciation – Machinery & Equipment Revaluation Surplus 1,500,000 1,875,000 350,000 Revaluation Surplus Retained Earnings 2,300,000 875,000 150,000 3,700,000 2,300,000 3-28 (Skinny Red Company) (a) Retained Earnings Accumulated Depreciation Current Assets Building 400,000 75,000 100,000 375,000 Ordinary Share Ordinary Share Share Premium 6,000,000 Share Premium Retained Earnings 1,400,000 4,000,000 2,000,000 1,400,000 39 Chapter – Shareholders’ Equity Skinny Red Company Statement of Financial Position Current Assets P 400,000 Land 1,500,000 Building 4,625,000 Accumulated Depreciation ( 925,000) Total P5,600,000 Liabilities Ordinary Share Share Premium P1,000,000 4,000,000 600,000 Total P5,600,000 3-29 Same as 3-27 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10 MC11 C D B B B C C C A C C MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 MC21 MC22 A C C A D B D C D C C Problems MC23 MC24 MC25 MC26 MC27 MC28 MC29 MC30 MC31 MC32 MC33 MC34 MC35 MC36 MC37 MC38 MC39 MC40 MC41 MC42 MC43 C B D D B A A C B A B C B B D C B D D B A MC44 MC45 A A 230,000 + 525,000 + 5,000 = 760,000 480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000 (60,000 x 2) – (5,000 x 2) = 110,000 125,000 x = 375,000 375,000 – [(12,000 x 3) + 5,000] = 334,000 20,000 x = 180,000; 180,000/2 = 90,000 x 1/2 = 45,000 600,000 x = 3,000,000 1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000 7,000,000 + (35,000 x 70) = 9,450,000 2,000 x = 16,000 70 – (70/2) = 35 (5,000 x 80) – (5,000 x 40) = 200,000 600 x 10 x 60% = 3,600; 6,000 – 3600 = 2,400 Interest expense for 2009 = 100,000 x 10% x 9/12 = 7,500 2,120,000 – (2,000 bonds x 1,040) = 40,000 945,000/ 70 = 13,500; 13,500/90,000 = 15% 80,000 + (2,000,000 x 8%) = 240,000; 300,000 – 240,000 = 60,000 (3,000,000 x 5% x years) – 100,000 = 200,000 arrears, end (110,000 + 10,000) x = 220,000 issued; 220,000 – (4,000 x 2) = 212,000 24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000 72,000 + (12,000 x 4/6) = 80,000; 24,000 + (12,000 x 2/6) =28,000 80,000/4,000 = 20; 28,000/20,000 = 1.40 8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000 (15 x 2)/5 = 6.00 40 Chapter – Shareholders’ Equity MC46 B MC47 C MC48 MC49 MC50 MC51 MC52 MC53 MC54 MC55 MC56 MC57 MC58 C A D C B B D B B B B MC59 C MC60 D 25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000 1,000,000 + 250,000 = 1,250,000 (40,000x 105) – (600 x 110) + (400 x 95) + 830,000 – 200,000 = 4,802,000 5,520,000 – 25,000 – 170,000 + 40,000 + 900,000 = 6,265,000 (2,000 x 85) – (800 x 42.50) = 136,000 [3,000 x (50-20)] / years = 30,000 4,500,000 x 95% = 4,275,000; 4,275,000/3 = 1,425,000 4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 – 1,425,000=1,395,000 (4 x 200 x 300) x ½ = 120,000 (90% x x 200 x 300) – 120,000 = 258,000 360,000 – 70,000 = 290,000; 290,000/5,000 = 58 3,150,000/ 50,000 = 63 3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51 RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x years = 1,200,000, but dividends are limited to the extent of RE balance of P1,000,000; Thus, equity of ordinary share is 13,500,000 – 5,000,000 – 1,000,000 = 7,500,000; 7,500,000/ 750,000 shares = P10 13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ; 7,200,000/750,000 shares = 9.60 (200,000 x 2) + (200,000 x 5) – 950,000 = 450,000 41 ... x 10 0 options =17 ,500 17 ,500 x 32 = 560,000; 560,000 x 1/ 3 2 0 13 2 014 (b) 01/ 01/ 12 12 / 31 / 12 12 / 31 / 13 12 / 31 / 14 2 015 2 016 18 6,667 200 10 12 –5 =17 3 employees x 10 0 options =17 ,30 0 17 ,30 0 x 32 x 2 /3. .. 66,667 10 ,000 x (14 0 -12 0) x 1/ 3 12 / 31 / 13 Compensation Expense Share Appreciation Rights Payable 13 3 ,33 3 13 3 ,33 3 10 ,000 x (15 0 - 12 0) x 2 /3 = 200,000 200,000 – 66,667 = 13 3 ,33 3 12 / 31 / 14 Compensation... 450,000 70,000 520,000 3- 23 (Red Bull Corporation) (a) Liability at December 31 , 2 012 = P89 ,33 3 December 31 , 2 0 13 = P208,000 December 31 , 2 014 = P394,000 12 / 31 / 12 12 / 31 / 13 Compensation Expense