Reference no: EM132736639
Emerald Company showed the following shareholders' equity on January 1, 2020.
Share capital, 1,500,000
shares 1,500,000
Share premium 15,000,000
Retained Earnings 8,100,000
Treasury shares, 100,000 at cost (900,000)
All of the outstanding and treasury shares were originally issued in 2018 for P11 per share. The treasury shares are reacquired on March 31, 2019.
During 2020, the following events or transactions occurred related to shareholder's equity:
a. Feb. 15 - Issued 400,000 shares for P12.50 per share.
b. June 15 - Declared cash dividend of P0.20 per share to shareholders of record on April 1 and payable on April 15. This was the first dividend declared.
c. Sept. 15 - The president retired. The entity purchased from the retiring president 100,000 shares for P13.00 per share which was equal to market value on this date. These shares were canceled.
d. Dec. 15 - Declared cash dividend of P0.20 per share to shareholders of record on January 2, 2021 and payable on January 15, 2021.
e. On December 31, 2020, the entity is being sued by two separate parties for patent infringement.
The management and legal counsel share the following opinion regarding the suits:
Suit Likelihood of losing the suit Estimated loss
#1 Reasonable possible 600,000
#2 Probable 400,000
Problem 1: What is the decrease in share premium arising from the retirement of 100,000 shares on September 15?
a. 1,300,000 b. 1,200,000 c. 1,000,000 d. 100,000
Problem 2: The entity decided to appropriate retained earnings for all loss contingencies that are not properly accruable by a charge to expense. How much of loss contingencies should be appropriated by a charge to unappropriated retained earnings?
a. 1,000,000 b. 600,000 c. 400,000 d. 500,000
Problem 3: What amount of cash dividend should be charged against unappropriated retained earnings in 2020?
a. 700,000 b. 680,000 c. 360,000 d. 340,000
Problem 4: What amount should be reported in the notes to financial statements as restriction on retained earnings because of acquisition of treasury shares?
a. 200,000 b. 900,000 c. 1,200,000 d. 1,300,000