Written:

1.Cosmetics Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed and issued) to be able to increase its working capital to undertake business expansions.

The Board of Directors consults with you as the Internal Accountant on the proper answers to the following issues:

(a)If the increase in Authorized capital stock is formally submitted to the stockholders in a meeting duly called for the purpose, what is the vote necessary for the stockholders' ratification?

(b)Once the increase in the Authorized Capital Stock of Cosmetics has been legally effected with the SEC, can the new shares from the unissued shares be offered to a new limited group of investors without having to offer them to the shareholders of record since no-pre-emptive right is provided in the AOI and By-laws of Cosmetics?

2.X Corporation is in need of land on which to construct an additional factory to be used in the expansion of its business. Jose Cruz owns a piece of land in Taytay, Rizal, which is ideal for the purpose, and the corporation offers to buy it at a fair price. Jose is willing to part with the land on condition that he is paid in shares of stocks of the corporation. The Board of Directors decides to accept the terms of Jose, but since the authorized capital stock of the corporation has been fully subscribed, it proposes to increase the capital stock so that it could consummate the sale of the land. The proposal, including the purchase of Jose's land in exchange for the new shares, was submitted to the stockholders in a meeting called for the purpose. Pedro Reyes, who has 100 sharers in the corporation, alleging that he and all other stockholders have a pre-emptive right to the new shares, insists that the corporation issue to him his proportionate quota of the new shares, which he prefers to buy in cash. Holders of 80% of the outstanding capital stock are in favor of proposal to increase of stock. Is Pedro Reyes within his rights in claiming a pre-emptive right?

Reinforcement/ Enrichment

Essay:

1.ABC Corporation has an authorized capital stock One Million (P1, 000,000.00) Pesos divided into 50,000 common shares and 50,000 preferred shares. At its inception, the corporation offered for subscription all the common shares. However, only 40,000 shares were subscribed. Recently, the directors thought of raising additional capital and decided to offer to the public all the authorized shares of the corporation at their market value. (a) Would Mr. X, a stockholder holding 4,000 shares have pre-emptive rights to the remaining 10,000 shares? (b) Would Mr. X have pre-emptive rights to the 50,000 preferred shares? (c) Assuming that the existing stockholders are entitled to pre-emptive right, at what price will the shares be offered?

2.Thunder Corporation(TC) commenced operations in 2010. During that year TC's loss from operations amounted to P500,000. In 2015, TC recouped all its losses in 2010, registering a net after tax profit of P500,000. In the same year, the management of the company discovered that a parcel of land originally acquired in 2010 for P300,000 had at least doubled in value and accordingly the Board of Directors of TC, with the conformity of the external auditors and backed up by a valuation report of a reputable appraiser, recognized a revaluation of appraisal surplus of P300,000. May the Board of Directors of TC declare a cash dividendout of this surplus?