Question
You were assigned to audit the shareholders' equity of Gatotkaca Inc. for the year ended December 31, 2019. Gatotkaca Corp. was incorporated in early 2018
You were assigned to audit the shareholders' equity of Gatotkaca Inc. for the year ended December
31, 2019. Gatotkaca Corp. was incorporated in early 2018 when it was authorized by SEC to issue
500,000 ordinary shares (P10 par) and 100,000 preference shares (P20 par). The following schedule
reflects the company's capital balances as of December 31, 2018:
Ordinary shares, 100,000 shares issued during the
company's incorporation in exchange of a land with
a fair value of P1.8M.
P1,800,000
Preference shares, 50,000 share issued during the
company's incorporation at P30 per share.
1,500,000
Retained earnings, the company's net income in 2018 949,000
Total shareholders' equity ?
Your inquiries and investigation revealed the following transactions, which occurred in 2019:
a. On March 1, 30,000 ordinary shares and a 12%, P500,000 face value bonds payable were
issued in exchange of a building with a fair market value of P1,200,000. The fair value of the
ordinary shares was considerably stable at P25 per share while the fair value of the bonds
excluding the accrued interest was at 110. The bonds pay interest annually every December
31.
b. On August 15, the company reacquired 20,000 ordinary shares (from the 2018 issue) at P24
per share and reverted them to treasury since it intends to reissue the same.
c. On September 10, the company declared a 1 to 2 share split on its ordinary shares. Shares
are currently selling on this date at P35 for ordinary shares and P53 for preference shares.
d. On October 11, the company reissued 30,000 treasury shares at P11.50 per share.
e. On December 1, the company declared a 20% share dividend on ordinary shares distributable
to shareholders as of December 15 distributable on January 31 the following year. The
ordinary shares were selling at P9.50 for the entire month.
f. On December 20, 8,000 preference shares were reacquired at P38 per share and were
immediately retired.
g. The company registered an adjusted net income in 2019 at P830,000.
Based on the information above, answer the following:
45. The entry to record the issuance of securities on March 1 (item a) involves a:
a. Credit to share premium-OS at P350,000.
b. Debit to interest expense at P10,000.
c. Debit to bonds payable at P550,000.
d. Credit to share premium-OS at P340,000.
46. The entry to record the share split on September 10 share involve:
a. Debit to retained earnings at P2,300,000.
b. Ordinary shares issued to become 260,000 shares.
c. Ordinary shares issued to become 220,000 shares.
d. The par value of ordinary shares to become P20 per share.
47. The entry to record the reissuance of treasury shares on October 11 shall involve:
a. Debit to share premium-OS at P15,000.
b. Credit to treasury shares at P345,000
c. Debit to retained earnings at P15,000.
d. Credit to share premium-TS at P15,000.
48. The entry to record the share dividends on Dec. 1, shall require a debit to retained earnings at:
49. What is the balance of the retained earnings-unappropriated as of December 31, 2019?
Auditing problems reviewer: Roque
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