You were assigned to audit the Dove Corp's Stockholders' Equity accounts and the related capital transactions for its first year of operation ended December 31, 2021. In studying the transactions you came across the following entries made by the client:
Dale Particulars Debit Credit Jan. 3 Land 500,000 Ordinary Shares 500.000 To record the issuance of 50,000 shares of ordinary in exchange of a real property. Mar. 1 Subscription receivable 420.000 Ordinary Shares 420,000 To record the subscription of 20,000 shares of ordinary at P21 per share subscription price. Jun. 1 Ordinary Shares 125,000 Cash 125,000 To record the acquisition of 5,000 shares of the company's own ordinary shares. Aug. 15 Cash 252.000 Subscription receivable 252,000 To record the collection for the full payment of 60% of the subscribed shares on March 1. Sept. 2 Cash 40.000 Ordinary shares 40.000 To record the reissuance of half of the shares reacquired on June 1. Dec. 29 Accumulated profits 750,000 Share premium 750,000 To record the year-end adjustment for the January grant to 10 employees 5,000 share appreciation rights computed as: (10*5,000*P15)Audit notes: a. The company was authorized to issue 100,000 shares of ordinary at P10 par value. b. The real property received on January 3, were fairly valued at P1,800,000, 30% of which is attributed to the land with the balance to the building which the company intends to use as a factory site. c. The company declared a 4 for 1 share split up on August 31. d. The share appreciation rights were granted to 10 of its key employees provided that the employee stays with the company for 5 years from date of grant (January 10, 2021) and provided further that average revenue growth rate over the five-year period is at least 10%, each employee will receive 3,000 SAR each; if the average revenue growth rate is at least 20%, each employee will receive 4,000 SAR each; if the average revenue growth rate is at least 30%, each employee will receive 5,000 SAR each. By the end of the year, it was ascertained by the management that three of the employees will leave the company before the fifth year and projects that the average revenue growth rate shall be around 25% over the five-year period. The prevailing fair value of the stock appreciation rights by the end of the year was P15. e. On December 30, the Board of Directors approved a P1 per share cash dividends to stockholders of record as of December 20 payable on January 30 of the subsequent year. F. After all the necessary adjusting entries, you ascertained that the correct net income for the year is at P1,500,000
