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CHAPTER 3SHAREHOLDERS’ EQUITY
PROBLEMS
3-1. (Budomo Company) Cash (20,000 x 300) 6,000,000
e. Land 5,000,000 Cash 40,000 Donated Capital 4,960,000
3-3. (Blazing Red Corporation)
Chapter 3 – Shareholders’ Equity
Shareholders’ EquityContributed Capital 10% Preference Share, cumulative and non-participating, P100 par 30,000 shares authorized; 12,000 shares issued and outstanding
Treasury Share 14,000 (b) Total shareholders’ equity, December 31, 2006 P2,200,000
(1) Purchase of treasury share (10,000 x 14) (140,000)(2) Sale of treasury share (4,000 x 15) 60,000(3) Sale of treasury share (5,000 x 13) 65,000Net income for the year 180,000Dividends declared (200,000)Total shareholders’ equity, December 31, 2007 P2,165,000
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
(a) Value of each option P8Number of shares granted x 30,000Total value assigned to share options P240,000Required service period 3yearsAnnual compensation expense P 80,000
(b) Share Options Outstanding 240,000Cash (30,000 x 50) 1,500,000 Ordinary Share (30,000 x 20) 600,000 Share Premium - Ordinary 1,140,000
3-10. (Fire Red Company)01/02/07 Memo: granted 40,000 share options were granted to certain
officers for the purchase of the company’s P100 par ordinary shares at P430 per share.
12/31/07 Compensation Expense 800,000 Share Options Outstanding 800,000 (40,000 x 80) 4 years
12/31/08 Compensation Expense 800,000 Share Options Outstanding 800,000 (40,000 x 80) 4 years
01/01/09 Memo: 6,000 share options were cancelled.
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Chapter 3 – Shareholders’ Equity
12/31/09 Compensation Expense 440,000
Share Options Outstanding 440,000 Total accrued compensation expense (34,000 x 80) x 3/4 2,040,00
3-11. (Red Fox Corporation)(a)2007 200 – 10 – 15 = 175 employees x 100
options=17,50017,500 x 32 = 560,000; 560,000 x 1/3 186,667
2008 200–10–12–5=173 employees x 100 options=17,30017,300 x 32 x 2/3 = 369,067; 369,067 – 186,667 182,400
2009 200-10-12-8=170 employees x 100 options=17,00017,000 x 32 = 544,000; 544,000 – 369,067 174,933
(b)01/01/07 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, 2010 provided that the employees are still in the service. Options expire on December 31, 2011.
2010 Cash (8,000 x 120) 960,000Share Options Outstanding (80% x 200,000)
160,000
Ordinary Shares (8,000 x 100) 800,000 Share Premium-Ordinary 320,000
Share Options Outstanding (20% x 200,000)
40,000
PIC from Forfeited Share Options 40,000
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Chapter 3 – Shareholders’ Equity
(c) If the stock price reached P200 by June 2010, the same entries will be made for year 2007 through 2009, as given in (b) The recorded share options, however, will be cancelled at the end of 2010, as the options already expire.
Share Options Outstanding 704,000 Ordinary Share (32,000 x 100) 3,200,00
0 Share Premium – Ordinary 1,984,00
0
(b) The full amount of P704,000 is recognized as compensation expense since the options vests already in 2007.
3-14. (Paul Company)(a)01/01/07 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, 2010 and expire on December 31, 2011. The number of share options will be based on the level of sales for 2009.
12/31/07 Compensation Expense 100,000 Share Options Outstanding 100,000 10,000 sh x 30 x 1/3
Note: When the grant of share options is based on non-market performance condition, the amount of recognized services received during the vesting period shall be based on the number of share options expected to vest. The entity shall reverse that estimate, if necessary, if the share options are later forfeited, or lapse at the end of the share option’s life. Thus, in effect, on a cumulative basis, no compensation expense is recorded as a result of the stock options.
(c) Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par previously issued and outstanding.
3-19. (Buenviaje Corporation)Capital structure:
Preference OrdinaryNumber of shares outstanding 20,000 250,000Total par value P2,000,000 P2,500,000
(a) Preference share is non-cumulative and non-participating2006 Preference OrdinaryCurrent preference dividends (9% x 2,000,000) P 180,000Excess (1,500,000 – 180,000) P1,320,000Dividend per share P9.00 P5.28
2007 Preference OrdinaryCurrent preference dividends (9% x 2,000,000) P 180,000Excess (2,400,000 – 180,000) P2,220,000Dividend per share P9.00 P8.88
2008 Preference OrdinaryCurrent preference dividends (9% x 2,000,000) P 180,000Excess (5,600,000 – 180,000) P5,420,000Dividend per share P9.00 P21.68
(b) Preference share is cumulative and non-participating.2006 Preference Ordinary
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Chapter 3 – Shareholders’ Equity
Dividends in arrears (9% x 2,000,000 x 3) P 540,000Excess (1,500,000 – 540,000) P 960,000Dividend per share P2.70 P3.842007 Preference OrdinaryCurrent preference dividends (9% x 2,000,000) P 180,000Excess (2,400,000 – 180,000) P2,220,000Dividend per share P9.00 P8.88
2008 Preference OrdinaryCurrent preference dividends (9% x 2,000,000) P 180,000Excess (5,600,000 – 180,000) P5,420,000Dividend per share P9.00 P21.68
(c) Preference share is cumulative and fully participating2006 Preference OrdinaryCurrent dividends: 9% x 2,000,000 P 180,000 9% x 2,500,000 P 225,000Excess: 1,095,000 x 2.0/4.5 486,667 1,095,000 x 2.5/4.5 608,333Total dividends P 666,667 P 833,333Dividend per share P33.33 P3.33
2007 Preference OrdinaryCurrent dividends: 9% x 2,000,000 P 180,000 9% x 2,500,000 P 225,000Excess: 1,995,000 x 2.0/4.5 886,667 1,995,000 x 2.5/4.5 1,108,333Total dividends P1,066,667 P1,333,333Dividend per share P53.33 P 5.33
2008 Preference OrdinaryCurrent dividends: 9% x 2,000,000 P 180,000 9% x 2,500,000 P 225,000Excess: 5,195,000 x 2.0/4.5 2,308,889 5,195,000 x 2.5/4.5 2,886,111Total P2,488,889 3,111,111Dividend per share P124.44 P 12.44
12/31/07Balances P16,500,000 30,000 100,0002008 transactions:a) 4,000 x 280 (1,120,000) (4,000)b) 8,000 x 75 (600,000) 8,000 P600,000c) 2:1 share split 100,000 8,000d) 6,000 x 45 270,000 (6,000) (225,000)*e) 4,000 x 46 4,000 f) 2,000 x 48 96,000 (2,000)g) Net income 1,850,00012/31/08 balances P16,996,000 26,000 200,000 12,000 P375,000
*P600,000 x 6,000/16,000 = 225,000
(a) Total shareholders’ equity P16,996,000(b) Number of preference shares issued and outstanding 26,000 (c) Number of ordinary shares issued 200,000
Number of ordinary shares outstanding(200,000 – 12,000) 188,000(d) Cost of remaining treasury shares P 375,000
3-22. (La Vida Company)Retained earnings balance as of December 31, 2008 3,900,000 – 600,000 – 240,000 P 3,060,000Total shareholders’ equity as of December 31, 2008 6,000,000 + 8,000,000 + 3,060,000 P17,060,000
(a) Preference
Ordinary
Par value of preference share P6,000,000
Dividends in arrears (6,000,000 x 9% x 3 yrs.)
1,620,000
Excess to ordinary (17,060,000 – 7,620,000) P9,440,000
Total equity P7,620,000
P9,440,000
Divide by the number of shares outstanding 60,000 800,000Book value per share P 127 P 11.80
(b) Preference
Ordinary
Liquidation value (60,000 shares x P105) P6,300,000
Dividends in arrears (P6,000,000 x 9% x 3 yrs.)
1,620,000
Excess to ordinary (17,060,000 – 7,920,000) P9,140,000
Total equity P7,920,000
P9,140,000
Divide by the number of shares outstanding 60,000 800,000Book value per share P132 P11.425
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Chapter 3 – Shareholders’ Equity
3-23. (Los Angeles Company)(a) Retained Earnings 400,000
Accumulated Depreciation 75,000 Current Assets 100,000 Building 375,000
(b) Current Assets P 400,000 Liabilities P1,000,000
Land 1,500,000 Ordinary Share 4,000,000 Building 4,625,000 Share Premium 600,000 Accumulated Depreciation ( 925,000) Total Assets P5,600,000 Total Equities P5,600,000