Problem Solving (15 points)

1. Draper and Becker decide to organize a partnership. Draper invests P25,000 cash, and Becker contributes P5,000 and equipment having a book value of P7,000 and a fair value of P15,000.

Instructions

Prepare the entry to record each partner?s investment.

2. The Jerry, Francis and Joseph reported a net income of P24,000. The capital contributed by Jerry, Francis and Joseph are as follows:

Jerry - 15,000

Francis ? P20,000

Joseph - P15,000

a. The income is shared equally

b. The agreed profit sharing is 10%, 30% and 60% respectively.

c. The agreed profit sharing is based on capital investment

d. Assuming that Jerry is Industrial Partner, and the sharing of Francis and Joseph shared equally

Instructions

Indicate the division of net income to each partner, and prepare the entry to distribute the net income.

3. Southern Partnership had beginning capital balances on January 1, 2014, as follows: Patty Sharp P30,000 and Jim O?Connor P25,000. During the year, drawings were Sharp P15,000 and O?Connor P8,000. Net income was P40,000, and the partners share income equally.

Instructions

Prepare the partners? capital statement for the year.

Stockholders? Equity (5 points each)

Project the Total Stockholders? equity for 2 years

Year 1 ? Initial year of operation

• Issued 10,000 common shares at P100 par value
• Net Income was P200,000

Year 2

Net Income was P100,000Dividends were declared for P20 for each share outstanding

Format

	Year 1	Year 2
Common stocks	1,000,000	1,000,000
Retained Earnings	200,000	100,000
Total Stockholders? Equity	1,200,000	1,100,000

Application ? Preparation of Articles of Incorporation

Form a scenario that you will put up a Corporation. Document this in the Articles of Incorporation

Partnership and Corporation PARTNERSHIP Quiz 1 1. A major advantage of the partnership form of organization is that the 2. partners have unlimited liability. F Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not sufficient to settle claims. T 3. If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their fair value. T 4. I, Hampton invests the following assets in a new partnership: P30,000 in cash, and equipment that cost P70,000 but has a book value of P34,000 and fair value of P40,000. Hampton, Capital will be credited for P64,000. F 5. If a partner's investment in a partnership consists of equipment that has accumulated depreciation of P8,000, it would not be appropriate for thee partnership to record the accumulated depreciation. T 6. The function of the Partners' Capital Statement is to explain the changes in partners' capital account balances during a period. T 7. A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement. F 8. Total partners' equity of a partnership is equal to the sum of all partners' capital account balances. T 9. A Partnership should be registered with the Securities and Exchange Commission. T 10. A partnership is always owned by 2 individuals. F Partnership and Corporation QUIZ 2 Problem Solving (15 points) 1. Draper and Becker decide to organize a partnership. Draper invests P25,000 cash, and Becker contributes P5,000 and equipment having a book value of P7,000 and a fair value of P15,000. Instructions Prepare the entry to record each partner's investment. 2. The Jerry, Francis and Joseph reported a net income of P24,000. The capital contributed by Jerry, Francis and Joseph are as follows: Jerry - 15,000 Francis - P20,000 Joseph - P15,000 a. The income is shared equally b. The agreed profit sharing is 10%, 30% and 60% respectively. c. The agreed profit sharing is based on capital investment d. Assuming that Jerry is Industrial Partner, and the sharing of Francis and Joseph shared equally Instructions Indicate the division of net income to each partner, and prepare the entry to distribute the net income. 3. Southern Partnership had beginning capital balances on January 1, 2014, as follows: Patty Sharp P30,000 and Jim O'Connor P25,000. During the year, drawings were Sharp P15,000 and O'Connor P8,000. Net income was P40,000, and the partners share income equally. Partnership and Corporation Instructions Prepare the partners' capital statement for the year. Exam I. True or False 1. A partnership is automatically dissolved when there is a change in the relationship among the partners as this condition terminates the partnership contracts. TRUE 2. A Commercial partnership is organized for the exercise of a common profession, and usually renders service based on the partners' acquired profession. FALSE 3. A partnership at will is formed for a particular undertaking and may be terminated any time by the will of any of the partners or by mutual agreement of the partners. TRUE 4. Limited partnership comprises of all limited partners. FALSE 5. Industrial Partner contributes money, property and industry to the partnership. FALSE 6. Limited partner is liable to the extent of his capital contribution to the partnership. TRUE 7. The primary objective of accounting for partnership operation is the determination of periodic net income and the distribution of retained earnings. FALSE 8. A partnership contract signed by all partners stipulating that one partner be excluded from losses is valid. FALSE Partnership and Corporation 9. If there is an industrial partner, the capitalist partner gets first a just and equitable share. FALSE 10. In the absence of profit agreement, the industrial partner gets the same share as that of the capitalist partner. FALSE 11. When there is loss, the agreed profit ratio is used to distribute partnership net losses in the absence of loss ratio. TRUE 12. An industrial partner shares in the partnership losses because he actively participates in the operation of the business. FALSE 13. The personal assets, liabilities, and personal transactions of partners are excluded from the accounting records of the partnership. TRUE 14. The act of any partner is binding on all other partners if the act appears to be appropriate for the partnership. TRUE 15. The partnership agreement between partners must be in writing. FALSE 16. If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their fair value. TRUE 17. Two proprietorships cannot combine and form a partnership. FALSE 18. The relation of partners arises from contract and not from status , operation of law or inheritance. TRUE Partnership and Corporation 19. The minimum number of owners in a partnership is two but not exceeding five. FALSE 20. Partnership businesses should be registered to the Bureau of Internal Revenue for income tax purposes. TRUE 21. Every partner is assumed as an agent of the partnership for any purpose. TRUE 22. A partnership contract excluding a partner from profit sharing is null and void. TRUE 23. If an agreement is not specified in written or oral form, profits and losses are shared according to capital contribution. TRUE 24. A partnership provides an opportunity to pool the abilities, experiences and resources of two or more persons. TRUE 25. Trading partnerships render service for a fee. FALSE 26. A \"de facto partnership\" is established and organized without complying with the legal requirements for its existence. TRUE 27. In the absence of any stipulation on the share of profit, the share of each partner in the profits shall be equal proportion. FALSE 28. If there is an agreement as to the distribution of profit but no stipulation as to the distribution of loss, any partnership loss shall be shared by partners proportionate to capital contribution. FALSE Partnership and Corporation 29. X is an industrial-capitalist partner. There is no agreement as to the distribution of partnership profits and losses. His share in the profit is proportionate to his capital contribution. FALSE 30. If there is no specified profit sharing for an industrial partner, he shall receive a share equal to the share of a capitalist partner have the largest share. FALSE II. Multiple Choice 1. Bagley invests personally owned equipment, which originally cost P220,000 and has accumulated depreciation of P60,000 in the Bagley and Eggers partnership. Both partners agree that the fair value of the equipment was P120,000. The entry made by the partnership to record Bagley's investment should be. a. Equipment.......................................................... 220,000 Accumulated DepreciationEquipment...... 60,000 Bagley, Capital............................................ 160,000 b. Equipment.......................................................... 160,000 Bagley, Capital............................................ 160,000 c. Equipment.......................................................... 120,000 Loss on Purchase of Equipment.......................... 40,000 Accumulated DepreciationEquipment............. 60,000 Bagley, Capital............................................ d. Equipment..............................................120,000 220,000 Partnership and Corporation Bagley, Capital.................................. 120,000 2.Nate is investing in a partnership with Deidre. Nate contributes as part of his initial investment, Accounts Receivable of P60,000; an Allowance for Doubtful Accounts of P9,000; and P6,000 cash. The entry that the partnership makes to record Nate's initial contribution includes a a. credit to Nate, Capital for P66,000. b. debit to Accounts Receivable for P51,000. c. credit to Nate, Capital for P57,000. d. debit to Allowance for Doubtful Accounts for P9,000. 3.Todd is investing in a partnership with Joseph. Todd contributes equipment that originally cost P42,000, has a book value of P20,000, and a fair value of P26,000. The entry that the partnership makes to record Todd's initial contribution includes a a. debit to Equipment for P22,000. b. debit to Equipment for P42,000. c. debit to Equipment for P26,000. d. credit to Accumulated Depreciation for P22,000. 4.A partner invests into a partnership a building with an original cost of P360,000 and accumulated depreciation of P160,000. This building has a P280,000 fair value. As a result of the investment, the partner's capital account will be credited for a. P280,000. b. P200,000. c. P360,000. Partnership and Corporation d. P480,000. 5.Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of P10,000 and a fair value of P14,000. Sandy will invest a building with a book value of P30,000 and a fair value of P42,000 with a mortgage of P15,000. At what amount should the building be recorded? a. P30,000 b. P27,000 c. P42,000 d. P45,000 6.Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of P10,000 and a fair value of P14,000. Sandy will invest a building with a book value of P30,000 and a fair value of P42,000 with a mortgage of P15,000. What amount should be recorded in Sandy's capital account? a. P30,000 b. P27,000 c. P42,000 d. P14,000 7.Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of P10,000 and a fair value of P14,000. Sandy will invest a building with a book value of P30,000 and a fair value of P42,000 with a mortgage of P15,000. What amount should be recorded in Brian's capital account? a. P30,000 Partnership and Corporation b. P27,000 c. P42,000 d. P14,000 8. Brekke and Fig decide to organize a partnership. Brekke invests P30,000 cash, and Fig contributes P24,000 cash and equipment having a book value of P12,000. Choose the entry to record Fig's investment in the partnership assuming the equipment has a fair value of P18,000. a. Cash.................................................................... 24,000 Equipment ......................................................... 12,000 Fig, Capital .................................................. b. Equipment ......................................................... 36,000 12,000 Fig, Capital .................................................. 12,000 c. Cash.................................................................... 24,000 Fig, Capital .................................................. 24,000 d. Cash....................................................... 24,000 Equipment ............................................. 18,000 Fig, Capital ....................................... 42,000 9.M. Abadie and S. Collier combine their individual sole proprietorships to start the Abadie - Collier partnership. M. Abadie and S. Collier invest in the partnership as follows Book Value Abadie Collier Fair Value Abadie Collier Partnership and Corporation Cash P21,000 P6,000 P21,000 P6,000 10,000 5,000 10,000 5,000 Accounts (1,500) (600) Equipment 15,000 24,000 Accounts Receivable Allowance for Doubtful Accumulated Depreciation (3,000) (2,100) 13,500 (900) 9,000 (9,000) The entries to record the investment will include a credit to: a. Abadie, Capital of P41,500. b. Collier, Capital of P19,100. c. Abadie, Capital of P43,000. d. Collier, Capital of P25,100. 10. If the amount of liabilities is P165,000 and the percentage of owner's claim in the total partnership's asset is 45%, the partnership's total assets would be a. P200,000 c. P366,667 b. P300,000 d. P255,750 11. If the partnership's cash is P25,000, the net assets are P250,000, and the total claim of outside creditors is P200,000, the total amount of the partnership's noncash assets would be a. P525,000 b. P425,000 c. P325,000 d. P275,000 Partnership and Corporation 12. A and B formed a partnership: A, to contribute his land (to be valued at P100,000), and B to contribute cash. The land of A was acquired by A two years ago at a cost of P80,000. The cash contribution of B is a. P80,000 b. P100,000 c. P20,000 d. P120,000 13. X,Y and Z agree to form a partnership with X contributing P50,000 for 2/3 interest in the partnership. Y and Z to share equally in the remaining required capitalization. The total assets of the partnership upon formation is: a. P100,000 b. P150,000 c. P75,000 d. P225,000 14. X,Y and Z agree to form a partnership with X contributing P50,000 for 2/3 interest in the partnership. Y and Z to share equally in the remaining required capitalization. How much will be the capital of Y upon formation of partnership a. P25,000 b. P12,500 c. P75,000 d. P50,000 15. A contributes an equipment costing P50,000 and agrees that it be valued at P40,000. Meanwhile, B contributed furniture and fixture with a fair value of P60,000. The partnership will assume the unpaid balance of furniture and fixture amounting to 10,000. C will contribute cash equal to his agreed claim in the partnership assets. The capital contribution of C at Partnership and Corporation agreed capital distribution of 1/3, 5/12 and 1/4 to A, B and C respectively would be a. P30,000 c. P33,333 b. P36,667 d. P50,000 16. Partners Eli and Alex contributed P150,000 and 50,000, respectively. They have agreed to share profits and losses in an 70:30 ratio respectively. If the partnership had net income of P170,000 for 2017. How much of the net profit that will be distributed to Eli and Alex, respectively? a. P119,000; 51,000 b. P51,000; 119,000 c.P127,500; P42,500 d. P42,500;P127,500 17. In the absence of profit and loss ratio, How much of the net profit that will be distributed to Eli and Alex? a. P119,000; 51,000 b. P51,000; 119,000 c.P127,500; P42,500 d. P42,500;P127,500 18. Using item 17, there's an industrial partner named Coco. It was agreed that being an industrial partner, will receive a profit share equivalent to 10% Partnership and Corporation of the partnership net income. How much is the share of Eli, Alex and Coco respectively? a. P127,500; P42,500; 0 b. P42,500;P127,500; 0 c.P114,750; P38,250; 17,000 d. P38,250;P114,750; P17,000 19. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. They agreed that any profit shall be divided by P60% and 40% respectively, but losses shall be divided equally. What would be the loss distributed to Noel? a. 25,000 c. 35,000 b. 30,000 d. 0 20. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. They agreed that any profit shall be divided by P60% and 40% respectively, but losses shall be divided equally. What would be the loss distributed to Jimmy? a. 15,000 b. 20,000 c. 25,000 d. 0 Partnership and Corporation 21. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. They agreed that any profit shall be divided by P60% and 40% respectively. What would be the loss distributed to Jimmy? a. 30,000 b. 20,000 c. 25,000 d. 0 22. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. They agreed that any profit shall be divided by P60% and 40% respectively. What would be the loss distributed to Jimmy? a. 30,000 b. 20,000 c. 25,000 d. 0 23. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. There's an industrial partner named Rafael, What would be the loss distributed to Rafael? a. 30,000 c. 25,000 b. d. 0 20,000 Partnership and Corporation 24. Noel and Jimmy have capital balances of P70,000 and P30,000, respectively. The partnership suffered a net loss of P50,000. There's an industrial-capitalist partner named Rafael who contributed P50,000, What would be the loss distributed to Rafael? a. 23,333 b. 10,000 c. 16,667 d. 0 25. The partnership should be registered with the following except: a. Securities and Exchange Commission c. Bureau of Internal Revenue b. Department of Trade and Industry d. Business Permit and Licensing Office 26. Business Permit and Licensing Office issues this document to signify registration of the business a. Certificate of Registration b. Certificate of Incorporation c. Mayor's Permit d. None of the above III. Essay (4 points) What are the advantages and disadvantages of forming a partnership? Advantages Capital - Due to the nature of the business, the partners will fund the business with start up capital. This means that the more partners there Partnership and Corporation are, the more money they can put into the business, which will allow better flexibility and more potential for growth. It also means more potential profit, which will be equally shared between the partners. Flexibility - A partnership is generally easier to form, manage and run. They are less strictly regulated than companies, in terms of the laws governing the formation and because the partners have the only say in the way the business is run (without interference by shareholders) they are far more flexible in terms of management, as long as all the partners can agree. Shared Responsibility - Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task, they might well split the work according to their skills. So if one partner is good with figures, they might deal with the book keeping and accounts, while the other partner might have a flare for sales and therefore be the main sales person for the business. Decision Making - Partners share the decision making and can help each other out when they need to. More partners means more brains that can be picked for business ideas and for the solving of problems that the business encounters. Disadvantages Disagreements - One of the most obvious disadvantages of partnership is the danger of disagreements between the partners. Obviously people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of partnership during the formation period to ensure that Partnership and Corporation everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved. Agreement - Because the partnership is jointly run, it is necessary that all the partners agree with things that are being done. This means that in some circumstances there are less freedoms with regards to the management of the business. Especially compared to sole traders. However, there is still more flexibility than with limited companies where the directors must bow to the will of the members (shareholders). Liability - Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Which can be off putting for some people. This can be countered by the formation of a limited liability partnership, which benefits from the advantages of limited liability granted to limited companies, while still taking advantage of the flexibility of the partnership model. Taxation - One of the major disadvantages of partnership, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a Self Assessment tax return each year. They are also required to register as self employed with HM Revenue & Customs. The current laws mean that if the partnership (and the partners) bring in more than a certain level, then they are subject to greater levels of personal taxation than they would be in a limited company. This means that in most cases setting up a limited company would be more beneficial as the taxation laws are more favourable (see our article on the Advantages and Disadvantages of a Limited Company). Profit Sharing - Partners share the profits equally. This can lead to inconsistency where one or more partners aren't putting a fair share of effort into the running or management of the business, but still reaping the rewards. CORPORATION Partnership and Corporation QUIZ 1 True or False 1. A corporation is not an entity which is separate and distinct from its owners. FALSE 2. A corporation can be organized for the purpose of making a profit or it may be not-for-profit. TRUE 3. A corporation acts under its own name rather than in the name of its stockholders. TRUE 4. A preferred stockholder has the right to vote in the election of the board of directors. FALSE 5. As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized. FALSE 6. The par value of common stock must always be equal to its market value on the date the stock is issued. FALSE 7. A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares. FALSE 8. Each stockholder in a corporation has a separate capital account in the stockholders' equity section of the balance sheet. FALSE 9. The stockholders' equity section of a corporation's balance sheet consists of (1) paid-in capital, (2) retained earnings, and (3) drawings. FALSE 10. Dividends are declared out of retained earnings. TRUE 11. Retained earnings are a part of stockholders' equity. TRUE Partnership and Corporation 12. Retained earnings is usually subtracted from paid-in capital to arrive at total stockholders' equity. FALSE Quiz 2 Problem Solving Journal Entries (2 points each - 14 points) 1. Blue Ocean, Inc. was organized at the beginning of the current year and was authorized to issue share capital of 100,000 shares of P50 par value. Partnership and Corporation -Memorandum Entry: Authorized to issue share capital of 100,000 shares of P50 par value. 2. The incorporators subscribed for the 25% of the authorized share capital at par value - Subscription Receivable P1,250,000 Subscribed Capital Stock P1,250,000 3. The incorporators paid 25% on their subscription - Cash-312,500 Subscription Receivable-312,500 4. The incorporators fully paid their original subscription Cash-937,500 Subscription Receivable- 937,500 Subscribed Capital Stock-1,250,000 Share Capital-1,250,000 5. Land with fair value of P600,000 was acquired upon issuance of 10,000 shares. - Land-P600,000 Share capital-500,000 Additional Paid in Capital -100,000 Partnership and Corporation 6. Cash subscription to 5,000 shares at 60 per share was received. - Cash-300,000 Share Capital-250,000 Additional Paid in Capital- 50,000 7. Paid legal fees amounting to P20,000 in connection with the incorporation. - Legal Expense- 20,000 Cash-20,000 Based on the above items, answer the following. (2 points each - 6 points) 8. How much is the total assets?- P2,130,000 9. How much is the total liabilities-0 10. How much is the total equity?-P2,130,000 Exam TRUE OR FALSE (1) Any individual stockholder in a corporation may be held personally liable for all debts incurred by the corporation. FALSE (2) A corporation has continuity of existence which means permits the business to continue regardless of changes in ownership or the death of the stockholders. TRUE Partnership and Corporation (3) A corporation is an artificial being created by operation of law having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. TRUE (4) A corporation can come into existence my mere agreement of the stockholders. FALSE (5) The existence of a corporation should not exceed 50 years from date of incorporation, unless extended. TRUE (6) A corporation's formal existence would start only upon the issuance of its certificate of incorporation by the Securities and Exchange Commission. TRUE (7) Stock Corporations issue shares of stock to the stockholders who are entitled to receive dividends representing their earnings from the corporation. TRUE (8) Foreign Corporations are organized through the operation of Philippine laws. FALSE (9) Domestic Corporations are organized under the laws of other countries. FALSE (10) Incorporators are also called as founders of a corporation. TRUE (11) The law requires that incorporators must consist of at least five (5) and can be more than 15 natural persons, of legal age. FALSE (12) Stockholders are owners of shares in a non-stock corporation. FALSE (13) At least 25% of the authorized capital stock of the corporation must be subscribed and at least 26% of the total subscription must be fully paid. FALSE (14) The paid up capital should not be less than P5,000. TRUE Partnership and Corporation (15) Common Stock represents basic interest of ownership in a corporation. TRUE (16) A preferred stock is a separate stock which is accorded by corporate bylaws a preference with respect to dividends/ and or assets over common stocks. TRUE (17) A preferred stockholder has the right to vote and be voted upon as a board of director. FALSE (18) The issuance of fully paid share is credited to share capital account. TRUE (19) Stock certificate is issued to the stockholder upon subscription. FALSE (20) Market value of stock is always equal to its par or stated value. FALSE (21) If shares of stock are issued in consideration for non-cash items, the share capital is to be recorded at fair value of the non-cash item received. FALSE (22) The excess of selling price over the par value of stock sold is credited to Additional Paid in Capital. TRUE (23) The subscription which is not yet fully paid and not be issued yet with certificate is credited to Share Capital. FALSE (24). If dividend is declared, it will decrease the retained earnings. TRUE (25). Only those listed as stockholders as of date of records are entitled to dividend. TRUE (26). The retained earnings is an income statement account representing the accumulated income or losses of the corporation since its inception. FALSE (27) Authorized capital stock can be recorded using Memorandum Entry. TRUE Partnership and Corporation (28) Equity is the residual interest in the assets of an entity after deducting liabilities. TRUE MULTIPLE CHOICE (29) Which of the following is not a characteristic of a corporation a. Separate legal existence b. Transferability of ownership c. Unlimited liability d. None of the above (30) The liability of stockholders is a. similar to the liability of the owners of a partnership b. similar to the liability of the owners of a proprietorship c. greater than the par value of all stock issued if the stock was issued at a premium d. limited to their investment (31) They regulate the various internal matters regarding the calling and conducting of meeting of stockholders and directors a. by-laws b. Articles of Incorporation c. Voting trust agreement d. None of the above (32) The arbitrary value assigned to a share of stock is called a. Market value c. Book Value Partnership and Corporation b. Liquidation Value d. Par Value (33) The amount of stockholders' investments is called a. outstanding stock b. total stockholders' equity c. share capital d. retained earnings (34) It is a documentary evidence of the holder's ownership of shares and is a convenient instrument for the transfer of title a. stock certificate b. certificate of incorporation c. Both A and B d. none of the above (35) The maximum authorized number of shares multiplied by the par value per share is called: a. authorized capital stock b. subscribed capital stock c. share capital d. none of the above (36) All pre-operating expenses incurred during organizational stage shall be recorded a. Additional paid up capital c. Organization cost, an asset to be amortized over 5 years b. Expense d. none of the above Partnership and Corporation (37) Which of the following is not equal to the total stockholders' equity? a. Net Assets of the corporation c. Net worth of the corporation b. Book value of the corporation d. Share Capital (38) Which of the following will not require journal entry under the memo entry method a. authorization of shares to be issued b. subscription received c. shares issued d. all of the above (39) What is the accounting treatment for the excess of issue price over par value of stocks issued a. debited to additional paid in capital b. credited to retained earnings c. credited to share capital d. credited to additional paid in capital (40) Choose the situation which illustrate the minimum requirement of the law for corporate formation Authorized Capital Stock Subscribed Capital in capital a. P100,000 P5,000 P3,125 b. P100,000 P5,000 P15,000 Paid Partnership and Corporation c. P50,000 P12,500 P3,125 d. P50,000 P12,500 P5,000 (41) ABC Corporation is authorized to issue P1,000,000 common shares divided into 10,000 shares with P100 par value. If 2,500 shares were sold on a cash basis at P150/share, the gain to be part of retained earnings is a. P375,000 c. P125,000 b. P250,000 d. None (42) ABC Corporation is authorized to issue P1,000,000 common shares divided into 10,000 shares with P100 par value. If 2,500 shares were sold on a cash basis at P150/share, the corporation's asset is increased by a. P375,000 b. P250,000 c. P125,000 d. None (43) ABC Corporation is authorized to issue P1,000,000 common shares divided into 10,000 shares with P100 par value. If 2,500 shares were sold on a cash basis at P150/share, the share capital is increased by a. P375,000 b. P250,000 c. P125,000 d. None Partnership and Corporation (44) ABC Corporation is authorized to issue P1,000,000 common shares divided into 10,000 shares with P100 par value. If 2,500 shares were sold on a cash basis at P150/share, the stockholders' equity will increased by a. P375,000 c. P125,000 b. P250,000 d. None (45) If Baylor Company issues 8,000 shares of P5 par value common stock for P280,000, a. Common Stock will be credited for P280,000. b. Paid-In Capital in Excess of Par will be credited for P40,000. c. Paid-In Capital in Excess of Par will be credited for P240,000. d. Cash will be debited for P240,000. (46). If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at a. fair value. b. cost. c. zero. d. a nominal amount. (47.)In the financial statements, organization costs appears a. immediately below Retained Earnings in the stockholders' equity section. b. in the income statement. c. as part of paid-in capital in the stockholders' equity section. d. as an intangible asset. Partnership and Corporation (48). Delta Corp. issues 4,000 shares of P10 par value common stock at P14 per share. When the transaction is recorded, credits are made to a. Common Stock P40,000 and Paid-in Capital in Excess of Stated Value P16,000. b. Common Stock P56,000. c. Common Stock P40,000 and Paid-in Capital in Excess of Par P16,000. d. Common Stock P40,000 and Retained Earnings P16,000. (49) Taylor Corporation issues 20,000 shares of P50 par value preferred stock for cash at P90 per share. The entry to record the transaction will consist of a debit to Cash for P1,800,000 and a credit or credits to a. Preferred Stock for P1,800,000. b. Preferred Stock for P1,000,000 and Paid-in Capital in Excess of ParPreferred Stock for P800,000. c. Preferred Stock for P800,000 and Paid-in Capital from Preferred Stock for P1,000,000. d. Paid-in Capital from Preferred Stock for P1,800,000. (50). Anastasia Corporation began business by issuing 600,000 shares of P5 par value common stock for P24 per share. During its first year, the corporation sustained a net loss of P60,000. The year-end balance sheet would show a. Common stock of P3,000,000. b. Common stock of P14,400,000. c. Total paid-in capital of P14,340,000. d. Total paid-in capital of P11,400,000. Partnership and Corporation Stockholders' Equity (5 points each) Project the Total Stockholders' equity for 2 years Year 1 - Initial year of operation Issued 10,000 common shares at P100 par value Net Income was P200,000 Year 2 Net Income was P100,000 Dividends were declared for P20 for each share outstanding Format Year 1 Common stocks Year 2 1,000,000 1,000,000 Retained Earnings 200,000 100,000 Total Stockholders' Equity 1,200,000 1,100,000 Application - Preparation of Articles of Incorporation Form a scenario that you will put up a Corporation. Document this in the Articles of Incorporation