CHAPTER 23 RETAINED EARNINGS APPROPRIATION AND QUASI-REORGANIZATION

School: University of the City of Pasig (Pamantasan ng Lungsod ng Pasig) - Course: BSA 102 - Subject: Accounting

CHAPTER 23: RETAINED EARNINGS Appropriation and quasi-reorganization PROBLEMS Problem 23-1 (IAA) As a result of an agreement with bondholders, Honda Company is required to appropriate earnings of P200,000 at the end of each calendar year for the years 2017 to 2021. At the beginning of 2022, upon liquidation of the bonded indebtedness of P1,000,000, the retained earnings appropriation is canceled. The liquidation of the bonds payable is followed by the declaration and the issue of a 30% share dividend on 250,000 outstanding shares with P10 par value. The market value is P15 per share. Required: Prepare all indicated entries for the annual appropriation of retained earnings, payment of bonds payable, cancelation of appropriation and issuance of share dividend. Problem 23-2 (IAA) The board of directors of Mazda Company decided to embark on a substantial plant expansion. To demonstrate the need to retain assets in the entity, the board agreed on December 31, 2021 to authorize an appropriation of retained earnings in the amount of P5,000,000, the anticipated cost of plant expansion. The plant was partially constructed on December 31, 2022, and the board decided to reduce the appropriation by P3,000,000, the cost incurred to date. Finally, in July 2023, the plant was completed and the remaining portion of the appropriation was removed. Required: Prepare journal entries to record, reduce and finally remove the appropriation. Problem 23-3 (IAA) On January 1, 2021, Susan Company disclosed the following shareholders' equity: Share capital, P100 par, 100,000 shares authorized,5,000,000 50,000 shares issued Share premium400,000 Retained earnings1,500,000 During the current year, the entity had the following transactions: 1.In February, the entity reacquired 6,000 shares for P90 per share. 2.In June, the entity sold 3,000 treasury shares for P120 per share. 3.In September, each shareholder was issued for each share held one share right to purchase two additional shares for P140 per share. The share rights expire on December 31, 2021. 4.In October, 10,000 share rights were exercised when the market value was P150 per share. 5.On December 15, 2021, the entity declared the first cash dividend to shareholders of P20 per share, payable on January 10, 2022, to shareholders of record on December 31, 2021. 6.On December 21, 2021, the entity formally retired 2,000 treasury shares. 7.Net income for the current year was P540,000. 8.Appropriated retained earnings equal to the cost of treasury shares. Required: a.Prepare journal entries to record the transactions. b.Prepare a statement of changes in equity for the year ended December 31, 2021. c.Present the shareholders' equity on December 31, 2021.