323 MULTIPLE CHOICE NC 8-1 Cream Corporation was organized on January 1, 2014 with authorized capital of P2,000,000 consisting of 100,000 ordinary shares, P20 par value. Subsequently, incorporators subscribed for 25,000 shares at P24. How much must be paid up upon subscription to comply with the requirement of the Securities and Exchange Commission (SEC)? a. P600,000 b . P125,000 C . P500,000 d. P150,000 NC 8-2 Beige Co. was authorized to issue 10,000 preference shares, P100 par value and 200,000 no-par ordinary shares. Subscriptions for 4,000 preference shares was received at P110 with a down payment of 25%. What entry subscription? should be made in the books of Beige Co. to record the receipt of a . Preference Share Capital Subscription Rec'l Preference Share Capital Subscribed 440,000 Preference Share Premium 400,000 40,000 b. Preference Share Capital Subscription Rec'l Preference Share Capital Subscribed 440,000 440,000 c. Preference Share Capital Subscription Rec'l 400,000 Preference Share Capital Subscribed 400,000 d. Preference Share Capital Subscribed 400,000 Preference Share Capital Subscription Rec'l 400,000 MC 8-3 Using the information in MC 8-2, how much was the down payment received by Beige Co. as a result of the subscription? a. P10,000 C. P100,000 b. P11,000 d. P1 10,000 MC 8-4 Last September 6, 2014, Brown Co. issued 2,000 shares of its P10 par value ordinary share capital in exchange for a piece of land to be held for a future plant site. Brown Co.'s ordinary share capital was listed and traded at P27 per share on the same date. The land has no known market value. How much is the increase in ordinary share premium resulting from this exchange? C. P34,000 a. PO d. P 40,000 b. P 20,000ordinary shares have no par and no stated value. Exercise 8 - 4 (Issuance of Share Capital with Stated Value in Exchange for Various Considerations) ing the The Justice Corporation is authorized to issue 500,000 shares of ordinary share capital with capital: a stated value of P20. The following transactions have taken place in relation to the share a. Issued 125,000 shares for cash at stated value. -cash b. Issued 25,000 shares to attorneys for services in securing corporate charter and for preliminary legal costs of organizing the corporation. The value of the services was tal of P150,000. took c. Issued 2,000 shares to the corporate promoters. Each ordinary share is selling at P25 on this date. d. Issued 10,000 shares in exchange for land valued at P300,000. riod e. Issued for cash 50,000 shares at P24 per share. Instructions: Prepare the journal entries to record the preceding transactions, including authorized capital, using the memorandum entry method. Exercise 8-5 (Issuance of Share Capital on a Subscription Basis)mauiuous: Prepare the journal entries to record the foregoing transactions, including the authorized share capital, assuming the use of: Th a. memorandum entry method. b. journal entry method Exercise 8 -2 (Issuance of Par Value Share Capital for Cash, Services, and Non-cash Assets) The Honesty Corporation was organized on April 1, 2014 with authorized share capital of 500,000 ordinary shares, par value of P20. Thereafter, the following transactions took place: April 1 The incorporators acquired 200,000 shares at P36 per share. 25 Issued 5,000 shares for the services rendered by the lawyer during the period of incorporation. The fair value of such services is P150,000. May 28 Issued 15,000 shares in exchange for equipment valued at P400,000. Instructions: Prepare journal entries to record authorized share capital and the subsequent transactions assuming the corporation uses the: a. memorandum entry method b. journal entry methodPaid delinquency sale expenses totaling P50,000. were Received payment from the highest bidder and shares were issued as follows: 10,000 to the highest bidder and 5,000 to the defaulting subscriber. Instructions: Prepare the journal entries to record the preceding transactions PROBLEMS ary Problem 8 - 1 (Issuance of Ordinary and Preference Shares on a Subscription Basis and Subscription Defaults ) The following selected transactions took place at the newly formed Providence Corporation: ent al Aug. Received authorization from the SEC to issue 50,000 preference shares, P100 par value and 500,000 ordinary shares, P20 par value.poration Chapter the correct entry to record the issuance of ordinary shares, assuming MC 8. corporation will use the books of the partnership, is 35,000 a. Javier, Capital 26,400 Edralin, Capital Ordinary Share Capital 61.400 35,000 b. Javier, Capital Edralin, Capital 26,400 Ordinary Share Capital 54,00% Ordinary Share Premium 7 400 C. Javier, Capital 35,000 Edralin, Capital 26,400 Gain on Incorporation 61,400 d. Javier, Capital 35,000 Edralin, Capital 26,400 Asset Revaluation Account 61,400 MC 8-12 The shareholders' equity of Cecille Corp. revealed the following on June 30, 2014: Preference share, P100 par value P230,000 Preference share premium 80,500 Ordinary share, P15 par value 525,000 Ordinary share premium 275,000 Ordinary share subscribed 5,000 Retained earnings 190,000 Notes payable 400,000 Subscription receivable - ordinary 40,000 How much is the legal capital of the corporation? a. P760,000 b. P775,000 C. P1, 115,000 d.. P1,305,500 IC 8-13 Using the information in MC 8-12, how much is the additional paid-in capital? a. P355,500 b . P360,500 C. P400,500 d. P800,500 C 8-14 Using the information in MC 8-12, how much is the total shareholders equity? a P1,305,500. b P1,345,500. d. C. P1,704,500 P1,745,500poration apital of had the -8-9 Lavender Corp. issued 20,000 ordinary shares, par value P15 in exchange for 325 an equipment. At the date of exchange, the shares are selling at P20 and no fair value is known for the equipment. How will the exchange be recorded on the books of Lavender Corp.? a . Equipment lue was Ordinary Share Capital b. Equipment 400,000 400,000 value Ordinary Share Capital Ordinary Share Premium 400,000 300,000 100,000 as of c. Equipment Ordinary Share Capital 400,000 Gain on Exchange 300,000 100,000 d. Equipment ed as Ordinary Share Capital 300,000 300,000 MC 8-10 Indigo Corp. has authorized 200,000 shares of P30 par value ordinary share capital and 5,000 shares of P50 par, 9% preference share capital. On June 3, 0,000 2014, the company issued 100,000 ordinary shares and 3,000 preference es of shares, both at par. Which of the following is the correct journal entry in cting recording the transaction? Cash 3,600,000 Ordinary Share Capital 3,000,000 Preference Share Capital 600,000 tal b. Cash 1,540,000 Ordinary Share Capital 1,000,000 540,000 Preference Share Capital 3,000,000 C. Ordinary Share Capital 600,000 Preference Share Capital 3,600,000 Income from Sale of Share Capital 3,150,000 3,000,000 d. Cash Ordinary Share Capital 150,000 oth Preference Share Capital Javier and Edralin are partners. They decide to incorporate their business and MC 8-11 are recording the incorporation of the new business. Javier has a P35,000 capital account balance, while Edralin has a P26,400 balance. Javier receives 7,500 shares and Edralin receives 6,000 shares of P4 par ordinary share capital.her 8 - Organization and Formation of a Corporation 327 MC 8-15 On April 1, 2014, Friends Corp., a newly formed company had the following shares issued and outstanding: Preference share, P50 par, 6,000 shares originally issued at P100 Ordinary share, P20 par, 20,000 shares originally issued at P60 Friends shareholders' equity should report preference share capital, ordinary share capital and paid-in capital in excess of par, respectively at a. P600,000, P1,200,000, 0 b. 600,000, 400,000, 800,000 C. 300,000, 1,200,000, 300,000 300,000, 400,000, 1,100,000C 8-5 Violet Corp. was organized on January 1, 2014 with authorized capital 100,000 ordinary shares, P20 par value. During 2014, Violet Co. had for MC 8-9 following transactions affecting the shareholders' equity. Jan. 10 Issued 25,000 shares at P22 per share. Mar. 25 Issued 1,000 shares for legal service when the fair value was P24 per share. Sept. 30 Issued 5,000 shares for a piece of equipment when the value was P26 per share. How much is the balance of the ordinary share capital account as of September 30? a. P620,000 C. P 700,000 b. P674,000 d. P704,000 MC 8-6 Using the information in MC 8-5, what amount should be reported as ordinary share premium? a. P50,000 P54,000 C. P64,000 b . d. P84,000 MC 8-10 MC 8-7 Aqua Corp. was incorporated on June 1, 2014 with an authorized 250,000 share of no-par ordinary share capital, stated value P.15 and 10,000 shares of 10% preference share capital, par value P50. Transactions affecting company's share capital as of June 30, 2014 were as follows: June 1 Issued 50,000 ordinary shares for cash at P15 per share. 5 Issued 50,000 ordinary shares in exchange for assets with total market value of P900,000. June 15 Received subscriptions for 100,000 ordinary shares at P30 and for 5,000 preference shares at P55. 25 Received full payment for subscriptions received on June 15 and the corresponding stock were issued. What is the total paid-in capital in excess of par and stated value for both ordinary and preference shares? a. P 25,000 b. P300,000 d. C. P1,650,000 P1,675,000 MC 8-1 8-8 equity? Using the information in MC 8-7, how much is the total shareholders' po P3,250,000. b. P4,500,000 d. C. P4,675,000 P4,925,00028 Received payment from the highest bidder and shares of stock subsequently issued. 30 Morena paid the balance of her subscription and shares of stock were issues of her. Instructions: Prepare journal entries to record the preceding transactions: Problem 8 - 2 (Issuance of Share Capital for Various Considerations and Subscription Defaults) Fidelity Co. was authorized to issue 200,000 ordinary shares, par value P50. The transactions that took place during the months of November and December are shown below. Nov. 2 Received subscriptions from incorporators for 50,000 shares at P60. A down payment of 40% was received; the balance is payable within 90 days. Issued 10,000 shares in exchange for equipment with a fair value of P700,000.Chapter 8 - Organization and Formation of a Corporation 319 the 16 Received subscriptions for 30,000 shares at P60 with a down payment of 20%. The balance is payable within 30 days. 28 Received the balance due from incorporators who subscribed for 35,000 shares. The shares of stock were issued. 16 Received the balance due from subscribers of 25,000 shares on Nov. 16. The he corresponding shares of stock were issued. 16 Declared as delinquent shares the subscription for 5,000 shares. 20 Paid advertising expenses of P15,000 relative to the delinquency sale. 26 Received payment from highest bidder and shares were issued. Instructions: Prepare journal entries to record the preceding transactions: Problem 8 - 3 orporation of a Partnership; New books for the Corporation) pared on September 30