Devil Red Corp. has the following items in the stockholders' equity portion of its statement of financial position as of December 31, 2020, after all necessary year-end closing entries: 9% Cumulative preference shares, P50 par value, 107,000 shares issued and outstanding; P5,350,000 Ordinary shares, P25 par value, 240,000 shares issued; 6,000,000 Subscribed preference shares, net of P350,000 subscription receivable 1,650,000 Share premium from preference shares 750,000 Share premium from ordinary shares 3,000,000 Share premium from treasury stock transactions - ordinary shares 52,000 Retained Earnings 5,500,000 Treasury stock - ordinary shares, 10,000 shares (625,000) Total Stockholders' Equity ? Upon investigation of the transactions which has transpired in 2020, you have discovered the following information: (A) On June 30, the company issued on a basket price of P1,550,000, 15,000 shares of preference shares and 10,000 shares of ordinary shares. The ordinary shares were selling at that time at P42 per share while the preference shares were selling at P60 per share. The issuance was recorded by the company in its books as: Cash 1,550,000 Preference shares 750,000 Ordinary shares 250,000 Retained earnings 550,000 (B) On August 1, the company reissued 20,000 shares of its treasury shares ordinary shares in lieu of an equipment with a fair market value of P625,000. The company originally reacquired 50,000 treasury shares as one bloc in 2019 at P35 per share. The company recorded the reissuance in the books as: Equipment 625,000 Treasury shares 625,00 (C) The company retired 20,000 shares of its ordinary shares from the treasury on September 1. The company recorded the retirement as: Ordinary shares 500,000 Treasury shares 500,000 All ordinary shares, with the exception of those issued on June 30 of the current year were issued during the company's initial public offering. (D) Subscribed preference shares and subscription receivable is in relation to the subscription of Porter Inc. on January 1, 2020 of the company's 40,000 shares of preferred shares at P55 per share. Porter defaulted on its remaining balance on October 1, 2020, the company then offered the delinquent shares on a public auction on December 31. 2020, where Annie Corporation won as the highest bidder since the company is willing to pay the amount due for the least number of shares. The amount due included auction expenses amounting to P60,000. which the company had paid on December 30, 2020 and charged to operating expense. Interest related to the default amounted to P40,000. Settlement was done on December 31, 2020. All the foregoing transactions were recorded in the subsequent period. (E) On December 31, the company issued share rights to ordinary shareholders. Four share rights plus P40 shall entitle the holder to acquire ordinary shares. Share rights are exercisable up to 2 years from date of issuance. This transaction has not been recorded yet per books as of the balance sheet date. Requirements: 1. The necessary adjusting journal entry related to the share issuance on June 30 shall involve a credit to share premium on ordinary shares at: 2. The necessary adjusting journal entry related to the share issuance on June 30 shall involve a credit to share premium on preference shares at: 3. The necessary adjusting journal entry related to the reissuance of treasury shares reissue on August 1 shall involve a debit to retained earnings at:
Devil Red Corp. has the following items in the
financial position
9% Cumulative
107,000 shares issued and outstanding; P5,350,000
Ordinary shares, P25 par value, 240,000 shares issued; 6,000,000
Subscribed preference shares, net of P350,000 subscription
receivable 1,650,000
Share premium from preference shares 750,000
Share premium from ordinary shares 3,000,000
Share premium from
Treasury stock - ordinary shares, 10,000 shares (625,000)
Total Stockholders' Equity ?
Upon investigation of the transactions which has transpired in 2020, you have discovered the
following information:
(A) On June 30, the company issued on a basket price of P1,550,000, 15,000 shares of preference
shares and 10,000 shares of ordinary shares. The ordinary shares were selling at that time at P42
per share while the preference shares were selling at P60 per share. The issuance was recorded
by the company in its books as:
Cash 1,550,000
Preference shares 750,000
Ordinary shares 250,000
Retained earnings 550,000
(B) On August 1, the company reissued 20,000 shares of its treasury shares ordinary shares in lieu
of an equipment with a fair market value of P625,000. The company originally reacquired 50,000
treasury shares as one bloc in 2019 at P35 per share. The company recorded the reissuance in
the books as:
Equipment 625,000
Treasury shares 625,00
(C) The company retired 20,000 shares of its ordinary shares from the treasury on September 1.
The company recorded the retirement as:
Ordinary shares 500,000
Treasury shares 500,000
All ordinary shares, with the exception of those issued on June 30 of the current year were issued
during the company's initial public offering.
(D) Subscribed preference shares and subscription receivable is in relation to the subscription of
Porter Inc. on January 1, 2020 of the company's 40,000 shares of preferred shares at P55 per
share. Porter defaulted on its remaining balance on October 1, 2020, the company then offered
the delinquent shares on a public auction on December 31. 2020, where Annie Corporation won
as the highest bidder since the company is willing to pay the amount due for the least number of
shares. The amount due included auction expenses amounting to P60,000. which the company
had paid on December 30, 2020 and charged to operating expense. Interest related to the default
amounted to P40,000. Settlement was done on December 31, 2020. All the foregoing
transactions were recorded in the subsequent period.
(E) On December 31, the company issued share rights to ordinary shareholders. Four share rights
plus P40 shall entitle the holder to acquire ordinary shares. Share rights are exercisable up to 2
years from date of issuance. This transaction has not been recorded yet per books as of the
balance sheet date.
Requirements:
1. The necessary
involve a credit to share premium on ordinary shares at:
2. The necessary adjusting journal entry related to the share issuance on June 30 shall
involve a credit to share premium on preference shares at:
3. The necessary adjusting journal entry related to the reissuance of treasury shares reissue
on August 1 shall involve a debit to retained earnings at:
4. The necessary adjusting journal entry related to the retirement of treasury shares on
September 1 shall involve a debit to retained earnings at:
5. Assuming that 80% of the share rights issued on December 31, 2020 were subsequently
exercised, what is the credit to share premium as a result of the assumed exercise?
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