Answers To FAR 2 Final Examination

 

B. The acqui acquisit sition ion of treas treasury ury share shares s will will reduc reduce e the unres unrestri tricte cted d ea earni rnings ngs of the corporation. 16. A capital deficiency in a partner’s capital, which is not made good is a. a loss to the other partners c. the result of a loss in operations b. a gain to the other partners d. the result of a sale of non cash assets at a gain 17. When a partnership is liquidated, all of the following may occur, except a. a partner erases his deficiency by contributing cash b. a partner erases his deficiency by contributing non cash asset c. a partner erases his deficiency by declaring bankruptcy d. the other partners absorb a partner’s deficiency 18. Dissolution will arise a. whene wheneve verr a new new partn partner er is admit admitted ted throu through gh pu purch rchase ase of intere interest st or th throu rough gh investment of cash or non cash assets b. upon upon te termi rmina natio tion n of the defin definite ite term term or pa parti rticul cular ar un unde derta rtakin king g sp speci ecifie fied d in th the e agreement c. in the case of civil interdiction of any partner  d. all of the above 19. Earnings per share is a. net income minus annual dividends dividends on undeclared non-cumulative non-cumulative preference shares divided by the weighted average number of ordinary shares outstanding b. net income divided by weighted average number of ordinary shares outstanding c. net income minus annual dividends on cumulative preference shares divided by the weighted average number of ordinary shares outstanding d. B and C but not A 20. The retained earnings would be debited for the following transactions, except  a. a 2 for 1 split c. a 70% share capital dividend b. a 5% share share capital capital dividen dividend d d. an appropr appropriatio iation n of retaine retained d earnings earnings contingencies 21. The ownership of share capital entitles ordinary shareholders to all of the following rights except a. voting right b. right to receive a proportionate share of assets in corporate liquidation c. right to receive guaranteed dividends d. pre-emptive right 22. At the date of the financial financial stateme statements, nts, ordinary ordinary shares shares issued issued would would exce exceed ed ordinar ordinary y shares outstanding as a result of the a. declaration of share split c. purchase of treasury shares b. declaration of share capital dividend d. payment in full of subscribed shares

 

23. Select the statement that is correct concerning the appropriations of retained earnings a. appropriations of retained earnings do not change the total shareholders’ equity b. appropriations of retained earnings cannot reflect funds set aside for a designated purpose, such as plant expansion c. appro appropri priati ation ons s of retai retaine ned d earni earning ngs s ca cann nnot ot be made made as a resul resultt of co contr ntrac actua tuall requirements d. appropriations of retained earnings can be made at the discretion of the board of  trustees 24. The total shareholders’ equity after the declaration of share capital dividend a. is less than the total shareholders’ equity before the declaration b. may be more than or less than the total shareholders’ equity before the declaration depending on whether the share capital dividend declared is small or large c. is the same as the total shareholders’ equity before the declaration d. is greater than the total shareholders’ equity before the declaration 25. When the total shareholders’ equity is smaller than the amount of contributed capital, then there is a. a net loss b. a deficit c. a liability d. a dividend 26. Assuming that the issuing corporation has only one class of share of capital, a transfer from retained earnings equal to the market value of the shares issued is ordinarily a characteristic of  a. share split c. small share capital dividend b. large share capital dividend d. donated shares 27. On June 1, authorized ordinary share capital was sold on a subscription basis at a price in excess of par value, and 40% of the subscription price was collected. On October 1, the remaining 60% of the subscription price was collected. collected. Paid In Capital in excess of Par account will credited on   June 1 October 1 a. Yes No b. No No c. Yes Yes d. No Yes 28. When a corporation buys its own ordinary shares to hold as treasury shares a. a gain or loss is recorded when the shares are reissued b. the balance in Ordinary Share Capital account remains unchanged c. there is a new asset account on the statement of financial position, Treasury Shares, equal to the number of shares reacquired multiplied by the cost per share d. all of the above statements are correct 29. Which dividends do not reduce total shareholders’ equity? a. liquidating dividends c. share capital dividends b. property dividends d. scrip dividends

 

30. Book value per share is computed by dividing total shareholders’ equity by a. authorized shares b. issued shares less treasury shares c. issued shares less treasury shares plus subscribed shares d. outstanding shares less treasury shares plus subscribed shares C. Problem Problem Solving Solving (2.5 points each). Show supportin supporting g computa computations tions in a separat separate e worksheet. 31. Cute desires to invest P 200,000 for a ¼ capital and profit and loss interest in the partn partners ershi hip p of Beau Beauty ty and and Hand Handso some, me, who who at that that time time ha had d ca capit pital al ba balan lance ces s of P 200,000 and P 300,000, respectively. Profit and loss ratio of the partners before the admission was 6:4. If a positive asset revaluation is to be recorded, capital balances of  Cute,, Beauty Cute Beauty and handsome handsome would be: Cute – P200,000; Beauty – P260,000; and Handsome – P340,000 32. Jack and Poy are partners with capital balances, and profit and loss ratio as follows:

Jack Poy

Capital P 24,500 15,500

P & L Ratio 60% 40%

The partners partners decided decided to liquidat liquidate e the partnershi partnership. p. The firm’s liabiliti liabilities es amount amount to P 36,000, including P 4,000 owing to Jack and P 3,500 owing to Poy on loans. After  realization of assets, the cash on hand amounts to P 37,500. How much is the total loss on realization? realization? P38,500 33. Refer to data in no. 32, in the settlement to partners, how much did Jack receive? P5,400 34. Clinton and Obama are partners who share profits equally and losses in a 2:1 ratio. If  they have beginning capiital balances of P 120,000 and P 118,000, respectively, made no additional investments nor withdrawals, withdrawals, and suffered an unprofitable unprofitable year with a loss of P 48,000 48,000,, their their ending capital capital balances balances will be Clinton – P88,000 and Obama – P102,000 35. Lakers, Celtics and Knicks are partners who share profits and losses in the ratio of 2:3:5. The partners have decided to liquidate the partnership. Their capital accounts show the following balances: Lakers – P 60,000 credit; Celtics – P 90,000 credit; Knicks – P 30,000 debit. What is the amount of cash available for distribution? P120,000 36. Partners John and George who have been dividing profits and losses in the ratio of 3:2, respectively, decided to liquidate their partnership. Capital balances before liquidation were: John – P 40,000; and George – P 30,000. After paying in full liabilities of P 30,000, they have P 49,000 cash to divide. Loss on realization was: P21,000

 

37. Jag, Lee and Bench decided to dissolve and liquidate their partnership on August 31, 2020 2020.. Th They ey have have been been dividi dividing ng profit profits s and and lo losse sses s in th the e ratio ratio of 40 40%; %; 30 30%; %; 30 30%, %, respectively and their capital balances as of January 1, 2020 were as follows: Jag – P 75,000; Lee – P 90,000; and Bench – P 30,000. The operations of the partnership for the period January 1, 2020 to August 31, 2020 resulted to a profit of P 66,000. 66,000. As of August 31, 2020, cash balance is P 60,000 and the liabilities are P 135,000. For Jag to receive P 60,000 in final settlement of his equity, the non-cash assets must be sold for P232,500

38. On Ju June ne 1, 2020 2020,, Golde Golden n War Warrio riors rs Corpo Corporat ration ion de decla clared red a share share capita capitall divide dividend nd entitling its shareholders to one additional share for each share held. At the time the dividend was declared, the market value was P 100 per share and the par value was P 50 per share. On this date, Golden had 65,000 shares issued and 5,000 shares in the treasury. What entry should Golden make to record this June 1 transaction? Retained Earnings (60,000 x P50) 3,000,000 Share Capital Dividends Distributable To record the declaration of dividends

3,000,000

39. Th The e ac acco coun unts ts belo below w ap appe pear ar in the the Dece Decemb mber er 31 31,, 20 2020 20 tr tria iall ba bala lanc nce e of Spur Spurs s Corporation:  Authorized Share Capital  Authorized Capital Unissued Share Capital Subscribed Share Capital Subscription Receivable-due 2018 Property Dividends Payable Share Premium Retained Earnings-unappropriated Earnings-unappropr iated Retained Earnings-appropriated Earnings-appropr iated Treasury Shares-at cost

P 5,000,000 5,000,000 2,000,000 1,000,000 400,000 800,000 500,000 600,000 300,000 100,000

In its December 31, 2020, Statement of Financial Position, Spurs should report total Shareholders’ Equity at P4,900,000 40. Miami Heat Inc. began operations in January 2018, and reported the following results for  each of its three years of operations. 2018 net loss-P 300,000; 2019 net loss-P 30,000; 2020 Profit-P 3,950,000 At December 31, 2020, the company’s capital accounts were as follows: P 5 Preference Shares, P 100 par, 100,000 shares authorized, 60,000 shares issued and outstanding Ordinary Shares, P 10 par, 1,000,000 shares authorized, authorized, 800,000 shares issued and outstanding

 

Miami Heat Inc. has never paid a cash or share capital dividend and there has been no change chan ge in the capital accounts accounts sinc since e its operati operations ons began. began. Assume Assume the preference preference shares are cumulative and upon corporate liquidation, liquidation, shares are preferred as to assets up to par. What is the book value per share of the preference shares on December 31, 2020? P115.00 41. Refer to data in no. 40, What is the book value per share of the ordinary shares on December 31, 2020? P13.40 42. Portland Blazers Corporation Corporation has 2,000 shares of P 200 par value, 8% cumulative, cumulative, nonparticipating participati ng preference share capital outstanding. outstanding. Last year, the corporation paid a total of P 8,000 in dividends and this year, it declared and paid a total of P 96,000 in dividends. What are the amounts of dividends paid on both the preference shares and ordinary ordi nary shares, shares, respecti respectively vely? ? Preference Share – P56,000 and Ordinary Share – P40,000 43. On December 1, 2020, Bobcat Corporation received a donation of 2,000 shares with P 50 par value from a shareholder. On that date, the share market value was P 350. The shares were originally issued for P 250 per share. By what amount would this donation cause shareholder’s equity to decrease? P0 decrease?  P0 Nos. 44 and 45 are based on the given data: The shareholders’ equity of Dallas Mavericks Corporation is presented below: 10% Preference Share, 2,000 shares outstanding Ordinary Shares, 5,000 shares res outstanding Preference share premium Ordinary share premium Retained Earnings

P 200,000 100,000 20,000 25,000 450,000

44. If 350 shares of Preference Shares were retired at P 125/share, how much will be credited to the Retained Earnings account? P5,250 45. If 500 shares of Preference Shares were converted into Ordinary Shares at a rate of four  shares for every share of Preference Share, the amount to be credited to Ordinary Share Capital account will be P40,000 46. On December 31, 2020 and 2019, Bucks Corporation had 105,000 Ordinary Shares issued, 5,000 shares in the treasury, 10,000 shares subscribed and 10,000 cumulative Preference Shares of 5%, P 100 par value. No dividends were declared in 2020 and 2019. Profit for the current year was P 900,000. What amount should be reported as basic earnings per share? P8.5 47. An 47.  An analysis of the Shareholders’ Shareholders’ Equity of Atlanta Hawks Corporation as of January 1, 2020, is as follows: Ordinary Shares, P 20 par, 120,000 shares Issued and outstanding P 2,400,000

 

 

Additional Paid in Capital Retained Earnings

240,000 1,540,000

 Atlanta uses the cost method of accounting accounting for Treasury Shares and during 2020, recorded the following transactions: • Reacquired 2,000 shares for P 70,000 • Sold 1,200 Treasury Shares at P 40 per share • Retired the remaining Treasury Shares The Ordinary Shares were originally issued at P 22 per share. Assuming no other equity transactions occurred during 2020, what should Atlanta Hawks Corporation report at December 31, 2020 as Total Additional Paid In Capital: P244,400 48. Refer to data in number 47 and assuming that the profit for the year 2020 amounted to P 500,000,, how much is the balance of the Retained Earnings 500,000 Earnings Unappropriated account account on December 31, 2020? P2,037,200 49. Boston Celtics Corporation issued 100,000 Ordinary Shares. Of these, 5,000 shares were held as Treasury at January 1, 2020. During 2020, transactions were as follows: May 1  Aug. 1 Nov 15

1,000 shares of Treasury were sold 10,000 unissued shares were sold Share split 2 for 1 took effect

On December 31, 2020, how many shares were issued and outstanding? Issued P220,000 Outstanding P212,000 Nos. 50 to 53 are based on the following given data: The fol follow lowing ing accou accounts nts were were fou found nd in the the led ledge gerr of Chicag Chicago o Bulls Bulls Co Corpo rporat ration ion as of  December 31, 2020: 8% Preference Share, P 50 par, 20,000 shares authorized Preference Share Subscribed, 300 shares Preference Share Subscription Receivable-current Receivable-c urrent Preference Share Premium Ordinary Share, P 20 stated value Ordinary Share Subscribed Ordinary Share Subscription Receivable-due in 2022 Paid in capital in excess of stated value Paid in Capital from Sale of Treasury Shares Total Retained Earnings Treasury Shares – Preferred (1,000 shares) Property Dividends payable

P 750,000 15,000 7,000 85,000 660,000 22,000 10,000 56,000 5,000 395,000 55,000 25,000

 

50. Ho How w many many shares shares are issued issued and and outst outstan andi ding ng for th the e Prefe Preferen rence ce Share Share? ? Issued P15,000 and Outstanding P14,000 51. How much is the legal capital? P1,503,000 52. Treasury Shares will have a cost per share of P55

53. Total Additional paid in Capital will be P146,000 be P146,000 54. On January 22, 2020, Guess Corporation split its share capital 2-for-5 when the market value was P 65 per share. Prior to the split, Guess had 200,000 shares of P 15 par  Ordinary Share Capital. What is the value of each share after the split? P37.50 55. On August 1, 2020, Kobe Corporation received subscription for 7,000 shares of Ordinary Share Capital, P100 par value, at P 110 per share. Received 10% down payment and the balance payable in 3 equal installments. The entry to record the subscription default default assuming 1,500 shares out of 7,000 were unable to pay the last installment will be

Receivable from Highest Bidder Ordinary Share Capital Subscription Receivable

148,500

148,500

1,500 x P110 x 90%

56. The following were taken from the accounts of Lebron Corporation at year end. Total profit since incorporation Cash dividends paid Proceeds from sale of donated shares Total value of share dividends distributed Excess of proceeds over cost of Treasury shares sold

P 300,000 90,000 30,000 25,000 45,000

The Retained Earnings account will a balance of P185,000 57. Cartier Corporation was organized on January 1, 2020 with authorized capital of P 500,000 Ordinary Shares, P 25 par value. Subsequently, incorporators subscribed for  the Securities and Exchange Commission’s required number of shares for incorporation incorporation at P 30 per share. How much must be paid up upon subscription to comply with the requirement of the Securities and Exchange Commission? P937,500 58. Garnett Corporation’s shareholders’ equity is composed of 10,000 shares of P 10 par  Ordinary Share, Ordinary Share Premium of P 40,000 and Retained Earnings of P 600,000. If a 40% share capital dividend is declared when the shares are selling at P50 per share, what amount should be transferred from the Retained Earnings account to the Ordinary Share Premium account? P0

 

59. Utah Corporation has outstanding 10,000 shares of 10% Preference Share Capital with a par value of P 100 and 42,500 shares of P 10 par value Ordinary share Capital. The balance in the Retained Earnings account at the end of the fiscal year 2019 is P 1,650,000. 1,650,00 0. If Utah purchases 1,000 shares of its own Ordinary Share capital at P 40 per  share, how much is the unrestricted Retained Earnings? P1,610,000

60. At 60.  At December December 31, the the Shareholders’ Shareholders’ Equity Equity section shows: Ordinary Share, P 5 par value, 1,320,000 shares issued Share Premium – Ordinary Retained Earnings Treasury Shares, at cost, 120,000 shares

P 6,600,000 1,400,000 500,000 700,000

The book value per share of Ordinary Share is: P6.5 61. Wade and Curry who share profits and losses in the ration of 3:7 are partners with capital balances of P 40,000 and P 60,000, respectively. Anthony is to be admitted into the partnership for 20% interest in the capital of the firm. If assets are revalued and the capital balances of Wade and Curry after recording the admission of Anthony are P 52,000 and P 88,000, respectively, the cash paid by Anthony is P35,000 62. Pierce, Allen and Rondo are partners with capital balances of P 80,000, P 120,000 and P 160,000, respectively. They share profits and losses in the ration of 30:40:30. Allen decides to withdraw from the partnership. Allen receives P 160,000 in settlement of his interest. If the bonus method is used, what is the capital balance of Rondo immediately after the retirement of Allen? P140,000 63. Hip and Hop entered into a partnership on July 1, 2020 by investing the following assets:

Cash Merc Me rcha hand ndis ise e Inve Invent ntor ory y Equipment Fixtures

HIP P 30,000 200,000

HOP – P 90,0 90,000 00 160,000 –

The agreement between Hip and Hop provides that profits and losses are to be divided into 40% to Hip and 60% to Hop, and that the partnership is to assume a liability on the Equipment of P 60,000. The partnership further agreed that Hop is to receive a capital credit equal to her profit and loss ratio. How much cash is to be invested by Hop? P155,000 64. Mickey, Goofy and Donald decided to liquidate their partnership. Non-cash assets were sold and all the creditors were paid. Profit and loss sharing ratios were: 20%, 30% and 50% respectively. Balances in each capital account before and after the sale follow:

 

Before the sale  After the sale sale

MICKEY P 35,000 25,000

GOOFY P 5,000 (10,000)

DONALD P 45,000 20,000

How much is the share of Goofy in the total loss on realization? P15,000 65. Refer to data in number 64, if the non-cash assets were sold for P 225,000, how much is the book value of the non-cash assets? P275,000 Solutions to FAR 2 – FINALS EXAMINATION 31.

32.

Beauty (6)

TCC 200,000

Asset Reval. 60,000

TAC 260,000

Handsome (4) Cute TOTAL

300,000 200,000 700,000

40,000

340,000 200,000 800,000

100,000

40,000 36,000 76,000 (37,500) 38,500

33.

 

J (6) 24,500 4,000 28,500 (23,100) 5,400

34.

C (2/3)   120,000 (32,000)   88,000

36.

40,000 30,000 30,000 100,000 (49,000)   51,000 (30,000)   21,000

P(4) 15,500 3,500 19,000 (15,400) 3,600 O (1/3) 118,000 (16,000) 102,000

Total 40,000 7,500 47,500 (38,500) 9,000 Total 238,000 (48,000) 190,000

 

37.

Jag (40) 75,000 26,400 101,400 (41,400)   60,000

Lee (30) 90,000 19,800 109,800 (31,050) 78,750

Bench (30) 30,000 19,800 49,800 (31,050) 18,750

Total 195,000 66,000 261,000 (103,500) 157,500

261,000 135,000 396,000 (60,000)   336,000 (103,500)   232,500 39.

Authorized Share Capital Unissued Share Capital Issued Share Capital Share Premium Subscribed Share Capital Subscription Receivable-due 2018

P 5,000,000 (2,000,000) P 3,000,000 500,000 1,000,000 (400,000)  

Retained Earnings Unappropriated

600,000

 Appropriated  Appropria ted

300,00 300,000 0

Treasury Shares-at cost Total Shareholder's Equity

40 40-41

600,000 P 4,100,000

900,000 P 5,000,000 (100,000) P 4,900,000

5% Pr Pref efer eren ence ce Sh Shar are e Capi Capita tal, l, P100 P100 pa par, r, 60,0 60,000 00 shar shares es Ordinary Shares, P10 par, 800,000 shares Retained Earnings Total Shareholders' Equity Less Equity Identified with Preference Shares   Liquidation Value - 60,000 x P100   Div. in arrears- 6,000,000 x 5% x 3  Equity identified with Ordinary Shares Preference Share = 6,900,000/60,000 sh = P115 P115   Ordinary Share = 70,720,000/800,000 = P13.4 P13.4  

6, 6,00 000, 0,00 000 0 8,000,000 3,620,000 17,620,000 (6,000,000) (900,000) 10,720,000

 

42. Last Year  Regular dividends Required 32,000  Available  Availabl e 8,000 In arrears 24,000 Total Dividends

Preference

8,000

8,000

8,000

24,000 32,000 56,000

Ordinary

500 Preference Shares x 4= Par value of Ordinary Share (100,000 / 5,000 sh)

Profit Less dividends on cumulative PS 100,000 x 5%  Profit attributable to Ordinary Share EPS = P850,000/100,000 = P8.5 P8.5  

47.

240,000 6,000 (1,600)   244,400

48.

 

49.

1,540,000 500,000 2,040,000   (2,800) 2,037,200

Issued 100,000 10,000 110,000 x 2/1

Outstanding 95,000 1,000 10,000 106,000 x 2/1

220,000

212,000

Total 24,000 72,000 96,000

40,000 40,000

45.

46.

Total

8,000

Preference  This year Div. in arrears Regular Dividends Total Dividends

Ordinary

2,000 P20 40,000

900,000 (50,000) 850,000

 

51.

750,000 15,000 660,000 22,000 56,000 1,503,000

53.

85,000 56,000 5,000 146,000

54 . 56.

57.

59 .

P15 x 5/2 = P37.5 P37.5   300,000 (90,000)   (25,000)   185,000

500,000 x 25% 125,000 x P30 3,750,000 x 25% 937,500

P1,650,000 - (1,000 shares x P40) = P1,610,000

60.

6,600,000 1,400,000 500,000 (700,000)  7,800,000 / 1,200,000 P6.5

61.

52,000 88,000 140,000 / 80%

 

  175,000 x 20% 35,000 62.

P (3) 80,000  

63

(2 (20 0,0 ,000 00)) 60,000

A (4) 120,000

R (3) 160,000

40,0 40,000 00 160,000

(20, (20,00 000) 0) 140,000

HIP (40%)   30,000 200,000   230,000 230,000 / 40% 575,000 x 60% 345,000 (190,000)   155,000

65

15,000 / 30% 50,000 225,000 275,000

HOP (60%) 90,000 160,000 (60,000) 190,000