SOLUTION TO EXERCISE 5-4.

ISSUANCE OF SHARE CAPITAL AT PAR VALUE

Date Account Title Debit Credit

Jul 15 MEMO ENTRY
Authorized to issue 50,000 shares at P100 par
value.

Subscription Receivable 1,250,000

Subscribed Share Capital 1,250,000
To records 12,500 shares subscribed by five (5)
incorporators at P100.00 par value.

Cash 312,500
Subscription Receivable 312,500
To record 25% payment of five (5) incorporators
of their subscription.

Aug 1 Subscription Receivable 1,000,000

Subscribed Share Capital 1,000,000
To record Ms. Elcee subscription of 10,000
shares at par.

14 Cash 20,000
Share Capital 20,000
To record issuance of 200 shares at par for cash.

Sept 15 Cash 1,000,000

Subscription Receivable 1,000,000
To record collection in full of the Aug 1
subscription of Ms. Elcee.

Subscribed Share Capital 1,000,000

Share Capital 1,000,000
To record issuance of 10,000 shares at part to
Ms. Elcee.

Sept 22 Land 500,000

Ordinary Capital 500,000
To record issuance of 5,000 shares at par to
Ms. Mariebic in exchange for land received

Oct 31 Preoperating Expenses 5,000

Share Capital 5,000
To record 50 share issued at par to Ms. Jina
for promotional services rendered during the
formation of the corporation.

Nov 18 Merchandise Inventory 40,000

Equipment 60,000
Share Capital 100,000
To record issuance of 1,000 shares at par to Ms.
Akino in exchange for merchandise and
 equipment received.

Dec 1 Cash 937,500

Subscription Receivable 937,500
To record collection from five (5) incorporators
of the balance of their subsciption.

Subscribed Share Capital 1,250,000

Share Capital 1,250,000
To record issuance of 12,500 shares at par to five
(5) incorporators after they paid in full their
subscription.
 Supporting Computations

(12,500 shares x P100)

(P1,250,000 x 25%)

(10,000 shares x P100)

(200 shares x P100)

(10,000 shares x P100)

(5,000 shares x P100)

(50 shares x P100)

(1,000 shares x P100)

(P1,250,000-P312,500)

(12,500 shares x P100)

SOLUTION TO EXERCISE 5-5. ISSUANCE OF SHARE CAPITAL ABOVE PAR VALUE

Date Account Title Debit Credit

2012
July 1 MEMO ENTRY
Authorized to issue 50,000 shares at P100 par
value.

Subscription Receivable-Ordinary 1,250,000

Subscribed Ordinary Share Capital 1,250,000
To record shares subscribed by five (5)
incorporators at 2,500 shares each at par.

Cash 312,500
Subscription Receivable-Ordinary 312,500
To record the payment of five (5) incorporators
of 25% of their subscription.

2 Prepaid Expenses 4,000

Cash 4,000
To record incorporation fees paid to SEC.

3 Cash 240,000
Ordinary Share Capital 200,000
Share Premium-Ordinary 40,000
To record issuance of 200 shares at P120 to
Dominic.

6 Cash 562,500
Subscription Receivable-Ordinary 562,500
To record payment in full of Agatha, Priscilla and
Kaye of the balance of their subscriptions.

Subscribed Ordinary Share Capital 750,000

Ordinary Share Capital 750,000
To record issuance of shares to Agatha, Priscilla
and Kaye after payment of their subscriptions
in full.

12 Subscription Receivable-Ordinary 187,500

Subscribed Ordinary Share Capital 150,000
Share Premium-Ordinary 37,500
To record subscription of David of 1,500 shares
at P125.

18 Land 450,000
Ordinary Share Capital 300,000
Share Premium-Ordinary 150,000
To record issuance of 3,000 shares to Darren in
exchange for a piece of land.

24 Cash 187,500
 Subscription Receivable-Ordinary 187,500
To record payment of David in full of his
subscription.

Subscribed Ordinary Share Capital 150,000

Ordinary Share Capital 150,000
To record issuance of 1, 500 shares at P100 par to
David after paying his subscription in full.

31 Cash 375,000
Subscription Receivable-Ordinary 375,000
To record payment in full of Amiel and Jhun
of their subscription.

Subscribed Ordinary Share Capital 500,000

Ordinary Share Capital 500,000
To record issuance of shares to Amiel and Jhun
after they paid their subscription in full.
 Supporting Computations

(5 x 2,500 shares = 12,500 shares x P100)

(P1,250,000 x 25%)

(200 shares x P100)

(P240,000 - P200,000)

(=3 x 2,500 shares x P100 x 75%)

(3 x 2,500 x P100)

(1500 shares x P125)

(1,500 shares x P100)
(P187,500 - P150,000)

(3,000 shares x P100)

(P450,000 - P300,000)
(1,500 shares x P100)

(2 x 2,500 x P100 x 75%)

(2 x 2,500 x P100)
SOLUTION TO EXERCISE 5-6. TWO CLASSES OF SHARES

Date Account Title Debit Credit

June 1 MEMORANDUM ENTRY

Authorized to issue 400,000, 9% preference

shares at P40 par value.

Authorized to issue 500,000 ordinary shares at

P30 par value.

Aug 5 Subscriptions Receivable-Ordinary 12,600,000

Subscribed Ordinary Shares 9,000,000
Share Premium-Ordinary 3,600,000

Cash 2,520,000
Subscriptions Receivable-Ordinary 2,520,000

7 Cash 528,000
Ordinary Share Capital 495,000
Share Premium-Ordinary 33,000

9 Subscriptions Receivable-Preference 5,400,000

Subcribed Preference Share 4,800,000
Share Premium-Preference 600,000

Cash 810,000
Subscriptions Receivable-Preference 810,000

Sept 1 Cash 5,040,000

Subscriptions Receivable-Ordinary 5,040,000

5 Cash 22,500
Preference Share Capital 20,000
Share Premium-Preference 2,500

Oct 1 Cash 2,295,000

Subscriptions Receivable-Preference 2,295,000

Nov 1 Cash 26,400

Preference Share Capital 24,000
Share Premium-Preference 2,400

Dec 1 Cash 5,040,000

Subscriptions Receivable-Ordinary 5,040,000

Subscribed Ordinary Share 9,000,000

Ordinary Share Capital 9,000,000

Cash 2,295,000
Subscriptions Receivable-Preference 2,295,000
Subscribed Preference Share 4,800,000
Preference Share Capital 4,800,000
 Supporting Computations

(300,000 shares x P42)

(300,000 shares x P30)
(P12,600,000-P9,000,000)

(P12,600,000 x 20%)

(16,500 shares x P32)

(16,500 shares x P30)

(120,000 shares x P45)

(120,000 shares x P40)
(P5,400,000-P4,800,000)

(P5,400,000 x 15%)
(P5,400,000 x 15%)

(P12,600,000 - P2,520,000 = P10,080,000 x 50%)

(500 shares x P45)

(500 shares x P40)
(P22,500 - P20,000)

(P5,400,000 - P810,000 = P4,590,000 x 50%)

(P5,400,000 - P810,000 = P4,590,000 x 50%)

(600 shares x P44)

(600 shares x P40)
(P26,400 - P24,000)

(P12,600,000 - P2,520,000 - P5,040,000)

(P12,600,000 - P2,520,000 - P5,040,000)

(300,000 shares x P30)

(P5,400,000 - P810,000 - P2,295,000)

(120,000 shares x P40)
SOLUTION TO EXERCISE 5-7. TWO CLASSES OF SHARES

a. Minimum subscription and paid-up capital

Preference Ordinary
Authorized number of shares 100,000 500,000
Par value 100 50
Value of authorized shares 10,000,000 25,000,000
Multiply by 25% minimum requirement 25% 25%
Minimum subscribed share capital 2,500,000 6,250,000
Multiply by 25% minimum requirement 25% 25%
Minimum paid up share capital 625,000 1,562,500

b. Number of preference shares issued

Paid-up preference shares 7,500,000

Divide by par value 100
Number of preference shares issued 75,000

c. Number of ordinary shares issued

Paid-up ordinary shares 12,500,000

Divide by par value 50
Number of ordinary shares issued 250,000

d. Issue price of preference shares

Paid-up preference shares 7,500,000

Share premium on preference shares 262,500
Total value received for preference shares issued 7,762,500
Divide by number of preference shares issued 75,000
Issue price of preference shares 103.50

e. Issue price of ordinary shares

Paid-up ordinary shares 12,500,000

Share premium on ordinary shares 1,750,000
Total value received for ordinary shares issued 14,250,000
Divide by number of ordinary shares issued 250,000
Issue price of ordinary shares 57.00

f. Total amount of legal capital

Paid up capital
Preference shares 7,500,000
Ordinary shares 12,500,000
Total legal capital 20,000,000
g. Total amount of contributed capital

Preference Ordinary
Paid-up share capital 7,500,000 12,500,000
Share premium 262,500 1,750,000
Total amount of contributed capital 7,762,500 14,250,000
Total

35,000,000

8,750,000

2,187,500
Total
20,000,000
2,012,500
22,012,500
SOLUTION TO EXERCISE 5-8. TRUE OR FALSE

1. True

2. False Legal capital constitues stated or par value only.

3. True

4. True

5. False

6. False

7. False

8. False The market value of a share is independent of its par or stated value.

9. False Unissued share capital is credited when stocks are issued under the journal entry method.

10. True Any shares can be acquired through subscription.

entry method.
SOLUTION TO EXERCISE 5-9. NO PAR VALUE SHARES

a. Cash 5,500,000
Share Capital 5,500,000

b. Cash 5,500,000
Share Capital 5,000,000
Share Premium 500,000

c. Cash 5,500,000
Share Capital 2,500,000
Share Premium 3,000,000
Computations
(500,000 shares x P11)
(500,000 shares x P11)

(500,000 shares x P11)

(500,000 shares x P10)
(P550,000 - P500,000)

(500,000 shares x P11)

(500,000 shares x P5)
(P550,000 - P250,000)
SOLUTION TO EXERCISE 5-4. ISSUANCE OF SHARE CAPITAL AT PAR VALUE

Date Account Title Debit

Jan 1 MEMO ENTRY
Authorized to issue 100,000 ordinary shares
at P10 stated value per share.

Cash 250,000
Ordinary Share Capital

10 Subscription Receivable-Ordinary 125,000

Subscribed Ordinary Shares
Ordinary Share Capital in Excess of Stated Value

Cash 37,500
Subscription Receivable-Ordinary

22 Land 350,000.00
Equipment 100,000.00
Merchandise Inventory 95,000.00
Ordinary Share Capital
Ordinary Share Capital in Excess of Stated Value

25 Cash 87,500
Subscription Receivable-Ordinary

Subscribed Ordinary Shares 100,000

Ordinary Share Capital

30 Cash 210,000.00
Ordinary Share Capital
Ordinary Share Capital in Excess of Stated Value
Credit Supporting Computations

(25,000 share x P11)

250,000 (25,000 share x P11)

(10,000 shares x P12.50)

100,000 (10,000 shares x P10)
25,000

(P125,000 x 30%)
37,500 (P125,000 x 30%)

500,000.00 (50000 shares x P10)

45,000.00 [(P350,000 + P100,000 + P95000) - P500,000]

(P125,000 - P37,500)
87,500 (P125,000 - P37,500)

100,000 (10,000 shares x P10)

(100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P14)
150,000.00 (100,000 shares - 25,000 shares - 10,000 - 50,000 shares = 15,000 shares x P10)
60,000.00
UNIT 5 - Problems
5-1
a) Issued shares
40,000 shares x P25 1,000,000
600 shares in exchange for equipment 18,600
Amount of contributed capital 1,018,600

b) Authorized shares 120,000

Issued shares (40,600)
Unissued shares 79,400

5-2 Authorized share capital 300,000

Unissued share capital 120,000
Issued share capital 180,000
Share premium 8,000
Subscribed share capital 60,000
Subscription receivable (32,000) 28,000
CASH COLLECTED 216,000

5-3 Issuance of 24,000 ordinary shares 1,200,000

Issuance of 6,000 preference shares 96,000
Share premium on subscribed shares
(2,000 x P7.00) 14,000
Total contributed capital 1,310,000
SOLUTION TO PROBLEM 5-1

a. Amount of contributed capital

Total Premium
Amount received for shares sold
(40,000 shares x P25) 1,000,000 400,000

Market value of equipment received for stocks issued 18,600 9,600

Contributed Capital 1,018,600 409,600

b. Authorized number of shares 120,000

Less number of shares issued
For cash 40,000
In exchange of equipment 600 40,600

Number of unissued shares 79,400

SOLUTION TO PROBLEM 5-2

Amount of cash collected from share capital transactions

Authorized share capital

Unissued share capital
Issued share capital
Add: Share Premium
Subscribed capital stock 60,000
Less: Subscription receivable 32,000
Cash collected from share capital transactions

SOLUTION TO PROBLEM 5-3

Contributed capital as of December 31, 2011

Preference shares, P10 par value,

10,000 shares authorized (6,000 shares x P10)

Ordinary shares, P40 stated value per share,

40,000 shares authorized (24,000 shares x P40)

Paid-up shares

Share premium
Preference shares [6,000 shares x (P16 - P10)] 36,000
Ordinary shares (P1,200,000 - P960,000) 240,000
Contributed capital
 Par Value Number
Value Per Share of Shares

600,000 15 40,000

9,000 15 600

609,000 15 40,600

300,000
120,000
180,000
8,000

28,000
216,000

60,000

960,000

1,020,000

276,000
1,296,000