Authorized share capital—the total number of shares authorized by the state of incorporation for issuance.. Unissued share capital—the total number of shares authorized but not issued..
Trang 1Accounting for Share Capital Transactions
Review Questions
9 Authorized share capital—the total number of shares authorized by the state
of incorporation for issuance
Unissued share capital—the total number of shares authorized but not issued Issued share capital—the total number of shares issued (distributed to shareholders)
Outstanding share capital—the total number of shares issued and still in the hands of shareholders (issued less treasury)
Treasury shares—shares issued and repurchased by the issuing corporation but not retired
10 The issuance for cash of no-par value ordinary shares at a price in excess of the stated value of the ordinary share is accounted for as follows:
1 Cash is debited for the proceeds from the issuance of the ordinary shares
2 Ordinary share is credited for the stated value of the ordinary share
3 Additional paid-in capital is credited for the excess of the proceeds from the issuance of the ordinary shares over its stated value
11 The general rule to be applied when share is issued for services or property other than cash is that the property or services be recorded at either their fair market value or the fair market value of the share issued, whichever is more clearly determinable If neither is readily determinable, the value
to be assigned is generally established by the board of directors
12 The direct costs of issuing shares, such as underwriting costs, accounting and legal fees, printing costs, and taxes, should be reported as a reduction of the amounts paid in Issue costs are there-fore debited to Additional Paid-in Capital because they are unrelated to corporate operations
13 The major reasons for purchasing its own shares are: (1) to provide tax-efficient distributions of excess cash to shareholders, (2) to increase earnings per share and return on equity, (3) to provide stock for employee share compensation contracts, (4) to thwart takeover attempts or reduce the number
Trang 2of shareholders, (5) to make a market in the company’s shares, and (6) to contract the operations of the business
14 Additional paid-in capital results from: (1) premiums on shares issued, (2) sale of treasury shares above cost, (3) recapitalizations or revisions in the capital structure, (4) assessments on shareholders, (5) conversion of convertible bonds or preference shares, and (6) declaration of a small share dividend
Exercises
Exercise 1
YOUNG CORPORATION Shareholders’ Equity December 31, 2007 Share capital - Ordinary, P5 par value P 210,000
3,870,000
Exercise 2
Land 31,000
Share Capital – Ordinary (2,000 X P5) 10,000 Paid-in Capital in Excess of Par 21,000
Exercise 3
Trang 3Cash (P70,000 – P1,500) 68,500
Share Capital - Ordinary 20,000 Paid-in Capital in Excess of Par 48,500
Exercise 4
7/1/07 Treasury Shares 8,500
Cash 8,500 9/1/07 Cash 5,400
Treasury Shares 5,100 Paid-in Capital from Treasury Shares 300 11/1/07 Cash 3,320
Paid-in Capital from Treasury Shares 80
Treasury Shares 3,400
Exercise 5
8/1/07 Treasury Shares 15,000
Cash 15,000 11/1/07 Cash 14,000
Retained Earnings 1,000
Treasury Shares 15,000
Exercise 6
Cash 61,500
Preference Shares 45,000 Paid-in Capital in Excess of Par—Preference 16,500
Exercise 7
Requirement (a)
Trang 4Share Capital – Ordinary (80,000 X P5) 400,000 Paid-in Capital in Excess of Par 80,000
Share Capital – Ordinary (5,000 X P5) 25,000 Paid-in Capital in Excess of Par 10,000 (Note: In the past, these costs would have been charged to Organization Costs)
Share Capital – Ordinary (30,000 X P5) 150,000 Paid-in Capital in Excess of Par (30,000 X P3) 90,000
Share Capital – Ordinary (60,000 X P5) 300,000 Paid-in Capital in Excess of Par (60,000 X P5) 300,000
Requirement (b)
Share Capital – Ordinary (80,000 X P3) 240,000 Paid-in Capital in Excess of
Share Capital – Ordinary (5,000 X P3) 15,000 Paid-in Capital in Excess of
Stated Value (P35,000 – P15,000 or 5,000 X P4) 20,000
Share Capital – Ordinary (30,000 X P3) 90,000 Paid-in Capital in Excess of
Share Capital – Ordinary (60,000 X P3) 180,000 Paid-in Capital in Excess of
Exercise 8
Trang 5Jan 10 Cash (80,000 X P5) 400,000
Share Capital – Ordinary (80,000 X P1) 80,000 Paid-in Capital in Excess of Stated
Value—Ordinary Shares (80,000 X P4) 320,000
Share Capital – Preference (5,000 X P100) 500,000 Paid-in Capital in Excess of Par
Value—Preference Shares (5,000 X P8) 40,000
Share Capital – Ordinary (24,000 X P1) 24,000 Paid-in Capital in Excess of Stated
Value—Ordinary Shares (P80,000 – P24,000) 56,000
Share Capital – Ordinary (80,000 X P1) 80,000 Paid-in Capital in Excess of Stated
Value—Ordinary Shares (80,000 X P6) 480,000
Share Capital – Ordinary (10,000 X P1) 10,000 Paid-in Capital in Excess of Stated
Value—Ordinary Shares (P50,000 – P10,000) 40,000
*(In the past, these costs would have been charged to Organization Costs)
Share Capital – Ordinary (10,000 X P1) 10,000 Paid-in Capital in Excess of Stated
Value—Ordinary Shares (10,000 X P8) 80,000
Preference Shares (1,000 X P100) 100,000 Paid-in Capital in Excess of Par
Value—Preference Shares (1,000 X P12) 12,000
Trang 6Exercise 9
Requirement (a)
Land (P62 X 25,000) 1,550,000
Treasury Shares (P53 X 25,000) 1,325,000 Paid-in Capital from Treasury Shares 225,000
Requirement (b)
One might use the cost of treasury shares However, this is not a relevant measure
of this economic event Rather, it is a measure of a prior, unrelated event The appraised value of the land is a reasonable alternative since the value of the asset acquired should preferably determine the issue price of the shares However, it is
an appraisal as opposed to a cash price The trading price of the share is probably the best measure of market value in this transaction
Exercise 10
Requirement (a)
Cash [(5,000 X P45) – P7,000] 218,000
Share Capital – Ordinary (5,000 X P5) 25,000 Paid-in Capital in Excess of Par 193,000
Requirement (b)
Land (1,000 X P46) 46,000
Share Capital – Ordinary (1,000 X P5) 5,000 Paid-in Capital in Excess of Par 41,000 (P46,000 – P5,000)
Note: The market value of the share (P46,000) is used to value the exchange because it is a more objective measure than the appraised value
of the land (P50,000)
Requirement (c)
Trang 7Treasury Shares (500 X P43) 21,500
Cash 21,500
Exercise 11
Share Capital – Ordinary (12,000 X P5) 60,000 Paid-in Capital in Excess of Par—
Ordinary Shares (12,000 X P11) 132,000
Preference Shares (10,000 X P30) 300,000 Paid-in Capital in Excess of Par—
Preference Shares (10,000 X P30) 300,000
Exercise 12
Trang 8a Feb 10 Treasury Shares 435,000
Cash 435,000 Purchased 14,500 treasury shares at P30 per
share
June 4 Cash 198,000
Treasury Shares 180,000 Additional Paid-in Capital: Treasury
Share Transactions 18,000 Sold 6,000 treasury shares, cost P180,000, for
P33 per share
Dec 22 Cash 112,000
Additional Paid-in Capital: Treasury Share
Transactions 8,000 Treasury Shares 120,000 Sold 4,000 treasury shares, cost P120,000, for
P28 per share
b Restriction of retained earnings for treasury shares owned at year-end:
P135,000 (4,500 shares still owned × P30 per share cost)
c No, a restriction on retained earnings does not affect the total amount of retained earnings reported in the balance sheet A restriction of retained earnings is disclosed, but does not reduce the total amount of retained earnings of a company The restriction on retained earnings simply limits the amount of dividends the corporation can pay as long as it holds treasury shares