Question

The shareholders equity section of Aquarius Inc. reported the following

Ordinary Shares, 50,000 shares outstanding, P100 par P5,000,000.00
Share premium 500,000
Accumulated profits 1,500,000.00
The following subsequent transactions occurred:
a. Aquarius Inc. purchased from the market its own 10,000 shares at P_per_share.
b. After transaction (a), 5,000 shares of its treasury shares were sold at P125 per share.

Requirements:

Journal entries of the subsequent transactions.
Compute the total equity section after the above transactions, assuming no other transactions affecting the shareholders' equity.
Compute the outstanding shares after the above transactions.

Answer 1

The journal entries for the subsequent transactions are made in the Treasury Shares and Cash accounts. The total equity section is P7,000,000. The outstanding shares after the transactions are 45,000 shares.

Step-by-step explanation:

The journal entries for the subsequent transactions are as follows:

a. Purchased own shares:

Debit Treasury Shares = P_per_share * Number of shares purchased

Credit Cash = P_per_share * Number of shares purchased

b. Sold treasury shares:

Debit Cash = P_per_share * Number of shares sold

Credit Treasury Shares = P_per_share * Number of shares sold

To compute the total equity section after the above transactions, we add the following:

Ordinary Shares: P5,000,000

Share Premium: P500,000

Accumulated Profits: P1,500,000

Total Equity Section: P7,000,000

To compute the outstanding shares after the above transactions, we subtract the number of shares purchased and the number of shares sold from the initial number of shares:

Outstanding Shares: 50,000 - 10,000 + 5,000 = 45,000 shares