Audit the shareholders’ equity of Charlie Inc

2020. Charlie Corp. was incorporated in early 2019 when it was authorized by SEC to issue 500,000

ordinary shares (P50 par) and 100,000 preference shares (P20 par). The following schedule reflects

the company’s capital balances as of December 31, 2019:

 

Ordinary shares, 100,000 shares issued during the company’s incorporation in

exchange of a land. The fair value of the land was not clearly determinable on

the date of share issuance while the shares were selling in the market at P55

per share.

5,000,000

 

Preference shares, 200,000 share issued during the company’s incorporation

at P30 per share.

6,000,000

 

Retained earnings, which is the company’s net income in 2019 2,980,000

 

Total shareholders’ equity ?

 

Your inquiries and investigation revealed the following transactions, which occurred in 2020:

 

a. On March 1, the company received subscriptions for 50,000 ordinary shares at P70 per share

from five subscribers (10,000 shares each). The subscribers were required to pay 25% of the

subscriptions price in cash as down payment with balance to be settled after 3 months.

 

b. June 1, the company received the balance from three share subscribers on March 1. Shares

were therefore issued. The other two defaulted on the balance. As per agreement, the

company auctioned out the defaulted shares and incurred P120,000 in auction expenses.

 

c. On September 1, the highest bidder on the defaulted shares was selected and the amount due

was collected. The amount due includes a 12% annual interest on the subscriptions’ receivable

balance defaulted.

d. On October 1, the company issued 20,000 preference shares for P840,000. Each preference

share was issued with five warrants. Two warrants can be exercised to purchase one ordinary

shares at P55 per share. The preferences shares were currently selling in the market at P34

per share while each warrant can be sold separately at P1.20 per warrant.

 

e. On November 12, 60% of the warrants were exercised.

 

f. On December 5, a debt restructuring agreement was entered with a debtor for an overdue

loans payable outstanding amounting to P800,000 with unpaid interest of P80,000. The debtor

agreed as a concession to accept 10,000 ordinary shares in full settlement of the loan. This

agreement is outside the normal/original credit term. Ordinary shares are currently selling at

this time at P78 per share.

 

g. The company registered an adjusted net income in 2020 at P1,390,000.

 

Based on the information above, determine the adjusted balance of the following as of Dec. 31, 2020:

1. Ordinary Shares

2. Preference Share

3. Share premium – Ordinary shares

4. Share premium – Preference shares

5. Ordinary share warrants outstanding

6. Total additional paid-in capital

7. Total contributed capital

8. Total stockholders’ equity