Based on the foregoing and the result of your audit, answer the following: (Ignore income tax implications.) The unappropriated retained earnings on December 31, 2020, is B. P224,965 A. P181,765 C. P232,165 D. P289,765

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Author:William Nickels
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Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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You were engaged by CITY CORPORATION, a publicdy held company whose shares are traded on
the Philippine Stock Exchange, to conduct an audit of its 2020 financial statements. You were
told by the company's controller that there were numerous equity transactions that took place in
2020. The shareholders' equity accounts at December 31, 2019, had the following balances:
Share capital--Preference, P100 par value, 6% cumulative;
9,000 shares authorized; 5,400 shares issued
and outstanding
Share capital-Ordinary, P1 par value, 540,000 shares authorized;
360,000 shares issued and outstanding
Share premium
Retained earnings
Total shareholders' equity
P540,000
360,000
720,000
294,000
P1.914.000
You summarized the following transactions during 2020 and other information relating to the
shareholders' equity in your working papers as follows:
January 6, 2020- Issued 13,500 ordinary shares in exchange for land. On the date issued,
the shares had a market price of P16.50 per share. The land had a carrying value of P126,000.
• January 20, 2020 - Issued 10,000 ordinary shares to Atty. A. Santiago as compensation for
500 hours of legal services performed. Atty. Santiago usually bills P400 per hour for legal
services. On the date of issuance, the share was trading at P17.
• January 31, 2020 - Sold 720, P1,000, 12% bonds due January 31, 2030, at 98 with one
detachable share warrant attached to each bond. Interest is payable annually on January 31.
The fair value of the bonds without the share warrants is 95. The detachable warrants have
a fair value of P50 each and expire on January 31, 2021. Each warrant entitles the holder to
purchase 10 ordinary shares at P10 per share.
• February 22, 2020 - Purchased 4,500 of its own ordinary shares to be held as treasury
shares for P24 per share.
• February 28, 2020 - Subscriptions for 12,600 ordinary shares were received at P26 per
share, payable 50% down and the balance by March 15.
• March 15, 2020 - The balance due on 10,800 ordinary shares was received and those
shares were issued. The subscriber who defaulted on the 1,800 remaining shares forfeited
the down payment in accordance with the subscription agreement.
• August 30, 2020 - Reissued 1,800 treasury shares for P20 per share.
• September 14, 2020 - There were 567 warrants detached from the bonds and exercised.
• November 3o, 2020 - Declared a cash dividend of PO.50 per share to all ordinary
shareholders of record December 15, 2020. The dividend was paid on December 30, 2020.
• December 15, 2020 - Declared the required annual cash dividends on preference shares
for 2020. The dividend was paid on January 15, 2021.
January 8, 2021 - Before closing the accounting records for 2020, CITY became aware that
no depreciation had been recorded for 2019 for a machine purchased on July 1, 2019. The
machine was properly capitalized at P288,000 and had an estimated useful life of eight years
when purchased. The appropriate correcting entry was recorded on the same date.
• Adjusted net income for 2020 was P252,000.
Transcribed Image Text:You were engaged by CITY CORPORATION, a publicdy held company whose shares are traded on the Philippine Stock Exchange, to conduct an audit of its 2020 financial statements. You were told by the company's controller that there were numerous equity transactions that took place in 2020. The shareholders' equity accounts at December 31, 2019, had the following balances: Share capital--Preference, P100 par value, 6% cumulative; 9,000 shares authorized; 5,400 shares issued and outstanding Share capital-Ordinary, P1 par value, 540,000 shares authorized; 360,000 shares issued and outstanding Share premium Retained earnings Total shareholders' equity P540,000 360,000 720,000 294,000 P1.914.000 You summarized the following transactions during 2020 and other information relating to the shareholders' equity in your working papers as follows: January 6, 2020- Issued 13,500 ordinary shares in exchange for land. On the date issued, the shares had a market price of P16.50 per share. The land had a carrying value of P126,000. • January 20, 2020 - Issued 10,000 ordinary shares to Atty. A. Santiago as compensation for 500 hours of legal services performed. Atty. Santiago usually bills P400 per hour for legal services. On the date of issuance, the share was trading at P17. • January 31, 2020 - Sold 720, P1,000, 12% bonds due January 31, 2030, at 98 with one detachable share warrant attached to each bond. Interest is payable annually on January 31. The fair value of the bonds without the share warrants is 95. The detachable warrants have a fair value of P50 each and expire on January 31, 2021. Each warrant entitles the holder to purchase 10 ordinary shares at P10 per share. • February 22, 2020 - Purchased 4,500 of its own ordinary shares to be held as treasury shares for P24 per share. • February 28, 2020 - Subscriptions for 12,600 ordinary shares were received at P26 per share, payable 50% down and the balance by March 15. • March 15, 2020 - The balance due on 10,800 ordinary shares was received and those shares were issued. The subscriber who defaulted on the 1,800 remaining shares forfeited the down payment in accordance with the subscription agreement. • August 30, 2020 - Reissued 1,800 treasury shares for P20 per share. • September 14, 2020 - There were 567 warrants detached from the bonds and exercised. • November 3o, 2020 - Declared a cash dividend of PO.50 per share to all ordinary shareholders of record December 15, 2020. The dividend was paid on December 30, 2020. • December 15, 2020 - Declared the required annual cash dividends on preference shares for 2020. The dividend was paid on January 15, 2021. January 8, 2021 - Before closing the accounting records for 2020, CITY became aware that no depreciation had been recorded for 2019 for a machine purchased on July 1, 2019. The machine was properly capitalized at P288,000 and had an estimated useful life of eight years when purchased. The appropriate correcting entry was recorded on the same date. • Adjusted net income for 2020 was P252,000.
Based on the foregoing and the result of your audit, answer the following: (Ignore
income tax implications.)
The unappropriated retained earnings on December 31, 2020, is
B. P224,965
A. P181,765
C. P232,165
D. P289,765
Transcribed Image Text:Based on the foregoing and the result of your audit, answer the following: (Ignore income tax implications.) The unappropriated retained earnings on December 31, 2020, is B. P224,965 A. P181,765 C. P232,165 D. P289,765
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