OKLAHOMA STATE UNIVERSITY MGMT 3013 AUDIT OF EQUITY QUESTIONS AND ANSWERS | MGMT 3013 STUDY GUIDE & PRACTICE TEST 2026/2027

OKLAHOMA STATE UNIVERSITY MGMT 3013 AUDIT OF
EQUITY QUESTIONS AND ANSWERS | MGMT 3013 STUDY
GUIDE & PRACTICE TEST 2026/2027




TARIPE, Jennifer A. IV- BS Accountancy
TABO, Janelle

X- Audit of Equity
PROBLEM NO. 1 – Components of equity

Alcoy Corporation’s post-closing trial balance at December 31, 2010 was as follows:

Alcoy Corporation
Post-Closing Trial
Balance
December 31, 2010

Debit Credit
Accounts payable P 495,000
Accounts Receivable P 963,000
Reserve for depreciation 360,000
Reserve for doubtful accounts 54,000
Premium on ordinary shares 1,800,000
Gain on sale treasury shares 450,000
Bonds Payable 720,000
Building and equipment 1,980,000
Cash 396,000
Dividends payable on preference shares 7,200
Ordinary share capital (P1 par value) 270,000
Inventories 1,116,000
Land 684,000
Available-for-sale securities at fair value 513,000
Trading securities at fair value 387,000
Net unrealized loss on available-for-sale
Securities 45,000
Preference share capital (P50 par value) 900,000
Prepaid expenses 72,000
Donated Capital 800,000
Share warrants outstanding 208,000
Retained earnings 415,800

,Treasury shares – ordinary, at cost 324,000
Totals P 6,480,000 P 6,480,000

,At December 31, 2010, Alcoy had the following number of ordinary and preference shares:

Ordinary Preference
Authorized 900,000 90,000
Issued 270,000 18,000
Outstanding 252,000 18,000

The dividends on preference shares are P 0.40 cumulative. In addition, the preference share has a
preference in liquidation of P50 per share.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31,
2010:

1. Share premium/ Additional paid-in capital
a. P3,213,000 c. P3,050,000
b. P3,258,000 d. P2,600,000

2. Total contributed capital
a. P4,428,000 c. P3,770,000
b. P4,220,000 d. P1,170,000

3. Unappropriated retained earnings
a. P415,800 c. P91,800
b. 739,800 d. P37,800

4. Total equity
a. P4,266,800 c. P4,888,800
b. P4,519,800 d. P4,474,800

Answers: 1) B; 2) A; 3) C; 4) D

Suggested Solution:

Question No. 1
Premium on ordinary shares P1,800,000
Gain on sale of treasury shares 450,000
Donated capital 800,000
Share warrants outstanding 208,000

, Total share premium/additional paid-in-capital P3,258,000

Question No. 2
Preference share capital (P50 par value) P900,000
Ordinary share capital (P1 par value) 270,000
Share Premium (see no. 1) 3,258,000
Total contributed capital P 4, 428, 000

Question No. 3
Total retained earnings P415,800
Less appropriate for treasury shares 324,000
Unappropriated retained earnings P 91,800

Question No. 4
Total contributed capital (see no.2) P4,428,000
Retained earnings:
Unappropriated (see no. 3) P 91,800
Appropriated for treasury shares 324,000 415,800
Total 4,843,800
Less : Treasury shares 324,000
Net unrealized loss on AFS 45,000 369,000

Total equity P 4,474,800

PROBLEM NO.2 – Adjusted components of equity

The “shareholders equity” account of Alegria Corporation, after its initial year of operation in
2010 shows the following:

Date Particulars Debit Credit
Jan. 01 Issued 6,000 shares at par of P100 in
exchange for real property with a
market value of P800,000; P600,000
authorized 20,000 shares
Jan. 15 Sold 8,000 shares at P120 960,000
Mar. 10 Purchased 800 shares at P150 P120,000
May 15 Loss on sale of machinery 40,000
June 10 Sold 400 treasury shares 68,000
Dec. 31 Cash dividends declared payable
January 15, 2011 80,000
Dec. 31 Profit for the year 316,000

Questions:

Based on the information presented above and the result of your audit, answer the following: