PROBLEM EXAM

Question 1

At the beginning of current year, Sairah Company issued P5,000,000 of 12% nonconvertible of 5-year bonds at 103.

In addition, each P1,000 bond was issued with 30 detachable share warrants, each of which entitled the bondholder to purchase, for P50, one ordinary share of Sairah Company, par value P25.

The quoted market value of each warrant was P4. The market value of the bonds ex- warrants at the time of issuance is 95.

4. What amount of the proceeds from the bond issue should be recognized as an increase in shareholders’ equity?
   a. 600,000
   b. 300.000
   c. 200,000
   d. 400,000
5. What is the carrying amount of the bonds payable?
   a. 5,000,000
   b. 4,750,000
   c. 5,150,000
   d. 4,550,000

Answer 1

4. d. 400,000
5. b. 4,750,000

Question 2

At the beginning of current year, Sairah Company issued P5,000,000 face amount, 5-year bonds at 109.

Each F1,000 bond was issued with 50 detachable share warrants, each of which entitled the bond holder to purchase one ordinary share of P5 par value at P25. Inmediately after issuance, the market value of each warrant was P5.

The stated interest rate on the bond is ils payable annually every December 31. However, the prevailing market rate of interest for similar bonds without warrants is 12.

6. What amount should be recorded as share premium if all of the warrants are exercised?
   a. 1,250,000
   b. 2,500,000
   c. 5,000,000
   d. 5,620,000
7. What amount should be reported as equity component arising from the issuance of bonds payable?
   a. 450,000
   b. 500,000
   c. 620,000
   d. 0
8. What amount should be recorded initially as discount or premium on bonds payable?
   a. 170,000 discount
   b. 450,000 premium
   c. 450,000 discount
   d. 800,000 discount
9. What is the initial carrying amount of the bonds payable?
   a. 5,450,000
   b. 4,830,000
   c. 5,000,000
   d. 4,380,000

Answer 2

6. d. 5,620,000
7. c. 620,000
8. a. 170,000 discount
9. b. 4,830,000

Question 3

At the beginning of current year, Sairah Company reported the following shareholders’ equity:

– Share capital, P10 par, outstanding shares 2,225,000 - 2,250,000
– Share premium - 1,500,000
– Retained earnings - 2,000,000

During the current year, the entity had the following transactions:

Acquired 10,000 treasury shares for 250 per share.

Sold 5,000 treasury shares at P60 per share.

Sold 2,000 treasury shares at P45 per share.

Net income for the year was P2,500,000.

1. What amount should be reported as total shareholders’ equity at year end?
   a. 8,140,000
   b. 8,300,000
   c. 8,250,000
   d. 8,290,000
2. What amount should be reported as total amount of share premium at year end?
   a. 1,500,000
   b. 1,560,000
   c. 1,540,000
   d. 2,550,000
3. What amount should be reported as share capital at year end?
   a. 2,250,000
   b. 2,150,000
   c. 2,320,000
   d. 2,300,000

Answer 3

1. a. 8,140,000
2. c. 1,540,000
3. a. 2,250,000

Question 4

On November 1, 2024, Sairah Company declared a property dividend of equipment payable on March 1, 2025.

Amount of the equipment P3,000,000 and the fare value is 12,500,000 2024.

fair value less cost to distribute the equip 33. 2024 and 12,000,000 on March 1, 2025.

10. what amount of loss on distribution of property dividend is recognized March 1, 2025?
    a. 300,000
    b. 200,000
    c. 500,000
    d. 0
11. What amount should be recognized as impairment loss on December 31, 2024?
    a. 300,000
    b, 2,200,000
    c. 800,000
    d. 0
12. What amount should be reported as dividend payable on December 31, 2024?
    a. 2,500,000
    b. 2,200,000
    c. 3,000,000
    d. 0

Answer 4

10. b. 200,000
11. c. 800,000
12. b. 2,200,000

Question 5

Sairah Company issued 200,000 shares of 15 par value at P10 per share. At the beginning of current year, the retained earnings amounted to P3,000,000,

In March, the entity reacquired 50,000 treasury shares at P20 per share. In June. the entity sold 10,000 of these shares to corporate officers for 125 per share. The entity used the cost method to record treasury shares.

Net income for the current year was P600.000.

13. What amount should be reported as appropriated retained earnings at year end?
    a. 3,600,000
    b. 2,800,000
    c. 800,000
    d. 600,000
14. What total amount should be reported as retained earnings at year end?
    a. 4,400,000
    b. 2,200,000
    c. 3,600,000
    d. 3,400,000

Answer 5

13. c. 800,000
14. c. 3,600,000

Question 6

15. Sairah Company held 10,000 shares of P10 par value as treasury reacquired for P120,000. At year end, the entity reissued all 10,000 for P190,000 shares

What is credited for the excess of the reissue price over the cost of treasury shares?
a. Share capital P100,000
b. Retained earnings P70,000
c. Gain on sale of investment P70,000
d. Share Premium P70,000

Answer 6

15. d. Share Premium P70,000