PROBLEM 2-1:

The Gallery Company is authorized to issue 100,000 shares of P500 par value ordinary share capital.
Gallery has the following transactions during the month:

·        Issued 20,000 shares at par, receiving cash.

·        Received a bill amounting to P180,000 for services in securing the corporate charter and for
other preliminary legal costs of organizing the corporation. The bill was settled by issuing 300
shares of ordinary share capital.
·        Issued 12,500 ordinary shares in exchange for a land and a building with fair values of
P5,000,000 and 3,000,000, respectively.
·        Received cash for 6,500 ordinary shares sold at P550 per share.
·        Received subscription for 20,000 shares at P550 per share, receiving 25% down.
·        Collected balance of the subscription price on the 12,000 shares subscribed above and share
certificates were accordingly issued.

REQUIRED:
Journal entries to record the foregoing transactions.

PROBLEM 2-2:

The following are independent transactions relating to share capital:

a) Issued 10,000 ordinary shares of P150 par value at P200 per share. The company incurred and
paid documentary stamp tax and other SEC registration fees for P60,000 and public relations
consultants' fees of P25,000.

b) Issued 3,500 ordinary shares of P200 par in exchange for a parcel land to be used as a plant site.
The ordinary share capital is actively traded on the Philippine Stock Exchange at an average price
of P560 per share.

c) Issued 100,000, P100 par ordinary shares P18,000,000. One share of P500 par preference was
issued with every 20 ordinary shares. At this time, market price per share were: Ordinary P120
and Preference P800.

d) Subscriptions to 5,000 ordinary shares with P100 par value are received from various subscribers
along with checks amounting to 25% of the subscription price as down payment. The share
capital was subscribed at P120 per share. The balance of the subscription price is to be paid in
three equal monthly installments.

e) Received a parcel of land from a wealthy shareholder to be used for the construction of a new
factory building. Legal fees of P40,000 were paid. The fair market value of the land was
P5,000,000. The cost of the land to the shareholder was P800,000 ten years ago.
REQUIRED:
Journal entries to record the foregoing transactions.

PROBLEM 2-3:

The Blazing Red Corporation is authorized to issue 100,000, P10 par value ordinary shares and 30,000,
10% cumulative and non-participating P100 par preference shares. The corporation engaged in the
following share capital transactions through December 31, 2022:

·        30,000 ordinary shares, were issued for P380,000 cash and 12,000 preference shares for an
equipment valued at P1,500,000.
·        Subscriptions for 10,000 ordinary shares have been taken and 40% of the subscription price of
P16 per share has been collected. The shares will be issued upon collection of the subscription
price in full.
·        1,000 ordinary treasury shares were purchased for P18 per share.
·        Collected the balance on the subscription of 8,000 shares above and share certificates were
accordingly issued. Subscribers on 2,000 shares defaulted and the shares were declared
delinquent. Blazing Red paid P2,000 cost for advertising the delinquent shares.
·        Received bids on the delinquent shares. The amount due from the highest bidder was collected
and the shares were issued.
·        The retained earnings balance on December 31, 2022 is P350,000.

REQUIRED:
Total shareholders' equity of Blazing Red Corporation as at December 31, 2022.

PROBLEM 2-4:

The Millennium Company had 100,000 shares of Ordinary Share Capital on December 31, 2021.
The company's statement of financial position on that date showed the following shareholders' equity balances:

Ordinary Share Capital, P10 par 1,000,000

Share Premium 300,000
Retained Earnings 900,000

The following treasury share transactions took place in 2022:

(1) Reacquired 10,000 ordinary shares at P14 per share.
(2) Sold 4,000 of the treasury shares at P15 per share.
(3) Sold 5,000 of the treasury shares at P13 per share.
(4) Retired the remaining treasury shares.

REQUIRED:
a.     Prepare the entries in the books of Millennium Company to record the foregoing transactions.
b.    Determine the total shareholders' equity at December 31, 2022, assuming that profit for
the year was P280,000 and cash dividends declared were P200,000.
PROBLEM 2-5:

The Consuelo Enterprises, Inc. had the following shareholders' equity balances at December 31, 2022:

Preference Share Capital, P20 par, 100,000 shares authorized

Ordinary Share Capital, P30 par, 100,000 shares authorized
Share Premium - Preference Share
Share Premium - Ordinary Share
Retained Earnings

REQUIRED:
Journalize the retirement of 4,000 preference shares, assuming that the retirement price is
a) 21 per share
b) 26 per share

PROBLEM 2-6:

The Concepcion Enterprises, Inc. had the following shareholders' equity balances at December 31, 2022

Preference Share Capital, P20 par, 100,000 shares authorized

Ordinary Share Capital, P30 par, 100,000 shares authorized
Share Premium - Preference Share
Share Premium - Ordinary Share
Retained Earnings

The preference share is convertible into ordinary share.

REQUIRED:
Journalize the conversion of 10,000 preference shares under each of the following independent assumptions:
a)    Preference share is convertible into ordinary share on a share for share basis.
b)    Two shares of preference are convertible into one ordinary share.

PROBLEM 2-7:

The capital accounts for the Red Stone Company on July 1, 2022 are as follows:

Ordinary Share Capital, P10 par, 100,000 shares issued and outstanding
Share Premium
Retained Earnings

The company's ordinary shares are currently selling at P20.

REQUIRED:
Entries to record the following independent transactions:
a)    A 10% bonus issue is declared and issued
b)    A 30% bonus issue is declared and issued
c)     A 2-for-1 share split is declared and issued

PROBLEM 2-8:

The Dark Red Company, which started operations in 2020, paid dividends at the end of 2020, 2021 and 2022 as follows:

2020 - P150,000; 2021 - P260,000; 2022-P540,000

Through these years, the corporation has 250,000 shares of P10 par value ordinary share and
20,000 shares of 9%, P100 par value preference share.

REQUIRED:
Compute the amount of total dividends and dividends per share at the end of 2020, 2021, and
2022, on both preference and ordinary share under each of the following assumptions:
a)    Preference share is non-cumulative and non-participating.
b)    Preference share is cumulative and non-participating.
c)     Preference share is cumulative and fully participating.

PROBLEM 2-9:

The Red Violet Company paid a total of P610,000 dividends in 2022 to its 250,000 shares of
P10 par ordinary share and 20,000 shares of 9%, P100 par preference share.

Dividends of P50,000 were in arrears at January 1, 2022.

REQUIRED:
Compute the total amount of dividends on both preference share capital and ordinary share capital, assuming:
a)    Preference is participating up to 14%.
b)    Preference is participating up to 12%.

PROBLEM 2-10:

Red Mama Company has 100,000 shares of P10 par ordinary share outstanding. In declaring and
distributing a 50% bonus issue, Red Mama initially issued only 45,000 new shares; the other
shares were not issued because some investors did not own Red Mama shares in even multiples of
2. To these shareholders, Red Mama issued fractional share warrants. Subsequently, 80% of the
fractional share warrants were turned in for full shares.

REQUIRED:
Journal entries to record the foregoing
ter and for
issuing 300

e and share
nd 30,000,
d in the

ares for an

ption price of
subscription

cates were
ared

was collected

ders' equity balances:

ng transactions.
r 31, 2022:

2,000,000
1,800,000
160,000
250,000
800,000

ber 31, 2022

2,000,000
1,800,000
160,000
250,000
800,000

dent assumptions:

1,000,000
500,000
3,135,000
0, 2021 and 2022 as follows:

e capital, assuming:
PROBLEM 2-1
• Cash 10,000,000
Ordinary Share Capital 10,000,000

• Legal Expense/Professional Fees 180,000

Ordinary Share Capital 150,000
Share Premium - Ordinary 30,000

• Land 5,000,000
Building 3,000,000
Ordinary Share Capital 6,250,000
Share Premium - Ordinary 1,750,000

• Cash 3,575,000
Ordinary Share Capital 3,250,000
Share Premium - Ordinary 325,000

• Cash 2,750,000
Subscription Receivable 8,250,000
Subscribed Ordinary share 10,000,000
Share Premium - Ordinary 1,000,000

• Cash 4,950,000
Subscription Receivable 4,950,000

• Subscribed Ordinary Share 6,000,000

Ordinary Share Capital 6,000,000

PROBLEM 2-2
a.
Cash 2,000,000
Ordinary Share Capital 1,500,000
Share Premium - Ordinary 500,000

Share Premium-Ordinary 60,000

Promotions and Advertising Expense 25,000
Cash 85,000

b.
Land 1,960,000
Ordinary Share Capital 700,000
Share Premium - Ordinary 1,260,000

c.
Cash 18,000,000
Preference Share Capital 2,500,000
Ordinary Share Capital 10,000,000
Share Premium – Preference 2,000,000
Share Premium – Preference 3,500,000

d.
Subscription Receivable 450,000
Cash 150,000
Subscribed Ordinary Share 500,000
Share Premium - Ordinary 100,000

e.
Land 5,000,000
Cash 40,000
Donated Capital 4,960,000

PROBLEM 2-3
Contributed Capital
10% Preference Share Capital, cumulative and non-participating, P100 par
30,000 shares authorized; 12,000 shares issued and outstanding P1,200,000
Ordinary Share Capital, P10 par, 100,000 shares authorized, 40,000 shares
issued, 39,000 shares outstanding 400,000
Share Premium – Preference 300,000
Share Premium –Ordinary 140,000
Total Contributed Capital P2,040,000
Retained Earnings
Appropriated for Treasury Share P 18,000
Unappropriated 332,000 350,000
Treasury Shares, 1,000 ordinary shares, at cost (18,000)
Total Shareholders’ Equity P2,372,000

PROBLEM 2-4
(a)
(1) Treasury Shares 140,000
Cash 140,000

(2) Cash 60,000

Treasury Shares 56,000
Paid in Capital from Treasury Share 4,000

(3) Cash 65,000

Paid in Capital from Treasury Share 4,000
Retained Earnings 1,000
Treasury Shares 70,000
(4) Ordinary Share Capital 10,000
Share Premium - Ordinary 3,000
Retained Earnings 1,000
Treasury Shares 14,000

(b)
Total Shareholders’ Equity, December 31, 2021 P2,200,000
(1) Purchase of treasury shares (140,000)
(2) Sale of treasury shares 60,000
(3) Sale of treasury shares 65,000
Profit for the year 280,000
Dividends declared (200,000)
Total Shareholders’ Equity, December 31, 2022 P2,265,000

PROBLEM 2-5
(a)
Preference Share Capital 80,000
Share Premium – Preference 6,400
PIC from Retirement of Preference Shares 2,400
Cash 84,000

(b)
Preference Share Capital 80,000
Share Premium – Preference 6,400
Retained Earnings 17,600
Cash 104,000

PROBLEM 2-6
(a)
Preference Share Capital 200,000
Share Premium – Preference 16,000
Retained Earnings 84,000
Ordinary Share Capital 300,000

(b)
Preference Share Capital 200,000
Share Premium – Preference 16,000
Ordinary Share Capital 150,000
Share Premium – Ordinary 66,000

PROBLEM 2-7
(a)
Retained Earnings 200,000
Share Dividends Distributable 100,000
Share Premium - Ordinary 100,000
Share Dividends Distributable 100,000
Ordinary Share Capital 100,000

(b)
Retained Earnings 300,000
Share Dividends Distributable 300,000

Share Dividends Distributable 300,000

Ordinary Share Capital 300,000

(c)
Memo: Effected a 2 for 1 stock split on 100,000 shares, P100 par, previously issued and outstanding.

PROBLEM 2-8
(a)
2020 Preference Ordinary
Current preference dividends P 150,000 P0
Dividend per share P7.50 P0

2021
Current preference dividends P 180,000
Excess P80,000
Dividend per share P9.00 P0.32

2022
Current preference dividends P 180,000
Excess P360,000
Dividend per share P9.00 P1.44

(b)
2020 Preference Ordinary
Current on preference is P180,000 P150,000
Arrears, end P0
Dividend per share P7.50 P0

2021
Arrears, beginning P 30,000
Current year 180,000
Total P210,000 P210,000
Excess to ordinary P50,000
Dividend per share P10.50 P0.20

2022
Current year P180,000
Excess – to ordinary P360,000
Dividend per share P9.00 P1.44

(c)
2020 Preference Ordinary
Current dividends P 150,000 P0
Arrears, end
Dividend per share P 7.50 P0

2021
Arrears, beginning
Current on preference P 210,000
To ordinary P50,000
Total dividends P 210,000 P50,000
Dividend per share P10.50 P 0.20

2022
Current dividends P 180,000
P 225,000
Excess 60,000
75,000
Total P240,000 P300,000
Dividend per share P12.00 P1.20

PROBLEM 2-9
(a)
Preference Ordinary
Arrears, January 1 P 50,000
Current dividends 180,000
P225,000
Excess divided by total par 68,889
86,111
Total P298,889 P311,111
Dividend per share P14.94 P1.24

(b)
Preference Ordinary
Arrears, January 1 P 50,000
Current dividends 180,000
P225,000
Excess divided by total par 60,000
95,000
Total P290,000 P320,000
Dividend per share P14.50 P1.28
PROBLEM 2-10
Retained Earnings 500,000
Share Dividends Distributable 500,000

Share Dividends Distributable 500,000

Ordinary Share Capital 450,000
Fractional Share Warrants Outstanding 50,000

Fractional Share Warrants Outstanding 50,000

Ordinary Share Capital 40,000
PIC from Unexercised Fractional Share Warrants 10,000