PROBLEM 1 On January 2, 2017, Bill Gates, Inc. issued a 5-year, P2,000,000 of 8% convertible bonds at 104. The bonds pay interest annually every January 1. The bond contract entitles the bondholders to receive 6 shares of P100 par value ordinary share in exchange for each P1,000 bond. On the date of issue, the prevailing market interest rate for similar debt without the conversion option is 10%. On December 31, 2018, the holders of the bonds with total face value of P1,000,000 exercised their conversion privilege. In addition, the company reacquired at 110, bonds with a face value of P500,000. The balances in the capital accounts as of December 31, 2017 were: Ordinary Share Capital, P100 par, authorized 50,000 shares, issued and outstanding, 30,000 shares, P3,000,000; Share Premium, P500,000. Market value of the ordinary share and bonds were as follows: Date Bonds Ordinary Share January 1, 2018 118 40 December 31, 2018 106 42 Required: (Note - use four decimal places for present value factors and round-off final answers to the nearest peso)PROBLEM 2 Your audit client, Zion Inc., is a public enterprise whose share is traded in the over-the-counter market. At December 31, 2017, Reyes had 3,000,000 authorized shares of P10 par value ordinary shares, of which 1,000,000 shares were issued and outstanding. The shareholders' equity accounts at December 31, 2017 had the following balances: Ordinary Share Capital P 10,000,000 Share Premium 3,750,000 Accumulated Profits 3,250,000 Transactions during 2018 and other information relating to the shareholders' equity accounts were as follows: a. On January 5, 2018, Zion issued at P54 per share, 50,000 shares of P50 par value, 9% cumulative convertible preference share. Each preferred share is convertible at the option of the holder, into two shares of ordinary share. Zion had 300,000 shares of preferred share. The preferred share has a liquidation value equal to its par value. b. On February 1, 2018, Zion reacquired 10,000 shares of its ordinary share for P16 per share. c. On April 30, 2018, Zion sold 250,000 shares (previously unissued) of P10 par value ordinary share to the public at P17 per share. d. On June 18, 2018, Zion declared a cash dividend of P1 per share of ordinary share, payable on July 12, 2018 to shareholders of record on July 1, 2018. e. On November 10, 2018, Zion sold 5,000 shares of treasury share for P21 per share. f. On December 14, 2018, Zion declared the yearly cash dividend on preferred share, payable on January 14, 2019 to shareholders of record on December 31, 2018. g. On January 20, 2019, before the books were closed for 2018, Zion became aware that the ending inventories at December 31, 2017 were understated by P150,000 (after tax effect on 2017 net income was P90,000). The appropriate correction entry was recorded the same day. h. After correcting the beginning inventory, net income for 2018 was P2,250,000 Required: Determine the balances of the following:PROBLEM 3 The equity section of the balance sheet of the ] Co., December 31, 2017, appears as follows: 6% Preferred share, P100 par of 5,000 shares P 500,000 Equity of ordinary share, 50,000 shares 3,500,000 Total Equity P 4,000,000 At December 31, 2018, the equity section appears as follows: 6% Preferred share, P100 par of 4,500 shares P 450,000 Equity of ordinary share, 60,000 shares 4,550,000 Total Equity P 5,000,000 Certain 2018 transactions follow: a. The additional 10,000 shares of no-par ordinary shares were sold at P60 per share. The par value of common stock is P40 per share. The first 50,000 shares were issued at P50 b. Net income for 2018 was P665,000 c. Preferred shares, 500 shares, was purchased for the treasury at P110 per share d. Cash dividends paid: preferred, P30,000; ordinary, P180,000