AUDIT OF FINANCING CYCLEProblem 1. You have be assigned to the audit of DAVAO CO., a manufacturing company. You have been asked tosummarize the transactions for the year ended December 31, 2015, affecting shareholders’ equity and other relatedaccounts. The shareholders’ equity section of DAVAO’s December 31, 2014, statement of financial position follows:Ordinary share capital, P2 par value, 1,000,000shares authorized, 180,000 shares issued,177,580 shares outstandingP360,000Share premium – issuance3,640,000Share premium – treasury shares45,000Retained earnings649,378Cost of 2,420 treasury shares(145,200)Total shareholders’ equityP4,549,178You have extracted the following information from the accounting records and audit working papers.2015Jan.15DAVAO reissued 1,300 treasury shares for P40 per share. The 2,420 treasuryShares on hand at December 31, 2014, were purchased in one block in 2013.Feb.1Sold 180, P1,000, 9% bonds due February 1, 2015, at 103 with one detachableShare warrant attached to each bond. Interest is payable annually on February 1. The fair marketvalue of the bonds without the share warrants is 95. The detachable warrants have a fair value of P50each and expire on February 1, 2016. Each warrant entitles the holder to purchase 10 ordinary sharesat P40 per share.Mar.62,800 ordinary shares were subscribed for at P44 per share. 40% of thesubscription wascollected.20The balance due on 2,400 shares was received and those shares were issued.Nov.1There were 110 share warrants detached from the bonds and exercised.Davao’s net income for 2015 is P950,000.Based on the preceding information, determine the correct December 31, 2015, balance of each of the following:1.Ordinary share capitalA.P364,800C. P372,600B.P375,800D. P367,000
