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Quiz - Pensions & SHE

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. An adjustment to retained earnings as a result of a conversion of preferred stock to common stock most
likely would occur when
a. par value of the preferred stock is high relative to fair value of the common stock.
b. par value of the common stock is less than the book value of the preferred stock.
c. par value of the common stock exceeds the book value of the preferred stock.
d. par value of the preferred stock is low relative to fair value of the common.

2. The par value of common stock represents

a. the liquidation value of the stock.
b. the book value of the stock.
c. the legal nominal value assigned to the stock.
d. the amount received by the corporation when the stock was originally issued.

3. Farnon Company has not declared or paid dividends on its cumulative preferred stock in the last three
years. These dividends should be reported
a. in a note to the financial statements.
b. as a reduction in stockholders' equity.
c. as a current liability.
d. as a noncurrent liability.

4. A company issued rights to its existing shareholders to acquire, at 15 per share, 5,000 unissued shares
of common stock with a par value of 10 per share. Common Stock will be credited at
a. 15 per share when the rights are exercised.
b. 15 per share when the rights are issued.
c. 10 per share when the rights are exercised.
d. 10 per share when the rights are issued.

5. Stock warrants outstanding should be classified as

a. liabilities.
b. reductions of capital contributed in excess of par value.
c. capital stock.
d. additions to contributed capital.

6. At the date of the financial statements, common stock shares issued would exceed common stock
shares outstanding as a result of the
a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.

7. A company issued rights to its existing shareholders to purchase, for 30 per share, unissued shares of
15 par value common stock. When the rights lapse,
a. Additional Paid-In Capital will be credited.
b. Stock Rights Outstanding will be debited.
c. Gain on Lapse of Stock Rights will be credited.
d. no entry will be made.

8. Select the statement that is incorrect concerning the appropriations of retained earnings.
a. Appropriations of retained earnings do not change the total amount of
stockholders' equity.
b. Appropriations of retained earnings reflect funds set aside for a designated
purpose, such as plant expansion.
c. Appropriations of retained earnings can be made as a result of contractual
requirements.
d. Appropriations of retained earnings can be made at the discretion of the board of
directors.
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9. When a property dividend is declared and the book value of the property exceeds its market value, the
dividend is recorded at the
a. market value of the property at the date of distribution.
b. book value of the property at the date of declaration.
c. book value of the property at the date of distribution if it still exceeds the market
value of the property at the date of declaration.
d. market value of the property at the date of declaration.

10. When a property dividend is declared and the market value of the property exceeds its book value, the
excess is credited to
a. Gain on Distribution of Property Dividends.
b. Retained Earnings.
c. Additional Paid-In Capital.
d. the related asset account.

11. How would the declaration of a 20 percent stock dividend by Jets Corporation affect each of the
following accounts on Jets' balance sheet?

Retained Total Stock-

Earnings holders' Equity

a.  Decrease Decrease
b.  Decrease No effect
c.  No effect Decrease
d.  No effect No effect

12. A restriction of retained earnings is most likely to be required by

a. incurring a net loss in the current year.
b. incurring a net loss in the prior year.
c. purchasing treasury stock.
d. reissuing treasury stock.

13. How would the declaration of a liquidating dividend by a corporation affect each of the following?

Contributed Total Stock-

Capital holders' Equity

a.  No effect Decrease

b.  Decrease No effect
c.  No effect No effect
d.  Decrease Decrease

14. How would retained earnings be affected by the declaration of each of the following?
Stock Dividend Stock Split
a  Decrease Decrease
.
b  No effect Decrease
.
c  No effect No effect
.
d  Decrease No effect
.

15. How would the declaration of a 10 percent stock dividend by a corporation affect each of the following
on its books?
Retained Total Stock-
Earnings holders' Equity
a   Decrease No effect
.
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b   Decrease Decrease
.
c   No effect Decrease
.
d   No effect No effect
.

16. On September 20, 2022, Nozzle Corporation declared the distribution of the following dividend to its
stockholders of record as of September 30, 2022:

• Investment in 100,000 shares of Astro Corporation stock, carrying value

600,000; fair market value on September 20, 1,450,000; fair market value on
September 30, 1,575,000.

The entry to record the declaration of the property dividend would include a debit to Retained Earnings
of
a. 1,575,000.
b. 1,450,000.
c. 850,000.
d. 600,000.

17. The Gradison Corporation had the following classes of stock outstanding as of December 31, 2022:
Common stock, 20 par value, 20,000 shares outstanding
Preferred stock, 6 percent, 100 par value, cumulative, 2,000 shares outstanding

No dividends were paid on preferred stock for 2020 and 2021. On December 31, 2022, a total cash
dividend of 200,000 was declared. What are the amounts of dividends payable on both the common and
preferred stock, respectively?
a. 0 and 200,000
b. 164,000 and 36,000
c. 176,000 and 24,000
d. 188,000 and 12,000

18. On June 30, 2022, O'Hara Co. declared and issued a 10 percent stock dividend. Prior to this dividend,
O'Hara had 60,000 shares of 10 par value common stock issued and outstanding. The market value of
O'Hara Co.'s common stock on June 30, 2022, was 24 per share. As a result of this stock dividend, by
what amount would O'Hara's total stockholders' equity increase (decrease)?
a. 0
b. 60,000
c. 84,000
d. (84,000)

19. Everwood Co. issues 10,000 shares of 10 par value convertible preference shares for 12 cash per
share. Each share is convertible into 4 ordinary shares. On this date the 1 par value ordinary shares are
selling for 3 per share. Approximately 2 years later, Everwood’s shareholders convert their preference
shares into ordinary shares. On the date of conversion the preference shares are selling for 16 and the
ordinary shares are selling for 5 per share. The journal entry on the date of conversion will include which
of the following?
a. Credit Share Capital—Preference 20,000.
b. Credit Share Premium—Ordinary 80,000.
c. Credit Share Capital—Ordinary 100,000.
d. Credit Share Premium—Ordinary 160,000.

20. Anazazi Co. offers all its 10,000 employees the opportunity to participate in an employee share-
purchase plan. Under the terms of the plan, the employees are entitled to purchase 100 ordinary shares
(par value 1 per share) at a 20 percent discount. The purchase price must be paid immediately upon
acceptance of the offer. In total, 8,500 employees accept the offer, and each employee purchases on
average 80 shares at 22 share (market price 27.50). Under IFRS, Anazazi Co. will record
a. No compensation since the plan is used to raise capital, not compensate employees.
b. Compensation expense of 5,500,000.
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c. Compensation expense of 18,700,000.

d. Compensation expense of 3,740,000.

21. On January 1, 2021, Kline Company granted Morgan, its president, compensatory stock options to buy
10,000 shares of Kine's P10 par common stock. The options call for a price of P20 per share and are
exercisable for 3 years following the grant date. Morgan exercised the options on December 31, 2021.
The market price of the stock was P50 on January 1, 2021, and P70 on December 31, 2021.

By what net amount should stockholders' equity increase as a result of the grant and exercise of the
options?
a. 200,000
b. 300,000
c. 500,000
d. 700,000

22. On March 1, 2022, Ruiz Corporation issued 800,000 of 8% nonconvertible bonds at 104, which are due
on February 28, 2042. In addition, each 1,000 bond was issued with 25 detachable share warrants, each
of which entitled the bondholder to purchase for 50 one share of Ruiz ordinary shares, par value 25. The
bonds without the warrants would normally sell at 95. On March 1, 2022, the fair value of Ruiz’s ordinary
shares was 40 per share and the fair value of the warrants was 2. What amount should Ruiz record on
March 1, 2022 as share premium—share warrants?
a. 40,000
b. 41,600
c. 72,000
d. 83,200

23. Wolf Company's grant of 30,000 stock appreciation rights enables key employees to receive cash equal
to the difference between P20 and the market price of the stock on the date each right is exercised. The
service period is 2020 through 2022, and the rights are exercisable in 2023. The market price of the
stock was P25 and P28 on December 31, 2020 and 2021, respectively.
What amount should Wolf report as the liability under the stock appreciation rights plan in its December
31, 2021 balance sheet?
a. 0
b. 130,000
c. 160,000
d. 240,000

24. Berry Corporation has 50,000 shares of 10 par ordinary shares authorized. The following transactions
took place during 2020, the first year of the corporation’s existence:
Sold 5,000 ordinary shares for 18 per share.
Issued 5,000 ordinary shares in exchange for a patent valued at 100,000.
At the end of the Berry’s first year, total contributed capital amounted to
a. 40,000.
b. 90,000.
c. 100,000.
d. 190,000.

25. On December 1, 2022, Abel Corporation exchanged 20,000 shares of its 10 par value ordinary shares
held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of 40 per
share, and are accounted for under the cost method. On the date of the exchange, the ordinary shares
had a fair value of 55 per share (the shares were originally issued at 30 per share). As a result of this
exchange, Abel's total equity will increase by
a. 200,000.
b. 800,000.
c. 1,100,000.
d. 900,000.

26. On January 1, 2021, Dorie Company granted an employee an option to purchase 30,000 shares of
Dorie's P5 par value common stock at P20 per share. The option became exercisable on December 31,
2022, after the employee completed two years of service. The option was exercised on January 15,
2023. The market prices of stock were as follows:
January 1, 2021 30
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December 31, 2021 50

January 15, 2023 45
For 2021, Dorie should recognize compensation expense of
a. 450,000
b. 375,000
c. 150,000
d. 0

27. On January 1, 2021, ABC Company offered its chief executive officer, stock appreciation rights with the
following terms:
Predetermined price P100 per share
Number of shares 10,000 shares
Service period - 3 years 2021,2022and 2023
Exercise date December 31, 2023
The stock appreciation rights are exercised on December 31, 2023. The quoted price of the ABC stock
is as follows: P118 on December 31, 2021, P112 on December 31, 2022, and P124 on December 31,
2023.

ABC Company should record 2023 compensation expense at

a. 160,000
b. 60,000
c. 80,000
d. 20,000

28. In 2021, Eklund, Inc., issued for 103 per share, 60,000 shares of 100 par value convertible preference
shares. One share of preference shares can be converted into three shares of Eklund's 25 par value
ordinary shares at the option of the preference shareholder. In August 2022, all of the preference shares
were converted. The fair value of the ordinary shares at the date of the conversion was 30 per share.
What total amount should be credited to share premium—ordinary as a result of the conversion of the
preference shares into ordinary shares?
a. 1,020,000.
b. 780,000.
c. 1,500,000.
d. 1,680,000.

29. On January 1, 2021, Oak Company granted stock options to certain key employees as additional
compensation. The options were for 100,000 shares of Oak's P2 par value common stock at an option
price of P15 per share. Market price of stock on January 1, 2021, was P20 per share. The fair value of
each stock option on January 1, 2021 is P8. The options were exercisable beginning January 1, 2021
and expire on December 31, 2022. On April 1, 2021, when Oak's stock was trading at P21 per share, all
the options were exercised.

What amount of compensation should Oak report in 2021 in connection with the options?
a. 800,000
b. 500,000
c. 250,000
d. 400,000

30. Janae Corporation has outstanding 10,000 shares of 10 par value ordinary shares and retained earnings
of 500,000. If Janae declares a 2-for-1 share split when the fair value of the shares is 85 per share, the
entry includes:
a. A debit to Retained Earnings for 10,000.
b. A credit to Share Premium—Ordinary for 75,000.
c. A debit to cash for 85,000.
d. No entry is required for a share split.

31. Pelton, Inc. issued 2,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of
the debt without the conversion feature is 1,9000,000. What amount will Peloton assign to the equity
feature of these bonds?
a. 100,000
b. - 0 -
c. 99,000
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d. 80,000

32. Mae Jong Corp. issued 1,000 convertible bonds at the beginning of 2021. The bonds have a four-year
term with a stated rate of interest of 6 percent, and are issued at par with a face value of 1,000 per bond
(the total proceeds received from issuance of the bonds are 1,000,000). Interest is payable annually at
December 31. Each bond is convertible into 250 ordinary shares with a par value of 1. The market rate
of interest on similar non-convertible debt is 9 percent. Assume that at the issuance date, 97,187 was
credited to Share Premium—Conversion Equity. The bonds were not converted at maturity and Mae
Jong pays off the convertible debt holders. What amount will Mae Jong record as a gain or a loss on this
transaction?
a. -0-
b. 97,187
c. 24,297
d. 250,000

33. On January 2, 2022, LexxMark Co. issues 2,000 convertible preference shares that have a par value of
20 per share. The shares were issued at a price of 400 per share. On December 31, 2024, LexxMark
Co. repurchases the convertible preference shares for 820,000. On this date, LexxMark will record
a. A loss of 20,000.
b. A credit to Share Premium—Conversion Equity 40,000.
c. A debit to Retained Earnings 20,000.
d. A credit to Share Capital—Preference 40,000.

34. Five years ago, Dunn Trading Co. issued 2,500 ordinary shares. The shares have a 2 par value and
sold at that time for 12 per share. On January 1, 2022, Dunn Trading Co. Purchased 1,000 of these
shares for 24 per share. On September 30, 2022, Dunn reissued 500 of the shares for 28 per share. The
journal entry to record the reissuance will include
a. A debit to Treasury Shares 12,000.
b. A credit to Share Premium—Treasury 2,000.
c. A credit to Treasury Shares 14,000.
d. A credit to cash 14,000.

35. On January 1, 2020 Tricia Company had the following balances related to a defined benefit plan:

Fair Value of Plan Asset 8,710,500

Projected Benefit Obligation 10,500,500

Tricia provided the following data for the current year:

Current service cost 710,000

Settlement discount rate 8%
Actual Return on Plan assets 850,000
Contribution to the Plan 999,000
Benefits paid to retirees 195,500

Q1) What is the employee benefit expense?

a. 675,000
b. 600,000
c. 853,200
d. 650,000

Q2) What is the remeasurement gain on plan assets?

a. 700,000
b. 125,000
c. 575,000
d. 153,160

Q3) What is the defined benefit costs?

a. 435,960
b. 900,000
c. 298,960
d. 400,000
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36. On May 1, 2022, Payne Co. issued 300,000 of 7% bonds at 103, which are due on April 30, 2022.
Twenty detachable share warrants entitling the holder to purchase for 40 one share of Payne’s ordinary
shares, 15 par value, were attached to each 1,000 bond. The bonds without the warrants would sell at
96. On May 1, 2022, the fair value of Payne’s shares was 35 per share and of the warrants was 2.

1. On May 1, 2022, Payne should credit Share Premium –Share Warrants for
a. 9,000.
b. 12,000.
c. 21,000.
d. 12,360.

2. On May 1, 2022, Payne should record bonds at payable

a. discount of 296,640.
b. discount of 288,000.
c. discount of 300,000.
d. premium of 309,000.

37. The following information is made available involving the defined benefit pension plan of Angel
Company for the year 2021:
Fair value of plan asset, 1/1/2021 3,500,000
PV of benefit obligation, 1/1/2021 3,750,000
Current service cost 700,000
Actual return on plan asset 420,000
Contribution to the plan 600,000
Benefits paid to retirees 750,000
Decrease in the present value of benefit obligation due
to change in actuarial assumptions 100,000
PV of defined benefit obligation settled 250,000
Settlement price of defined benefit obligation 200,000
Discount rate 10%

1. What amount employee benefit cost should be reported in the profit or loss?
a. 675,000
b.725,000
c. 1,025,000
d. 1,075,000

2. What is the net amount of remeasurements for the year 2021?

a. 50,000
b. 75,000
c. 100,000
d. 170,000

3. What is the fair value of the plan asset as of December 31, 2021?
a. 3,500,000
b. 3,570,000
c. 3,770,000
d. 4,100,000

4. What is the present value of benefit obligation as of December 31, 2021?

a. 3,725,000
b. 3,825,000
c. 3,975,000
d. 4,825,000

5. What is balance of the prepaid or accrued pension as of December 31, 2021?

a. Prepaid pension P155,000
b. Accrued pension P155,000
c. Prepaid pension P325,000
d. Accrued pension P325,000
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38. Maple Tree Mall, Inc., has 2,500 shares of 2%, P25 par cumulative preferred stock and 125,000 shares
of P2 par common stock outstanding. At the beginning of the current year, preferred dividends were four
years in arrears. Maple Trees board of directors wants to pay a P2.50 cash dividend on each share of
outstanding common stock in the current year. To accomplish this, what total amount of dividends must
Maple Tree declare?
a. P250,000
b. P255,000
c. P256,250
d P318750

39. The accounts shown below appear in the December 31,2019 trial balance of Hollow Corporation:

Preference share,authorized, P50 par P10,000,000

Unissued preference share 3,600,000
Ordinary share, authorized, P20 par 4,000,000
Unissued ordinary share 2,000,000
Subscription receivable, preference share 380,000
Subscription receivable, ordinary share 360,000
Subscribed preference share 600,000
Subscribed ordinary share 440,000
Treasury share, preference at cost 1,360,000
Share premium 1,700,000
Accumulated profits and losses 2,000,000

All subscription receivables are due in year 2020.

How much is the total shareholder’s equity of Hollow Corporation?
a. 11,040,000
b. 11,780,000
c. 12,400,000
d. 13,760,000

40. Dayron Company had 80,000 ordinary shares outstanding in January 2019. The entity distributed a 15%
stock dividend in March and a 10% stock dividend in June.
After acquiring 10,000 shares of treasury in July, the entity split the share 4 for 1 in December.

1. How many shares were issued before the share split?

A. 101,200
B. 100,000
C. 91,200
D. 90,000

2. How many ordinary shares are outstanding on December 31, 2019?

A. 364,800
B. 488,000
C. 498,000
D. 451,500