FL NFL SHE SBP L IT EB

PROBLEM SET NO. 9

Preference and Treasury Shares
BAFACR4X
Intermediate Accounting III

Problem 9.1 CONVERSION OF PREFERENCE SHARES

The Conception Enterprises, Inc. had the following shareholder’s equity balances at December 31, 2020:
Preference Share Capital, P 20 par, 100,000 shares authorized 2,000,000
Ordinary Share Capital, P 30 par, 100,000 shares authorized 1,800,000
Share Premium- Preference Share 160,000
Share Premium- Ordinary Share 250,000
Retained Earnings 800,000
The preference share is convertible into ordinary share.
Journalize the conversion of 10,000 preference shares under each of the following independent assumptions:
a.) Preference share is convertible into ordinary shares on a share basis.
b.) 2 shares of preference are convertible into one ordinary share

Problem 9.2 DIVIDENDS

The Dark Red Company, which started operations in 2018, paid dividends at the end of 2018, 2019 and 2020 as
follows:
2018 - P150,000 2019 - P260,000 2020 - P540,000
Through these years, the corporation has 250,000 shares of P10 par value ordinary share and 20,000 shares of
9%, P100 par value preference share.
Compute the amount of total dividends and dividends per share at the end of 2018, 2019 and 2020, on both
preference and ordinary share under each of the following assumptions:
a.) Preference share is non-cumulative and non-participating.
b.) Preference share is cumulative and non-participating.
c.) Preference share is cumulative and fully participating.
d.) Preference share is cumulative and participating up to 2%.

Problem 9.3 RETIREMENT OF PREFERENCE SHARES

The Consuela Enterprises, Inc had the following shareholder’s equity balances at December 31, 2020:
Preference Share Capital, P 20 par, 100,000 shares authorized 2,000,000
Ordinary Share Capital, P 30 par, 100,000 shares authorized 1,800,000
Share Premium- Preference Share 160,000
Share Premium- Ordinary Share 250,000
Retained Earnings 800,000
Journalize the retirement of 4,000 preference shares, assuming that the retirement price is
a.) P 21 per share
b.) P 26 per share

Problem 9.4 PREFERENCE SHARES WITH SHARE WARRANTS

Jamina Company issued 200,000 preference shares of P10 par value for P3,900,000. Each preference share carries
one warrant to acquire an ordinary share with a par value of P5 for P6. The fair values of each preference share
ex-warrant and warrant are P12 and P1, respectively. Of the total warrants issued only 18,000 were exercised,
the balance expired.
Journalize the foregoing transactions.

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 9

Preference and Treasury Shares
BAFACR4X
Intermediate Accounting III

Problem 9.5 TREASURY SHARES

The Millennium Company had 100,000 shares of Ordinary Share Capital on December 31,2019. Its statement of
financial position on that date showed the following shareholder’s equity balances:
Ordinary Share Capital, P 10 par 1,000,000
Share Premium 300,000
Retained Earnings 900,000
The following treasury share transactions took place in 2020:
 Purchased 10,000 ordinary shares at P 14 per share.
 Sold 4,000 of the treasury shares above at P 15 per share.
 Sold 5,000 of the treasury shares above at P 13 per share.
 Retired the remaining treasury shares.
1. Prepare the entries in the books of Millennium Company to record the foregoing transactions.
2. Determine the total shareholder’s equity at December 31,2020, assuming that profit for the year was
P280,000 and cash dividends declared were P 200,000.

Problem 9.6 TREASURY SHARES

Honda Company provided the following data during the first year of operations:
a. Sold 30,000 preference shares, 12%, P100 par, at P140.
b. Sold 100,000 ordinary shares of P50 par at P55.
c. Purchased and retired 10,000 preference shares at P120.
d. Purchased 15,000 ordinary shares at P52 to be held as treasury.
e. Sold 10,000 treasury ordinary shares at P60.
f. Shareholders donated to the entity 20,000 ordinary shares when shares had a market price of P60. One
half of these shares were sold for P65.
g. Net income for the year was P3,000,000.
h. Appropriated retained earnings equal to the remaining cost of treasury shares.
1. Prepare journal entries to record the transactions.
2. Present the shareholders' equity.

Problem 9.7 DONATED SHARES

Several shareholders of Prieto Corporation donated 10,000 ordinary shares of their shareholdings with par
value of P250. The market value of each share at the time of donation is P280. Subsequently, 5,500 shares were
reissued at P300 per share and another 1,500 shares were sold for P275 per share. The balance were retired.
Journalize the foregoing transactions.

Problem 9.8 OUSTANDING SHARES

An entity had issued 450,000 ordinary shares. Of these, 30,000 shares were held as treasury at the beginning of
the current year. During the year, transaction involving ordinary shares were:
May 1 3,000 shares of treasury were sold.
Aug 1 A 10% share dividend was declared.
Sep 1 13,500 previously unissued shares were sold.
Nov 1 A 3-for-1 share split took effect.
At yearend, how many ordinary shares were issued? outstanding? treasury?

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