Table 13

CRC-ACE The Professional CPA Review School ________________________________________________________

CRC-ACE The Professional CPA Review School ________________________________________________________AUDIT OF STOCKHOLDERS EQUITY PROBLEMS

PROBLEM 1You are engaged in the audit of WOODHAVEN Co., a new client, at the close of its first fiscal year, April 30, 2011. The books had been closed prior to the time you began your year-end field work.Shown below are the shareholders equity accounts in the general ledger.Ordinary Share Capital

Sept 14, 2010 CD 110,000May 1, 2010 CR 1,200,000

April 28, 2011 J 109,000

Retained Earnings

April28,2011 109,000February 2,2011 CR 52,500

April30,2011 800,000

Income Summary

April 30, 2011 J 5,200,000April 30, 2011 J 6,000,000

April 30, 2011 J 800,000

Additional information is as follows:A. From the articles of incorporation:Authorized share capital30,000 sharesPar value per shareP 100

B. Directors minutes include the following resolutions:April 30, 2010Authorized the issue of 10,000 shares at P 120 per share.Sept 13, 2010Authorized the acquisition of 1,000 shares at P 110.Feb 01, 2011Authorized the reissue of 500 treasury shares at P 105.April 28, 2011Declared a 10% stock dividend, payable May 31, 2011, to shareholders of record as of April 30, 2011. The market value of the WOODHAVEN Co. stock on April 28, 2011, was P 130 per share.

Based on the above information, determine the correct balances of the following accounts on April 30, 2011.1. Ordinary Share Capitala.P 1,199,000b. P 1,000,000 c. P 1,100,000d. P 900,000

2. Treasury Sharesa.P 110,000b. P 100,000c. P 50,000d. P 55,0003. Share Premiuma.P 226,000b. P 231,000c. P 228,500d. P 200,0004. Retained Earningsa.P 619,000b. P 800,000c. P 676,500d. P 797,5005. Stock Dividends Payablea.P 123,500b. P 95,000c. P 109,000d. P 0

PROBLEM 2COLDSPRING Corp., organized on June 1, 2011, was authorized to issue shares as follows:

800,000 shares of 9% preference shares, convertible, P100 par 2,500,000 ordinary shares, P2.50 stated value

During the remainder of the fiscal year ended May 31, 2010, the following transactions were completed in the order given: 300,000 shares of preference shares were subscribed for at P105, and 900,000 ordinary shares were subscribed for at P26. Both subscriptions were payable 30% upon subscription, the balance in one payment. The second subscription payment was received, except one subscriber for 60,000 ordinary shares defaulted on payment. The full amount paid by this subscriber was returned, and all of the fully paid shares was issued. 150,000 ordinary shares were reacquired by purchase at P28. Each preference share was converted into four ordinary shares. The treasury share was exchanged for machinery with a fair market value of P4,300,000. There was a 2-for-1 share split, and the stated value of the new ordinary share is P1.25. Net income was P830,000.

QUESTIONS:Based on the above and the result of your audit, determine the following as of December 31, 2010:1. Ordinary Share Capitala. P2,550,000b. P2,100,000c. P5,100,000 d. P4,200,0002. Total Share Premiuma. P50,890,000b. P48,340,000c. P48,808,000 d. P48,240,0003. Total Contributed Capitala. P53,908,000b. P53,440,000c. P55,990,000 d. P53,340,0004. Total Shareholders equitya. P54,270,000b. P54,738,000c. P56,820,000 d. P54,170,000

PROBLEM 3The following information about a share based compensation of UNIONDALE Company:

Vesting condition Continued employment for three years Share options can be exercised if the share price increases from P100 on Jan. 1, 2009 to P130 on Dec. 31, 2011. The options can be exercised any time during the next seven years Assumptions: 10,000 share options granted to senior executives on Jan. 1, 2009 All senior executives are still in service as of Dec. 31, 2011 The entity uses a pricing model that takes into account the possibility that the share price will exceed P130 on Dec. 31, 2011. FV of option using this market condition is P48 per option.

1. How much should be recognized as expense in 2011 assuming the share price increases by P 100?a. P 0b. P 160,000c. P 320,000 d. P 480,000

2. How much should be recognized as expense in 2011 assuming the share price does not increase by P 100?a.P 0b. P 160,000c. P 320,000 d. P 480,000

PROBLEM 4On January 1, 2006, BRENTWOOD Ltd. granted stock options to its chief executive officer (CEO). This is the only stock option plan that BRENTWOOD offers. The details of the stock options are set out below:

Option to purchase 5,000 no-par-value common sharesOption price per share P62.00Market price per share at grant dateP57.00Stock options expire The earlier of 8 years after issuance or theemployees cessation of employment with the company for any reason other than retirement.

The options are first exercisable The earlier of 4 years after issuance or the date on which an employee reaches the retirement age of 65.

Fair value at grant date, as determined By using a binomial valuation model P10.00

On January 1, 2011, 4,000 of the options were exercised when the market price of the common shares was P 78.00. The rest of the options were allowed to expire.1. Compute the amount of compensation expense to be recognized in 2006.a.P 50,000b. P 40,000 c. P 10,000d. P 12,500

2. The journal entry to record the exercise of 400 options on January 1, 2011 will requirea. a debit to cash of P312,000b. a debit to Additional paid-in capital of P40,000c. a credit to Ordinary share capital of P40,000d. a credit to Additional paid-in capital of P248,000

PROBLEM 5Retained Earnings account of ELLENVILLE Co., follows:DateP a r t i c u l a r s Debit Credit 01/01/08Balance P80,60006/30/08Dividends PaidP25,00012/31/08Net income for the year 42,50002/07/10Premium on capital stock 10,00004/30/10Loss on sale of land 5,00009/30/10Dividends paid 20,00012/31/10Net income for the year 5,80012/31/10Revaluation surplus 40,00007/01/11Gain on sale of Treasury Stock 1,60012/31/11Net income for the year 33,700Unrealized loss on AFS securities 3,400

What is the correct balance of the Retained Earnings account on December 31, 2011?a. P 112,600b. P117,600c. P 123,200d. P 111,800

PROBLEM 6The following information has been taken from the ledger accounts of FRANKLIN SQUARE Corp.Total income since incorporationP317,000Total cash dividends paid 60,000Proceeds from sale of donated stock 40,000Total value of stock dividends distributed 30,000Gains on treasury stock transactions 18,000Unamortized discount on bonds payable 32,000Treasury stock 20,000Appropriated for plant expansion 70,000Unpaid cash dividends 24,000

REQUIRED:Determine the current balance of unappropriated retained earnings.a. P 203,000b. P113,000c. P 133,000d. none of these

PROBLEM 7RFM Company entered into a contract with a customer to supply and install a machine on January 1, 2011 and to service the machine on July 1, 2011 and January 1, 2012. The cost of the machine to RFM is P80,000. It is possible for a customer to purchase both the machine and the maintenance services separately.

The customer is contractually obliged to pay RFM P200,000 on January 1, 2012.

The prevailing rate for one year credit granted to trade customers in the industry is 5% per six-month period.

Experience has shown that the servicing of a machine of the model sold to the customer is expected to cost RFM P15,000 to perform the first service and P25,000 to perform the second service. When RFM provides machine services to customers in a separate transaction, it earns a margin of 50% on cost.

On January 1, 2011, the cash selling price of a machine of the model sold to the customer is 125,964.

Required:1. The amount of income that should be recognized on the sale of machine in 2011 is:a. P125,964b. P200,000c. P185,000 d. P160,0002. The amount of income that should be recognized on the sale of services in 2011 is:a. P25,000b. P15,000c. P22,500 d. P37,5003. The amount of income that should be recognized on the sale of services in 2012 is:a. P25,000b. P15,000c. P22,500 d. P37,5004. The amount of interest revenue that should be recognized in 2011 is:a. P6,298b. P7,738c. P14,036 d. P05. The amount of interest revenue that should be recognized in 2012 is:a. P6,298b. P7,738c. P20,000 d. P0

/jgs

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