CHAPTER 9 Caselette - Audit of SHE

7/25/2019 CHAPTER 9 Caselette - Audit of SHE

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CHAPTER 9 Audit of Shareholders Equity

Problem 1You have been assigned to the audit of Aguillon Inc., a manufacturing company. You have

been asked to summarize the transactions for the year ended December 31, !!", affecting

shareholders# e$uity and other related accounts. %he shareholders# e$uity section ofAguillon#s December 31, !!3, balance sheet follo&s'

(hareholders# )$uity

*ontributed capital'+rdinary share par value, -!!,!!! shares authorized,

!,!!! shares issued, //,0! shares outstanding 1/!,!!!

aidin capital in e2cess of par 1,/!,!!!aidin capital from treasury share ,-!!

%otal contributed capital ,!,-!!

etained earnings 3",4/%otal contributed capital and retained earnings ,3"0,1/

5ess' *ost of 1,1! shares of treasury share 0,4!!%otal shareholders# e$uity ,0",-/

You have e2tracted the follo&ing information from the accounting records and audit &orking

papers.

!!"6an. 1- Aguillon reissued 4-! shares of treasury share for "! per share. %he 1,1!

shares of treasury share on hand at December 31, !!1, &ere purchased inone block in !!1. Aguillon used the cost method for recording the treasury

shares purchased.

7eb. (old !, 1,!!!, 8 bonds due 7ebruary 1, !!-, at 1!3 &ith one detachableshare &arrant attached to each bond. Interest is payable annually on

7ebruary 1. %he fair market value of the bonds &ithout the share &arrants is0. %he detachable &arrants have a fair value of 4! each and e2pire on

7ebruary 1, !!-. )ach &arrant entitles the holder to purchase 1! shares of+rdinary share at "! per share.

9ar. 4 (ubscriptions for 1,"!! shares of +rdinary share &ere issued at "" per

share, payable "!8 do&n and the balance by 9arch !.

! %he balance due on 1,!! shares &as received and those shares &ere issued.

%he subscriber &ho defaulted on the !! remaining shares forfeited the do&npayment in accordance &ith the subscription agreement.

:ov. 1 %here &ere -- share &arrants detached from the bonds and e2ercised.

:et income for the year is 4!!,!!!.

Questions- ;ased on the information above, ans&er the follo&ing $uestions'

1. %he +rdinary (hare at December 31, !!" is'a. 1-,!!! b. !",!!! c. 11,!!! d. 1/3,-!!

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. %he Additional paid capital in e2cess of par at December 31, !!" is'a. 1,!3,!!! b. 1,/",4!! c. 1,/0!,"!! d. 1,/3-,/!!

3. %he AI* < treasury share at December 31, !!" is'

a. ,-!! b. 13,!!! c. ,-!! d. !

". %he +rdinary (hare =arrants +utstanding at December 31, !!" is'a. -,"!! b. 3,3!! c. ,1!! d. !

-. %he (ubscribed +rdinary (hare at December 31, !!" is'

a. ,/!! b. ,"!! c. "!! d. !

4. %he AI* < forfeited share at December 31, !!" is'a. ! b. 3,-! c. 3,! d. -,/!

0. %he %reasury (hare at December 31, !!" is'

a. ! b. 0,4!! c. 3,!!! d. 33,4!!

/. %he %otal (hareholders# )$uity at December 31, !!" is'

a. ,/",3! b. ,4-,4! c. ,3/",3! d. ,!-,4!

SolutionJan 15 Cash (650 shares x P40) 28,000

Paid-in capital ro! treasur" share 1#,000 $reasur" %hare #&,000Cost o treasur" share' P2,0001,210 shares * P60 per shareCost o shares sold' 650 shares x P60 * P #&,000

+e 2 Cash (P&0,000 x 10#) &2,00iscount on onds pa"ale 2,00 .onds pa"ale &0,000 /rdinar" share arrants 5,400

Price o onds ithout arrants attached' & x P&0,000 * P8,#00alue o detached arrants' &0 x P60 * P 5,400

.ecause alue o onds plus alue o detachale arrants is e3ual to the total issuance price(P8,#00 P5,400 * P&2,00), the alue assined to the onds and arrants is the air alue oeach

7ar 6 Cash 24,640

/rdinar" share suscription receiale #6,&60 /rdinar" share suscried 2,800 Paid-in capital in excess o par 58,800

7ar 20 Cash #1,680 /rdinar" share suscription receiale #1,680

7ar 20 /rdinar" share suscried 2,400 /rdinar" share 2,400

7ar 20 /rdinar" share suscried 400

Paid-in capital in excess o par 8,400 /rdinar" share suscription receiale 5,280 Paid in capital ro! oreited share suscription #,520

o 1 Cash (550 s P40) 22,000/rdinar" share arrants (55 x P60) #,#00 /rdinar" share 1,100

Paid-in capital in excess o par 24,2009nser'1 2 . # C 4 C 5 6 . 8

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Problem 2

%he shareholder#s e$uity of the Amongan 5umber *o. on 6une 3!, !!", &as as follo&s'

*ontributed capital'-8 preference share, -! par, cumulative, 3!,!!! shares issued,

dividends - years in arrears 1,-!!,!!!+rdinary share, 3! par, 1!!,!!! shares issued 3,!!!,!!!

",-!!,!!!

Deficit from operations >4!!,!!!?

%otal shareholder#s e$uity 3,!!,!!!

+n 6uly 1, the follo&ing actions &ere taken'

a. +rdinary shareholders turned in their old +rdinary share and received in e2change ne&ordinary share, 1 share of the ne& share being e2changed for every " shares of the old.

:e& ordinary share &as given a stated value of 4! per share.b. +nehalf share of the ne& ordinary share &as issued on each share of preference share

outstanding in li$uidation of dividends in arrears on preference share.

c. %he deficit from operations &as applied against the paidin capital arising from theordinary share restatement.

%ransactions for the remainder of !!" affecting the shareholders# e$uity &ere as follo&s'

+ct. 1 1!,!!! shares of preference share &ere called at -- plus dividends for 3months at -8. (hare &as formally retired.

:ov. 1! 4!,!!! shares of ne& ordinary share &ere sold at 4-.

Dec. 31 :et income for the 4 months ended on this date &as "!!,!!!. >Assume thatrevenues and e2penses &ere closed to a temporary account, Income

summary. @se this account to complete the closing process.? %he semiannual

dividend &as declared on preference shares, and a !.0- dividend on ordinaryshares, dividends being payable 6anuary !, !!3.

Questions

;ased on the information above, ans&er the follo&ing $uestions'

1. %he balance of -8 reference (hare at December 31, !!" is'

a. 1,-!!,!!! b. 1,!!!,!!! c. -!!,!!! d. !

. %he balance of +rdinary (hare at December 31, !!" is'a. 3,!!!,!!! b. ",!!!,!!! c. ",-!!,!!! d. 4,!!!,!!!

3. %he balance of Additional paid in capital at December 31, !!" is'

a. ! b. 3!!,!!! c. 1,-!!,!!! d. 1,/!!,!!!

". %he balance of etained )arnings at December 31, !!" is'

a. ! b. >4!!,!!!? c. "3,0-! d. 3,0-!

SolutionJul" 1 /rdinar" share, P#0 par #,000,000

/rdinar" share, P60 stated alue 1,500,000:xchaned 100,000 shares o old ordinar" share ith a par alue o P#0 or 25,000 shares o neordinar" share ith a stated alue o P60

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Jul" 1 ;etained earnins &00,000 /rdinar" share, P60 stated alue &00,000:li!inate diidends in arrears on preerence share throuh issuance o 15,000 shares o ne ordinar"share

Jul" 1 Paid-in capital in excess o stated alue 1,500,000 ;etained earnins 1,500,000

9pplied deicit aainst paid-in capital created throuh recapitali


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b. +n 9arch -, !!", Alcain ac$uired -,!!! shares of its ordinary share for 1! per shareto hold as treasury share. %he shares &ere originally issued at 1- per share. A5*AI:

uses the cost method to account for treasury share. %reasury share is permitted inAlcain#s state of incorporation.

c. +n 6uly 1-, !!", Alcain declared and distributed a property dividend of inventory. %he

inventory had a 0-,!!! carrying value and a 4!,!!! fair market value.

d. +n 6anuary , !!, Alcain granted share options to employees to purchase !,!!!

share of Alcain#s ordinary share at 1/ per share, &hich &as the market on that date.

%he option may be e2ercised &ithin a three year period beginning 6anuary , !!". %hemeasurement date is the same as the grant date. +n +ctober 1, !!", employees

e2ercised all !,!!! options &hen the market value of the share &as - per share.A5*AI: issued ne& shares to settle the transaction.

e. Alcain#s net income for !!" &as "!,!!!.

Questions

;ased on the information above and other analysis as necessary, ans&er the follo&ing

$uestion'

1. Alcain#s +rdinary share balance at December 31, !!" is'

a. 1,3!!,!!! b. 1,14!,!!! c. !!,!!! d. /!!,!!!

. Alcain#s Additional paidin capital balance at December 31, !!" is'a. 1,/4!,!!! b. 1,4!,!!! c. ,!!!,!!! d. ,1!!,!!!

3. Alcain#s etained )arnings balance at December 31, !!" is'

a. ,!/-,!!! b. ,!-,!!! c. ,!1!,!!! d. 1,00!,!!!

". Alcain#s %reasury (hare balance at December 31, !!" is'

a. ! b. -!,!!! c. 0-,!!! d. 1-,!!!

-. Alcain#s (hareholders# )$uity balance at December 31, !!" is'a. ",1!,!!! b. ",/!,!!! c. ",03-,!!! d. ",0!,!!!

Solutiona 7e!o entr" $reasur" share 50,000

Cash 50,000c ;etained earnins 5,000

Propert" diidends pa"ale 5,000d Cash #60,000

/rdinar" share 100,0009P>C 260,000

e >nco!e su!!ar" 240,000

;etained earnins 240,0009nser'

1 C 2 9 # C 4 . 5

Problem 4Ashary *+9A:Y is a publicly held company &hose shares are traded in the over the

counter market. %he shareholders# e$uity account at December 31, !!3, had the follo&ing

balances'reference share, 1!! par value. 48 cumulative

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-,!!! shares authorized ,!!! shares issued and outstanding !!,!!!

+rdinary share, 1 par value 1-!,!!! shares authorized 1!!,!!! issued and outstanding 1!!,!!!

Additional paidin capital /!!,!!!etained earnings 1,-/4,!!!

%ransactions during !!" and other information relating to the shareholders# e$uity account&ere as follo&s'

7ebruary 1, !!" < Issued 13,!!! shares of ordinary share to Beith *ompany in

e2change for land. +n the date issued, the share had a market price of 11 per share.

%he land had a carrying value on Beith#s books of 13-,!!!, and the assessed value forproperty ta2es of !,!!!.

9arch 1, !!" < urchased -,!!! shares of its o&n ordinary share to be held as

treasury for 1" per share. Ashary uses the cost method to account for treasury share.%ransactions in treasury share are legal in Ashary#s state of incorporation.

9ay 1!, !!" < Declared a property dividend of marketable securities held by Ashary to

ordinary shareholders. %he securities had a carrying value of 4!!,!!!, fair value onrelevant dates &ere'

Date of declaration >9ay 1!, !!"? 0!,!!!

Date of record >9ay -, !!"? 0-/,!!!Date of distribution >6une 1, !!"? 034,!!!

+ctober 1, !!" < eissued ,!!! shares of treasury share for 14 per share.

:ovember ", !!" < Declared a cash dividend of 1.-! per share to all ordinary

shareholders of record :ovember 1-, !!". %he dividend &as paid on :ovember -,

!!".

December !, !!" < Declared the re$uired annual cash dividend on preference share

for !!". %he dividend &as paid on 6anuary -, !!-.

6anuary 14, !!- < ;efore closing the accounting records for !!", Ashary became

a&are that no amortization had been recorded for !!" for a patent purchased on 6uly

1, !!3. %he patent &as properly capitalized at 3!,!!! and had an estimated usefullife of eight years &hen purchased. Ashary#s income ta2 rate is 3!8.

:et income after ta2 for !!" &as /3/,!!!.

Questions1. %he total additional paidin capital at yearend is'

a. //1,!!! b. /00,!!! c. ,!!! d. 3",!!!

. %he total fundamental errors is

a. 1",!!! b. !,!!! c. 0,!! d. "!,!!!

3. %he total cash dividends < ordinary at yearend is'

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a. 10,-!! b. 14,-!! c. 14-,!!! d. 14,!!!

". %he total property dividends < ordinary at yearend is'

a. 4!!,!!! b. 0!,!!! c. 034,!!! d. 0-/,!!!

-. %he number of ordinary share issued and outstanding at yearend is'a. 1!,!!! b. 11!,!!! c. 111,!!! d. 113,!!!

Solution+e 1 - Band 14#,000

/rdinar" share 1#,0009P>C ? C% 1#0,000

7ar 1 - $reasur" share 0,000Cash 0,000

7a" 10 - ;etained earnins 600,000Propert" diidend pa"ale 600,000

/ct 1 - Cash #2,000$reasur" share 28,000

9P>C ? $% 4,000o 4 - ;etained earnins 165,000

Cash 165,000ec 20 - ;etained earnins 12,000iidends pa"ale 12,000

ec #1 - ;etained earnins 14,000

>nco!e tax pa"ale 6,000Patents 20,000

ec #1 - >nco!e su!!ar" 8#8,000;etained earnins 8#8,000

9nser'1 2 9 # C 4 9 5 .

Problem 5During your audit of Asumbra *ompany for the year !!", its initial year of operations, you

find the follo&ing entries in its C(hareholders# )$uity account'

EEEEEEEEEEEEEEEEEEEE(FA)F+5D)(# )G@I%YEEEEEEEEEEEEEEEEEEE

6an. !1Issuance of 1-!,!!! shares of capital share, 1! parauthorized -!!,!!! shares in e2change for real

estate property &ith a market value of million 1,-!!,!!!

6an. 1-(ale of !!,!!! shares of capital share at 1 per

share ,"!!,!!!

9ar. !1urchase !,!!! shares of its o&n share at 1- per(hare 3!!,!!!

9ay 1-5oss on sale of motor e$uipment 1!!,!!!

6un 1! roceeds from sale of 1!,!!! treasury shares 10!,!!!

Dec 31Declared cash dividends payable $uarterly

beginning April 1, 1/ !!,!!!

Dec 31:et profit for the year 0!,!!!

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Questions

1. %he adHusted balance of the C(hareholders# )$uity account of the company#s balancesheet as of December 31, !!" is'

a. ".34 million b. "."4 million c. ".04 million d. ".1 million

. %he book value per share of the company#s share as of December 31, !!" isa. 1"."" b. 1".!! c. 13.1 d. 1./

SolutionBand 2,000,000

/rdinar" share 1,500,0009P>C 500,000

Cash 2,400,000/rdinar" share 2,000,000

9P>C 400,000$reasur" share #00,000

Cash #00,000;etained earnins 100,000

Boss on sale 100,000Cash 10,000

$reasur" share 150,0009P>C ? $% 20,000

;etained earnins 200,000Cash 200,000

9nser'1 C 2 .

Problem 6You are auditing the balance sheet of the ;allares *ompany on December 31, !!", &hich

has the follo&ing items on the e$uity side of the balance sheet'

*urrent 5iabilities ,/-/,!!!

;onds ayable 3,!!!,!!!

eserve for ;onds etirement 1,4!!,!!!48 *umulative reference (hare, 1!! par value

>entitled to 11! and accumulated dividendsper share in voluntary li$uidation?. Authorized,

3!,!!! shares issued, !,!!! shares in treasury,1,-!! shares 1,/-!,!!!

+rdinary share, 1!! par value, authorized,1!!,!!! shares issued and outstanding, "!,!!!

shares ",!!!,!!!remium on preference share 1!!,!!!

remium on ordinary share 403,!!!etained earnings 1,31,4!!

%he company proposes to finance a plant e2pansion program by issuing an additional

!,!!! shares of ordinary share. +rdinary shareholders of record +ctober 1, !!" &erenotified that they &ill be permitted to subscribe to the ne& issue at 1-! per share up to

-!8 of their holdings. %he market value of the share on +ctober 1, !!", &as 10.-!.%he share goes e2rights in the market on +ctober 3, !!".

Questions

1. %otal shareholders# e$uity as of December 31, !!" is'

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a. ,!3-,!!! b. -,-3-,!!! c. 0,-!!,!!! d. ,-3-,4!!

. %otal book value of the "!,!!! shares of ordinary share is'a. ,-3-,!!! b. 0,-!!,4!! c. ,!3-,!!! d. 1,/0-,1-!

3. %he book value per share of ordinary share as of December 31, !!" is'a. !3.-- b. 1/0.- c. 10.-! d. 14-.!!

Solution1 ;esere or ond retire!ent P1,600,000

6= cu!ulatie Preerence share 1,850,000/rdinar" share 4,000,000Pre!iu! on preerence share 100,000Pre!iu! on ordinar" share 6#,000;etained earnins 1,#12,600 $otal shareholdersA e3uit" P&,5#5,600Bess e3uit" identiied to preerence share Bi3uidation alue (18,500 shares x P110) 2,0#5,000

2 . $otal . o the 40,000 shares o ordinar" share P,500,600

# . . per share o ordinar" share P,500,600 40,000 P1852

Problem 7

+n 6anuary 1, !!3, the shareholders# e$uity of ;antaya *ompany#s balance sheet revealedthe follo&ing information'

- *onvertible reference (hare >"! par value -!,!!! shares

authorized, !,!!! shares issued and outstanding? /!!,!!!

+rdinary share >- stated value !!,!!! shares authorized, 1!,!!! shares issued and outstanding? 4!!,!!!

aidin capital in e2cess of par 3,!!!,!!!

etained earnings ",-!!,!!!%otal shareholders# e$uity /,!!,!!!

In addition, the follo&ing information is kno&n'

a. +n 7ebruary , !!3, 1-,!!! ordinary shares &ere ac$uired by the company for 33

per share.

b. +n (eptember 3!, !!3, -,!!! preference shares &ere converted to ordinary shares.+ne share of preference share is convertible into one share of ordinary share. At the

time of conversion, the ordinary share had a market value of " per share.

c. +n December 1, !!3, the company received a share subscription of 1!,!!!ordinary shares at a subscription price of 33 per share. %he subscription contract

re$uired a cash do&n payment e$ual to 4!8 of the subscription price, &ith the balancedue on 7ebruary 1, !!".

d. +n 7ebruary 1, !!", /,-!! ordinary shares &ere issued according to the

subscription contract. ;ecause of default by a subscriber, 1,-!! shares &ere not issued.%he subscription contract re$uires the subscriber to forfeit all cash advance.

e. +n April 1-, !!", 1!,!!! shares held in treasury &ere reissued at -! per shares.

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f. +n 9ay 14, !!", a special dividend of preference share &as distributed to ordinary

shareholders. +ne hundred shares of ordinary share entitled a shareholder to one shareof preference share. %he market price of preference share &as "! per share at that

time.

g. :et income for !!3 &as 44!,!!! and for !!", /!,!!!.Questions1. %he total preference share at December 31, !!3 is'

a. 4!!,!!! b. 4-,!!! c. 4-1,"!! d. 440,-!!

. %he total ordinary share at December 31, !!3 is'a. 4!!,!!! b. 4-,!!! c. 4-1,"!! d. 440,-!!

3. %he total additionalpaid in capital at December 31, !!3 is'

a. 3,430,3!! b. 3,4-,!!! c. 3,41,0!! d. 3,"--,!!!

". %he total retained earnings at December 31, !!3 is'a. ",0!4,//0.-! b. -,14!,!!!.!! c. -,"1,-.!! d. -,-4,//0.-!

-. %he %reasury share at December 31, !!3 is'a. "-,!!! b. 33!,!!! c. 14-,!!! d. !

4. %he total preference share at December 31, !!" is'

a. -"/,4!! b. 4!!,!!! c. 4-,!!! d. 4-1,"!!

0. %he total ordinary share at December 31, !!" is'

a. 4!!,!!! b. 4-,!!! c. 4-1,"!! d. 440,-!!

/. %he total additional paidin capital at December 31, !!" is'a. 3,430,3!! b. 3,4-,!!! c. 3,41,0!! d. 3,"--,!!!

. %he total retained earnings at December 31, !!"is'a. -,/,!!.!! b. -,"1,-.!! c. ",4-,!!!.!! d. ",0!4,//0.-!

1!.%he %reasury share at December 31, !!" is'a. "-,!!! b. 33!,!!! c. 14-,!!! d. !

Solution2003$reasur" share 4&5,000 Cash 4&5,000Preerence share 200,000

/rdinar" share 25,000 9dditional paid-in capital 15,000

%uscription receiale 1#2,000Cash 1&8,000 %uscried ordinar" share 50,000 9dditional paid-in capital 280,000>nco!e su!!ar" 660,000 ;etained earnins 660,000

2002Cash 112,200 %uscription receiale 112,200

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%uscried ordinar" share 42,500 /rdinar" share 42,500%uscried ordinar" share ,500

9dditional paid-in capital 42,000 %uscription receiale 1&,800 9P>C ? oreiture o share 2&,00Cash 500,000 $reasur" share ##0,000

9dditional paid-in capital 10,000;etained earnins 51,400 Preerence share 51,400>nco!e su!!ar" 8&0,000 ;etained earnins 8&0,000

9nser'

1 9 2 . # 4 . 5 9 6 8 C & 9 10 C

Problem 8

You are a senior accountant responsible for the annual audit of *alunsag *ompany for the

year ended December 31, !!3. %he information available to you is presented belo&. Youmay assume that any pertinent information not presented belo& has already been checked

found satisfactory.

Excerpts from trial balance, December 31, 2003:Debit *redit

etained earnings 3,!!!Allo&ance for decline in value of inventory 34,-!!

*apital share >1,!!! shares? 1!!,!!!

%he books have not been closed, but all adHusting entries &hich the company e2pects tomake have been posted. %heir trial balance sho&s a 4!,!!! net profit for the year.

Le!er etails of "etaine Earnin!s:

)%AI:)D )A:I:(!/J!4J!3 *D ,!!! 1J31J! ;alance 13",-!!

1!J1!J!3 6 1!,!!! !"JJ!3 * -!!1J31J!3 6 3!,!!!

:+%)' $he alance at 12#102 arees ith last "earAs orin papers

#nal$sis of selecte cas% "eceipts:

Date Account credited Amount )2planation!"JJ!3 *apital (hare 1!,!!! (old 1!! par share at 1!-

etained )arnings -!!1!J1!J!3 ;uilding -3!,!!! (ee corollary entry dated

+ctober 1!, !!3.

#nal$sis of selecte cas% isb&rsement:

Date Account debited Amount )2planation!/J!4J!3 etained )arnings ,!!! 7reak accident to company

truck not covered byinsurance

repairs by 6)% K *o.'electe entries in t%e !eneral (o&rnal:

Date )ntry and e2planation Debit *redit

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1!J1!J!3 Allo&ance for depreciation 30!,!!!etained )arnings 1!,!!!

;uilding 3/!,!!!%ale o !ain oice .uildin

1J31J!3 etained )arnings 3!,!!!

Allo&ance for Decline in 9arketLalue of Inventory 3!,!!!

Proision to alue !aterials >nentor" at loer o cost or ;, in accordance

ith Co!pan" pricin polic"

Questions1. %he +rdinary (hare balance of *alunsag *ompany at December 31, !!3 is'

a. 1!!,-!! b. 1!!,!!! c. ,-!! d. /,-!!

. %he Additional paidin capital balance of *alunsag *ompany at December 31, !!3 is'a. 1,!!! b. -!! c. ! d. cannot be

determined

3. %he etained )arnings < 6anuary 1, !!3 balance of *alunsag *ompany is'

a. 1--,!!! b. 1-",-!! c. 13-,!!! d. 13",-!!

". :et income of *alunsag *ompany at December 31, !!3 is'

a. 1/,!!! b. !,!!! c. /,!!! d. "/,!!!

-. %he etained )arnings < December 31, !!3 balance of *alunsag *ompany is'a. 1/,-!! b. 10-,!!! c. 10,-!! d. 1-,-!!

Solution9dD' ;etained earnins 500 9dditional paid-in capital 500/:' Cash 5#0,000 9ccu! depAn #0,000

;etained earnins 10,000 .uildin &10,000C:' Cash 5#0,000 9ccu! depAn #0,000 Boss on sale 10,000 .uildin &10,000

9dD' Boss on sale 10,000 ;etained earnins 10,000

9dD' ;epairs 2,000 ;etained earnins 2,000

9dD' Boss on !aret decline #0,000 ;etained earnins #0,000

9nser'1 . 2 . # 4 9 5

Problem )You &ere engaged by *atacutan *ompany, a publicity held company &hose shares are

traded in the hilippines (hare )2change, to conduct an e2amination of its !!" financialstatements. You &ere told by the company#s controller that there &ere numerous e$uity

transactions that took place in !!". %he shareholders# e$uity accounts at December 31,!!3, had the follo&ing balances'

reference share, 1!! par value, 48 cumulative 1-,!!!

shares authorized ,!!! shares issued and outstanding !!,!!!

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+rdinary share, 1 par value, !!,!!! shares authorized'4!!,!!! shares issued and outstanding 4!!,!!!

Additional paidin capital 1,!!,!!!etained earnings 3,1/,!!!

%otal shareholders# e$uity -,//,!!!

You summarized the follo&ing transactions during !!" and other information relating to theshareholders# e$uity in your &orking papers as follo&s'

6anuary 4, !!" < issued ,-!! shares of ordinary share to Difficult *ompany in

e2change or land. +n the date issued, the share had a market price of 14.-! per share.%he land had a carrying value of !1,!!!, and an assessed value for property ta2es of

13-,!!!.

6anuary 31, !!" < (old 1,3-!, 1,!!!, 18 bonds due 6anuary 31, !!4, at /

&ith one detachable share &arrant to each bond. Interest is payable annually on 6anuary31. %he fair value of the bonds &ithout the share &arrants is -. %he detachable

&arrant entitles the holder to purchase 1! shares of ordinary share at 1! per share.

7ebruary , !!" < urchased 0,-!! shares of its o&n ordinary share to be held as

treasury share for " per share.

7ebruary /, !!" < (ubscriptions for 1,!!! shares of ordinary share &ere received

at 4 per share, payable -!8 do&n and the balance by 9arch 1-.

9arch 1-, !!" < %he balance due on 1/,!!! shares &as received and those shares

&ere issued. %he subscriber &ho defaulted on the 3,!!! remaining shares forfeited thedo&n payment in accordance &ith the subscription agreement.

April 3!, !!" < Declared a dividend of inventory to ordinary shareholders. %he

inventory had a carrying value of 1!,!!!'fair value on relevant dates &ere'

Date of declaration >April 3!, !!"? -!,!!!Date of record >9ay 1-, !!"? !!,!!!

Date of distribution>9ay 31, !!"? !,!!!

August 3!, !!" < eissued 3,!!! shares of treasury share for ! per share.

(eptember 1", !!" < %here &ere "- &arrants detached from the bonds and

e2ercised.

:ovember 3!, !!" < Declared a cash dividend of per share to all ordinary

shareholders of record December 1-, !!". %he dividend &as paid on December 3!,

!!".

December 1-, !!" < Declared the re$uired annual cash dividends on preference

share for !!". the dividend &as paid on 6anuary 1-, !!".

6anuary /, !!- < ;efore closing the accounting records for !!". *atacutan

became a&are that no amortization had been recorded for !!3 for a patent purchased

on 6uly , !!3. %he patent &as properly capitalized at "/!,!!! and had an estimated

13


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15/26

>nentor" &10,0009u #0 - Cash 60,000

;etained earnins 12,000$reasur" share 2,000

%ep 14 - Cash &4,500/rdinar" share arrants 28,#50

/rdinar" share &,4509P>C 11#,400

o #0 - iidends;: 1,2&0,&00Cash 1,2&0,&00

ec 15 - iidends 54,000iidends pa"ale 54,000

ec #1 - ;etained earnins 20,400>nco!e tax pa"ale (#2=) &,600

Patents #0,000>nco!e su!!ar"1,860,&00

;etained earnins 1,860,&009nser'1 C 2 C # C 4 C 5 9 6 C C 8 9

Problem 10

%he *eniza *ompany engaged 9r. *oliseo, a *A, in !!3 to e2amine its books and recordsand to make &hatever adHustments are necessary.

%he *A#s e2amination disclosed the follo&ing'

a. rior to any adHustments, the etained )arnings account is reproduced belo&'

)%AI:)D )A:I:(

;alanceDate articular Debit *redit Debit *redit

!!16an. 1 ;alance -/!,!!!

Dec. 31 :et income for the year 31!,!!! /!,!!!

!!6an 31 Dividends paid 1"!,!!! 0-!,!!!Apr. 3 aid in capital in e2cess of par !,!!! /"!,!!!

Aug. 3! ain on retirement of preference(hare at less than issue price 4",-!! !",-!!

Dec. 31 :et loss for the year !-,!!! 4,-!!

!!36an 31 Dividends paid 1!!,!!! -,-!!

Dec. 31 :et loss for the year 14-,-!! "3",!!!

b. Dividends had been declared on December 31, !!1 and !! but had not been

entered in the books until paid.

c. %he company purchased a machine &orth 34!,!!! on April 3!, !!!. %he company

charged the purchase to e2pense. %he machine has an estimated useful life of 3 years.%he company uses the straight line method and residual values are deemed immaterial.

d. %he company received at transportation e$uipment as donation from one of its

shareholders on (eptember 3!, !!. %he e$uipment &as used to deliver goods tocustomers. %he e$uipment costs 0-!,!!! and has a remaining life of 3 years on the

date of donation. %he e$uipment has a fair value of "!,!!! and 3!,!!! &as incurred

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for registering the transfer of o&nership. %he company did not record the donation on itsbooks. %he e2penses paid related to the donated e$uipment &ere charged to e2pense.

e. %he physical inventory of merchandise had been understates by 4",!!! and by

"",-!! at the end of !!1 and !!3, respectively.

f. %he merchandise inventoried at the end of !! and !!3 did not includemerchandise that &as then in transit shipped 7+; shipping point. %hese e$uipments of"3,"!! and 3,4!! &ere recorded a purchases in 6anuary !!3 and !!",

respectively.

Questions;ased on the above audit findings, the adHusted balances of the follo&ing are' >Disregard

ta2 implication?

1. etained earnings, 1J31J!!a. /4!,!!! b. /-!,!! c. 0!,!! d. 04!,!!

. :et income for !!1a. 303,1!! b. 34,/!! c. -",!!! d. 1-,/!!

3. etained earnings, 1J31J!1a. 04,0!! b. 0",!!! c. /4!,0!! d. 0!,0!!

". :et loss for !!

a. 30,!!! b. 3-,0!! c. 3",0!! d. 4,0!!

-. etained earnings, 1J31J!a. 3"1,!!! b. "11,!!! c. "/1,!!! d. "-,!!!

4. :et loss for !!3a. "1,!!! b. /,3!! c. 10/,3!! d. 1"/,3!!

0. etained earnings, 1J31J!3

a. 34,0!! b. 33,0!! c. 3!,0!! d. -",!!!

Solution2001 2002 200#

EnadDusted net inco!e(loss) #10,000 (205,000) (165,500)9dDust!ents'FcG ? epreciation (120,000) (120,000) (40,000)FdG ? :rror in charin to expense #0,000 epreciation (20,000) (80,000)

FeG ? Enderstate!ent o in ? 2001 64,000 (64,000) Enderstate!ent o in - 200# 44,500FG ? Enderstate!ent o in - 2002 4#,400 (4#,400) Enderstate!ent o in ? 200# #2,600 Ender o purchases ? 2002 (4#,400) 4#,400 Ender o purchases ? 200# HHHHHHHHHHH HHHHHHHHHHH (#2,600)

9dDusted et inco!e 254,000 (#&,000) (241,000)Plus' ;etained :arnins ? e unadD 580,000 Prior period adDust!ent :rror in charin to expense #60,000 Enrecorded depreciation (80,000) ;etained :arnins ? e adDusted 860,000 &4,000 4&5,000Bess' iidends (140,000) (100,000) HHHHHHHHH

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;etained earnins ? end &4,000 4&5,000 254,0009nser'1 9 2 C # . 4 9 5 6 9

Problem 11

%he shareholders# )$uity of *osare *orporation at December 31, !!3, sho&ed

*apital share, +rdinary, 1!! par value per share >Authorized

1!,!!! shares issued and outstanding 4,!!! shares? 4!!,!!!etained )arnings 3!!,!!!

%otal !!,!!!

An audit disclosed that the treasurer &as short in his cash to the e2tent of -!,!!!. Fe had

concealed his shortage by increasing inventory values by p1-,!!! land values by !,!!!and accounts receivables trade by 1-,!!!

@pon discovery of the shortage, the %reasure offered to surrender at book value -!! shares

of the *apital (hare &hich he o&ns in the settlement of the shortage. %he board of directors

accepted his offer and remitted cash to the %reasurer for any e2cess value over shortage.%he treasurer#s -!! shares, after being ac$uired by the company &ere distributed pro < ratato the remaining shareholders.

Questions

1. =hat amount of money should the company pay the %reasurerMa. -!,!!! b. -,!!! c. 1-,!!! d. !

. =hat is the corporate retained earnings after distributionM

a. -,!!! b. !!,!!! c. 1!!,!!! d. 0-,!!!

Solution>nentor" 15,000

Band 20,0009ccounts receiale 15,000Cash 50,000

$reasur" share 5,000>nentor" 15,000Band 20,000

9ccounts receiale 15,000Cash 25,000

;etained earnins 5,000$reasur" share 5,000

9nser'1 . 2 9

Problem 12

You have been engaged to audit the financial statements of *uaHotor *orporation for thecalendar year !!3. %he company &as organized on 6anuary , !! and has not beenaudited before.

%he follo&ing items relating to e$uity and income statement accounts appear in your=orking ;alance (heet >=;(? and =orking Income (tatement >=I(?

=;( December 31, !!3' ;alance er ;ooks

5ong term liabilities "!,/!!

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*apital (hare issued -4!,!!!Additional aid in capital 1!!,!!!

evaluation increment 5and !,!!!etained )arnings -",!!!

=I( Year ended December 31, !!3

Income before ta2 1-!,!!!rovision for income ta2 "-,!!!Income before e2traordinary items 1!-,!!!

)2traordinary items>net of ta2? 00,!!!

:et income /,!!!

7ollo&ing are your audit findings'

1. 5ong term liabilities %his consist

9ortgage payable 1/!,!!!

Accrued interest on mortgage payable 1!,/!!

eserve for general contingencies -!,!!!%otal "!,/!!

%he company mortgage its land to the hilippine :ational ;ank for 1/!,!!! on(eptember 1, !!3. %he mortgage liability is payable in 1/ semiannual installments of

1!,!!! plus accrued interest of 1/8 to date. %he first installments due 9arch 1, !!".

%he reserve for general contingencies &as set up by resolution of the ;oard of Directorson December 0, !!3. its purpose is to provide for possible future losses due to the

risk of an impending business recession. A corresponding charge &as made to generalcontingency losses &hich is classified as an e2traordinary item.

. *apital (hare issued %he company is authorized to issue 1!,!!! shares of 1!! parvalue ordinary share. Your analysis of the capital share issued account sho&s'

!!3 D)(*I%I+: A9+@:%

6an. 1 ;alance, ",-!! shares issued "-!,!!!

9ar. 1 (old -!! shares at 1! per share 4!,!!!

:ov. 1 Assessment on shareholders 1! per share -!,!!!Dec. 31 ;alance -4!,!!!

3. Additional paid in capital %he account balance represents the fair value of property

donated to the company in !!. %here &as no manager#s check account in !!.

". evaluation increment >5and? < 5and &as &ritten up to appraised value on Decemberof !!3. %he appraised value of !,!!! &as determined by the company engineer. %he

property &as ac$uired in !! at a cost of "!,!!!.

-. etained earnings, December 31, !!3 < Analysis of the retained earnings accountfor !!3 sho&s'

;alance, 6anuary 1, !!3 1/,!!!

:et income < !!3 /,!!!

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ain on sale of treasury share /,!!!;alance, December 31, !!3 -",!!!

4. +verJ@nderstatement < %he follo&ing overJunderstatements &ere discovered in the

course of your audit' !! !!3

Inventory, end ",!!! under 1!,!!! underDepreciation e2pense ,-!! under ,!!! underAccrued e2penses payable end 1,!!! under 1,4!! over

0. )2traordinary items < )2traordinary items consists of'

eneral contingency losses -!,!!!

=riteoff of obsolete inventory !,!!!5oss due to earth$uake "!,!!!

%otal 11!,!!!

5ess' %a2 savings, 3!8 33,!!!)2traordinary items, net of ta2 00,!!!

/. rovision for income ta2 %he income ta2 rate is 3!8. %here are no permanentdifferences bet&een financial and ta2able income.

e$uired' 7or each item belo&, determine the amount per audit that should appear in your

&orking balance sheet and &orking income statement. Assume that client approves alladHustments.

Questions

1. *apital share issued

a. -/!,!!! b. --!,!!! c. -1!,!!! d. -!!,!!!

. Additional paidin capitala. 14/,!!! b. 1-!,!!! c. 11!,!!! d. 1!!,!!!

3. 5ongterm liabilities

a. 3!,!!! b. 1!,/!! c. 1/!,!!! d. 14!,!!!

". *urrent portion of longterm debt

a. /!,!!! b. !,!!! c. 1!,!!! d. !

-. evaluation increment < 5anda. !,!!! b. -!,!!! c. "!,!!! d. !

4. etained earnings, 1J31J!!

a. 1,/-! b. !,/!! c. 1/,3-! d. 1/,!!!

0. )2traordinary items >net of ta2?a. ! b. ",!!! c. "!,!!! d. /,!!!

/. Income before ta2

a. 4,4!! b. 134,4!! c. 13",4!! d. 1!,"!!

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. rovision for income ta2

a. "!,/! b. "!,3/! c. 34,1! d. /,/!

1!.:et incomea. 40,4! b. -",! c. ",/! d. ",/!

11.etained earnings, 1J31J!!3a. /-,0! b. 0,! c. 43,!/! d. "0,0!

SolutionBon-ter! liailit" 20,000

7ortae Pa"ale ? current 20,000

Bon-ter! liailit" 10,800>nterest pa"ale 10,800

Bon-ter! liailit" 50,000:xtraordinar" ite! #5,000>nco!e tax pa"ale 15,000

Capital share 10,000

9P>C 10,000

Capital share 50,0009P>C 50,000

9P>C 100,0009P>C - onated capital 100,000

;ealuation incre!ent 40,000

Band 40,000Iain on sale 8,000

9P>C ? $% 8,000.e >nentor" 4,000

;etained earnins - e 2,800>nco!e tax pa"ale 1,200

>nentor" 10,000Cost o sales 10,000

;etained earnins ? e 1,50>nco!e tax pa"ale 50epreciation 2,000

9ccu! epreciation 4,500;etained earnins ? e 00>nco!e tax pa"ale #00

:xpenses 1,0009ccrued expenses 1,600

:xpenses 1,600Boss on inentor" 20,000Boss on da!aes 40,000

:xtraordinar" ite!s 42,000

>nco!e tax pa"ale 18,0009nser'1 2 9 # 4 . 5 6 P 18,#50 P 08 P &6,600

EnadDusted > 150,000Ender e >n ( 4,000)

Ender endin inent 10,000Ender depreciation ( 2,000)Ender 9: ? e 1,000/er 9: ? end 1,600Boss on inentor"(20,000)Boss on da!aes (40,000)>nco!e eore tax &6,600Proision 28,&80

et inco!e 6,620& P 28,&80 10 9 11 P 85,&0

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Problem 13

5isted belo& are the transactions that affected the shareholders# e$uity of *hristian aul*orporation during the period !!3!!-. At December 31, !!, the corporation#s

accounts included'> in !!!s?

+rdinary share, 31- million shares at 1 par 31-,!!!aidin capital < e2cess of par 1,/!,!!!etained earnings ,1!,!!!

a. :ovember , !!3, the board of directors declared a cash dividend of !./! per shareon its ordinary shares, payable to shareholders of record :ovember 14, to be paid

December .

b. +n 9arch 3, !!", the board of directors declared a property dividend consisting ofbonds of 9aria 9ikaela *ounty that *hristian aul &as holding as an investment. %he

bonds had a fair market value of "./ million, but &ere purchased t&o years previouslyfor 3. million. ;ecause they &ere intended to be heldtomaturity, the bonds had not

been previously &ritten up. %he property dividend &as payable to shareholders of

record 9arch 1", to be distributed April 4.

c. +n 6uly 13, !!", the corporation declared and distributed a -8 ordinary share dividend

>&hen the market value of the ordinary share &as 1 per share?. *ash &as paid forfractional share rights representing 0-!,!!! e$uivalent &hole shares.

d. +n :ovember , !!", the board of directors declared a cash dividend of !./! per

share on its ordinary shares, payable to shareholders of record :ovember 14, to be paidDecember .

e. +n 6anuary 14, !!-, the board of directors declared and distributed a 3for share

split effected in the form of a -!8 share dividend &hen the market value of the ordinary

share &as 3 per share.

f. +n :ovember , !!-, the board of directors declared a cash dividend of !.4- pershare on its ordinary shares, payable to shareholders of record :ovember 14, to be paid

December .

g. %he reported net income of *hristian aul &as ! million, 1,1/- million, and 1,34-

million for !!3, !!", and !!-, respectively.

Questions1. %he etained earnings of *hristian aul *orporation at the end of !!- is'

> in !!!s?a. -,04,0!! b. -,04,4!! c. -,11,4!! d. -,!-,/-!

. %he Additional paidin capital of *hristian aul *orporation at the end of

!!- is' > in !!!s?a. -,/4!,!!! b. -,4--,!!! c. ,1!,!!! d. ,!-,!!!

3. %he +rdinary share of *hristian aul *orporation at the end of !!- is' >

in !!!s?a. "-,0-! b. "-,!!! c. 33!,0-! d. 33!,!!!

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". %he total (hareholders# )$uity of *hristian aul *orporation at the end of !!- is' > in !!!s?

a. 11,!0,"-! b. 0,00,4!! c. 0,04,0!! d. 0,41-,/-!

Solution(in 000As)

9 ;etained earnins 252,000

Cash 252,000. ;etained earnins #,&00

>nest!ent ? $7 #,&00C ;etained earnins ##0,50

/rdinar" share 15,000

9P>C #00,000Cash 15,50

;etained earnins 264,000Cash 264,000

: ;etained earnins 165,000 /rdinar" share, old ##0,000/rdinar" share 165,000 /; ;etained earnins 165,000

/rdinar" share, ne 4&5,000+ ;etained earnins #21,50

Cash #21,509nser'

1 P 5,112,600 2 C # . 4 P ,&,600

Problem 14

L)5A(*+ *+9A:Y &as formed on 6uly 1, !!!. It &as authorized to issue 3!!,!!! sharesof ! par value ordinary share and 1!!,!!! shares of / percent -! par value, cumulated

and nonparticipating preference share. L)5A(*+ *+9A:Y has a 6uly 1 < 6une 3! fiscalyear.

%he follo&ing information relates to the shareholders# e$uity accounts of L)5A(*+

*+9A:Y'

+rdinary share

rior to the !!!!3 fiscal year, Lelasco *ompany had 11!,!!! shares of outstanding

ordinary share issued as follo&s'

1. -,!!! shares &ere issued for cash on 6uly 1, !!!, at 4 per share.

. +n 6uly ", !!!, -,!!! shares &ere e2changed for a plot of land &hich cost theseller 1"!,!!! in 1" and had an installment market value of ""!,!!! on 6uly ",

!!!.3. 1!,!!! shares &ere issued on 9arch 1, !!1 the shares had been subscribed for

/" per share on +ctober 31, !!1.

During the !!!!3 fiscal year, the follo&ing transactions regarding ordinary share tookplace'

+ctober 1, !!

(ubscriptions &ere received for 1!,!!! shares at per share. *ash of 1/",!!! &as

received in full payment for ,!!! shares and share certificates &ere issued. %heremaining subscription for /,!!! shares &ere to be paid in full by (eptember 3!, !!",

at &hich time the certificates &ere to be issued.

:ovember 3!, !!

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Lelasco *ompany purchased ,!!! shares of its o&n share on the open market at 0/

per share. Lelasco *ompany uses the cost method for treasury share.

December 1-, !!

Lelasco declared a -8 share dividend for shareholders of record on 6anuary 1-, !!3,to be issued on 6anuary 31, !!3. Lelasco *ompany &as having a li$uidity problemand could not afford a cash dividend at that time. Lelasco *ompany#s ordinary share

&as selling at 1!" per share on December 1-, !!.

6une !, !!3

Lelasco *ompany sold -!! shares of its o&n ordinary share that it had purchased on

:ovember 3!, !!, for ",!!!.reference share

Lelasco *ompany issued -!,!!! shares of preference share at // per share on 6uly 1,

!!1.

*ash Dividends

Lelasco *ompany has follo&ed a schedule of declaring cash dividends in December and 6une&ith payment being made to shareholders of record in the follo&ing month. %he cash

dividends &hich have been declared since inception of the company through 6une 3!, !!3,are sho&n belo&'

Declaration Date +rdinary share reference (hare

1J1-J!1 !.4! per share .!! per share4J1-J! !.4! per share .!! per share

1J1-J! .!! per share

:o cash dividends &ere declared during 6une !!3, due to the company#s li$uidity problem.

etained )arnings

As of 6une 3!, !!, Lelasco *ompany#s retained earnings account had a balance of

1,3/!,!!!. 7or the fiscal year ending 6une 3!, !!3, Lelasco *ompany reported net

income of /!,!!!.

In 9arch of !!, Lelasco *ompany received a loan from Davao ;ank. %he bank re$uiresLelasco *ompany to establish a sinking fund and restrict retained earnings for an amount

e$ual to the sinking fund and restrict retained earnings for an amount e$ual to the sinkingfund deposit. %he annual sinking fund payment of 1!!,!!! is due on April 3! each year,

the first payment &as made on schedule on April 3!, !!3.

Questions1. =hat is the balance of the ordinary share account at 6une 3!, !!3M

a. ,3-,!!! b. ,3-!,!!! c. ,3!,-!! d. ,3!,-!!

. =hat is the balance of the %reasury (hare account at 6une 3!, !!3Ma. 1-4,!!! b. 1",/!! c. 110,!!! d. 11",!!!

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3. =hat is the entry to record the dividend in arrears on the preference shareMa. etained earnings 1!!,!!! c. Dividend payable 1!!,!!!

Dividend payable 1!!,!!! *ash 1!!,!!!b. etained earnings 1!!,!!! d. :o Hournal entry

*ash 1!!,!!!

". =hat is the total additional paidin capital at 6une 3!, !!3Ma. /,101,!!! b. /,!--,!!! c. 0,-3,!!! d. 4,1--,!!!

-. Fo& much is the retained earnings at 6une 3!, !!3M

a. 1,-!,!!! b. 1,1-!,!!! c. 0//,!!! d. 4//,!!!

4. =hat is the total shareholders# e$uity at 6une 3!, !!3Ma. 13,034,!!! b. 13,114,!!! c. 13,!!!,!!! d. 1,!!,!!!

SolutionCash 5,8&0,000

/rdinar" share 1,&00,0009P>C #,&&0,000

Band 440,000/rdinar" share 100,000

9P>C #40,000Cash 840,000

/rdinar" share 200,0009P>C 640,000

Cash 184,000/rdinar" share 40,000

9P>C 144,000%uscription recei #6,000

%uscried C% 160,0009P>C 56,000

$reasur" share 156,000Cash 156,000

;etained earnins 52,000

(110,000 2,000 ? 2,000 x 5= x P104)/rdinar" share 110,000

9P>C 462,000Cash 42,000

$reasur" share #&,000

9P>C ? $% #,000Cash 4,400,000 iidends'

Preerence share 2,500,000 /rdinar" share9P>C ? P% 1,&00,000 121501 110,000 x 60 * P 66,000

61502 110,000 x 60 * 66,000;etained earnins 4#2,000 Preerence share

Cash 4#2,000 121501 50,000 x 2 * 100,00061502 50,000 x 2 * 100,000

>nco!e su!!ar"80,000 121502 50,000 x 2 * 100,000;etained earnins 80,000 $otal 4#2,000

;: ? unappropriated 100,000

;: ? appropriated 100,0009nser'1 . 2 C # 4 . 5 C 6 9

Problem 15+n April 1,1", the 6en6en, inc. issued 4,!!!,!!! of 08 convertible bonds &J interest

payment dates of April and +ct. 1. %he bond &ere sold ion 6uly 1,1", and mature on April1, !1". %he bond discount totaled 31,-!. %he bond contract entitles the bondholders to

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received 1! shares of ! par value ordinary share in e2change for each 1,!!! bond. +nApril 1, !!", the holders of the bonds &ith total face value of 0-!,!!! e2ercised their

conversion privilege. +n 6uly 1, !!", the company reac$uired at 1-, bonds &ith a facevalue of 30-,!!!.

%he balances in the capital accounts as of December 31, !!3 &ere

+rdinary share ! par, authorized 3 million shares,Issued and outstanding, 1/0,!! shares 3,0-!,!!!

remium on ordinary share 1,/0-,!!!

9arket value of the ordinary share and bonds &ere as follo&s'

DA%) ;+:D( +DI:AY (FA)

April 1, !!" 1 - 6uly 1, !!" 1- -4

Questions';ased on the above and the result of your audit, ans&er the follo&ing'

1. Fo& much the total cash received from the sale of the 4,!!!,!!! bonds onApril 1, 1"Ma. 4,!!!,!!! b. -,4/!, !-! c. -,0/-,!-! d. -,/!, !-!

. Fo& much is the interest e2pense for the year 1"M

a. 33,1!! b. 31-,!!! c. 1/,1!! d. !1,!!

3. Fo& much is the carrying value of the bonds payable as of December 31,1"M

a. 4,311, /-! b. 4,!!!,!!! c. -,4,!"/ d. -,4//,1-!

". %he entry to record the conversion on April 1, !!" &ill includea. A debit to bonds payable of 0,0-!.

b. A debit to discount on bonds payable of !,-!.c. A credit to AI* of -0,0-!.

d. A credit to gain on bond conversion of -0,0-!.

-. Fo& much is the gain >loss? on bond reac$uisition on 6uly 1, !!"M

a. 1!3,4 b. >1!3,4? c. >/3,/0/? d. !

Solution41&4 Cash 5,85,050 (s3ueenterest expense 8,100

iscount on .P 8,100(P#1&,&502# x 6 * P8,100)

4104 .onds pa"ale 50,000iscount on .P 20,250

9P>C 5&,506104 .onds pa"ale #5,000

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Boss on retire!ent 10#,622iscount on .P &,82Cash 468,50

9nser'1 C 2 C # 4 C 5 .

Documents

CHAPTER 9 Caselette - Audit of SHE