SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: [email protected]

Equity Part 1

Theories

1. When shares with par value are sold, the proceeds shall be credited to the:
a. Share capital account to the extent of the par value of shares and any excess being reflected in retained earnings
b. Share premium to the extent of the par value of the shares with any excess being reflected in share capital
c. Retained earnings to the extent of the excess in par value of the shares and par value of the shares reflected in share capital
d. Share capital account to the extent of the par value of the shares with any excess being reflected in share premium.

2. When shares without par value are sold, the excess proceeds over stated value shall be credited to:
a. Income
b. Retained earnings
c. Share premium
d. Share capital

3. If shares are issued for a consideration other than cash, the proceeds shall be measured by the:
a. Fair value of the shares issued
b. Par value if the shares issued
c. Fair value of the consideration received
d. Book value of the consideration received

4. In case shares are issued for outstanding liabilities, what is the measure for recording?
a. Par value of shares issued
b. Fair value of shares issued
c. Amount of liabilities set off
d. Book value of the shares issued

5. When shares are issued for services received, the measure is equal to the:
a. Fair value of such services
b. Par value of the shares issued
c. Book value of the shares issued
d. Fair value of the shares issued

6. Treasury shares shall be recorded at cost irrespective of whether these are acquired below or above par value. The cost of treasury
shares acquired for non-cash consideration is usually measured by:
a. Fair value of the non-cash consideration given
b. Recorded amount of the non-cash asset surrendered
c. Par value of the shares
d. Book value of the shares

7. The total cost of the treasury shares shall be reported as:

a. Deduction from shareholders’ equity
b. Asset
c. Deduction from retained earnings
d. Deduction from share premium

8. If treasury shares are reissued for non-cash consideration, the proceeds shall be measured by:
a. Fair value of the treasury shares
b. Fair value if the non-cash consideration received
c. Book value of the non-cash consideration received
d. Book value of the treasury shares

9. Which statement is incorrect concerning treasury shares?

a. Treasury shares shall be recorded at cost irrespective of whether acquired below or above par value.
 b. The total cost of treasury shares shall be deducted from equity
c. Treasury shares may be recognized as financial asset
d. Gain or loss on sale of treasury shares shall not be included in profit or loss

10. Loss from sale of treasury shares shall be charged to:

a. Loss on sale of treasury shares to be shown as other expense
b. Retained earnings and then share premium from treasury shares
c. Share premium from original issuance, share premium from treasury shares and then retained earnings.
d. Share premium from treasury shared and then retained earnings

11. Gains and losses on retirement of treasury shares shall not be included in determining income. If the retirement results in a gain, such
gain shall be credited to:
a. Share premium
b. Retained earnings
c. Share capital
d. Income

12. Loss on retirement of treasury shares shall be debited to:

a. Retained earnings
b. Share premium from treasury shares and then to retained earnings
c. Share premium from treasury shares, share premium from original issuance and then retained earnings
d. Share premium from original issuance, share premium from treasury shares and then retained earnings.

13. It is the issuance by another entity of its own shares to shareholders without consideration and under conditions indicating that such
action is prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting a reduction in unit
market price.
a. Share split
b. Reverse share split
c. Stock dividend
d. Recapitalization

14. Subscriptions receivable and other receivables from sale of shares which are not collectible currently shall be presented as:
a. Deduction form the related subscribed share capital in the shareholders’ equity section
b. Current asset
c. Long term investment
d. Other asset

15. Deposits on subscriptions to a proposed increase in share capital shall be reported as:
a. Part of liability
b. Part of shareholders’ equity
c. Memorandum only
d. Part of retained earnings

16. In accounting for shareholders’ equity, the accountant is primary concerned with which of the following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings

17. Contributed capital does not include:

a. Share premium on ordinary and preference shares
b. Preference share capital
c. Capital resulting from reissuance of treasury shares at price above acquisition price
d. Capital accumulated by retention of earnings
18. Discount on share capital
a. May be recorded as either an asset or an expense
b. Shall be closed to income summary account
c. May be offset against share premium on the same class of share capital
d. None of the above may be done

19. An ordinary share does not possess which of the following?

a. The right to share in the earnings of the corporation when dividends are declared
b. The right to vote in the election of the board of directors of the corporation
c. The right to direct ownership of the corporate assets
d. The right to share proportionately in corporate assets in case of liquidation if such assets exceed the claims of creditors

20. Which of the following is not one of the basic rights of a shareholder?
a. The right to participate in earnings
 b. The right to maintain one’s proportional interest in the corporation
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation
d. The right to inspect the accounting records of the corporation

21. An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. Share premium would
be recorded when the rights:
a. Expire
b. Are exercised
c. Become exercisable
d. Are issued

22. Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a specified time at a
specified price?
a. Share options
b. Share warrants
c. Share dividends
d. Share subscriptions

23. Share warrants outstanding shall be reported as:

a. Liability
b. Reduction of share premium
c. Share capital
d. Share premium

24. When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency is called:
a. A net loss
b. A dividend
c. A liability
d. A deficit

25. The par value of an ordinary share represents:

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

26. When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par subscribed share
capital shall be recorded as:
a. No par share capital
b. Share premium when the subscription is recorded
c. Share premium when the subscription is collected
d. Share premium when the share capital is issued

27. The issuance of preference share:

a. Increases preference shares outstanding
b. Has no effect on preference shares outstanding
c. Increases preference shares authorized
d. Decreases preference shares authorized

28. When an entity redeemed all of its preference shares for more than the original issue price, the excess paid above the original issue
price shall be:
a. Accounted for as loss on exchange in the income statement
b. Charged against share premium of ordinary shares
c. Charged to a discount on preference shared
d. Charged against retained earnings

29. When preference shares are purchased and retired by the issuing for less than the original issue price, proper accounting for the
retirement:
a. Increases the amount of dividends available to ordinary shareholders
b. Increases the contributed capital of the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury shared held by the corporation

30. The purchase of treasury shares:

 a. Decreases shares authorized
b. Decreases shares issued
c. Decreases shares outstanding
d. Has no effect on shares outstanding

31. Treasury shares were acquired for cash at more than par value, and then subsequently sold for cash at more than acquisition price.
What is the effect on share premium from treasury shares?
Purchase of treasury shares Sale of treasury shares
a. Increase Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect

32. Which of the following statements best describes the net effect on retained earnings of the purchase and subsequent sale of treasury
shares?
a. Retained earnings may never be increases but sometimes decreased
b. Retained earnings may never be increased or decreased
c. Retained earnings sometimes may be increased but never be decreased
d. Retained earnings account is always affected unless the selling price is exactly equal to cost

33. At the date of the financial statements, shares issued would exceed shares outstanding as a result of:
a. Declaration of share split
b. Declaration of stock dividends
c. Purchase of treasury shares
d. Payment in full of subscribed shares

34. What is the accounting for treasury shares?

a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the shares
were issued and the repurchase price for the shares
b. On reissuance of treasury shares, a gain or loss is recognized equal to the difference between the previous repurchase price
and the reissuance price
c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized
d. Treasury shares are accounted for as financial assets

35. How would a share split in which the par value per share decreases in proportion to the number of additional shares issued affect each
of the following?
Share premium Retained Earnings
a. Increase No effect
b. No effect No effect
c. No effect Decrease
d. Increase Decrease

36. Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock?
a. The right to vote for the board of directors.
b. The right to maintain one's proportional interest in the corporation.
c. The right to receive a full cash dividend before dividends are paid to other classes of stock.
d. The right to vote on major corporate issues.

37. Which of the following features of preferred stock would most likely be opposed by common shareholders?
a. Par or stated value.
b. Callable.
c. Redeemable.
d. Participating.

38. Which of the following is not one of the basic shareholders rights?
a. The right to participate in earnings.
b. The right to maintain one's proportional interest in the corporation.
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation.
d. The right to inspect the accounting records of the corporation.

39. The use of equity reserves under international accounting standards

a. is strictly voluntary on the part of the management of a company.
b. is based on whether a reserve is part of distributable or non-distributable equity.
c. is primarily for the benefit of shareholders rather than creditors.
d. results in the elimination of the retained earnings category from the total equity of a company.

40. 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.

41. The entry to record the issuance of common stock for fully paid stock subscriptions is
a. a memorandum entry.
b. Common Stock Subscribed Common Stock Additional Paid-In Capital
c. Common Stock Subscribed Subscriptions Receivable
d. Common Stock Subscribed Common Stock

42. 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.

43. Which of the following is an appropriate presentation of treasury stock?

a. As a marketable security
b. As a deduction at cost from total stockholders' equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders' equity

44. Gains and losses on the purchase and resale of treasury stock may be reflected only in
a. paid-in capital accounts.
b. paid-in capital and retained earnings accounts.
c. income, paid-in capital, and retaining earnings accounts.
d. income and paid-in capital accounts.

45. A company issued rights to its existing shareholders to acquire, at P15 per share, 5,000 unissued shares of common stock with a par
value of P10 per share. Common Stock will be credited at
a. P15 per share when the rights are exercised.
b. P15 per share when the rights are issued.
c. P10 per share when the rights are exercised.
d. P10 per share when the rights are issued.

46. A company issued rights to its existing shareholders to purchase for par unissued shares of common stock with a par value of P10 per
share. When the market value of the common stock was P12 per share, the rights were exercised. Common Stock should be credited at
P10 per share and
a. Paid-In Capital from Stock Rights credited at P2 per share.
b. Additional Paid-In Capital credited at P2 per share.
c. Retained Earnings credited at P2 per share.
d. no credit made to Additional Paid-In Capital or Retained Earnings.

47. The issuance of shares of preferred stock to shareholders

a. increases preferred stock outstanding.
b. has no effect on preferred stock outstanding.
c. increases preferred stock authorized.
d. decreases preferred stock authorized.

48. How would a stock split affect each of the following?

Total
Stockholders' Additional
Assets Equity Paid-In Capital

a.  Increase Increase No effect

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

49. On February 1, authorized common stock was sold on a subscription basis at a price in excess of par value, and 20 percent of the
subscription price was collected. On May 1, the remaining 80 percent of the subscription price was collected. Additional Paid-In
Capital would increase on
February 1 May 1

a.   No Yes
b.   No No
c.   Yes No
 d.   Yes Yes

50. 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.

51. 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.

52. When treasury stock is purchased for more than its par value, Treasury Stock is debited for the purchase price under which of the
following methods?
Cost Method Par Value Method

a.  No No
b.  No Yes
c.  Yes No
d.  Yes Yes

53. When treasury stock is purchased for cash at more than its par value, what is the effect on total stockholders' equity under each of the
following methods?
Cost Method Par Value Method

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

54. Treasury stock was acquired for cash at a price in excess of its par value. The treasury stock was subsequently reissued for cash at a
price in excess of its acquisition price. Assuming that the cost method of accounting for treasury stock transactions is used, what is the
effect on retained earnings?
Acquisition of Reissuance of

Treasury Stock Treasury Stock

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

55. Five thousand shares of common stock with a par value of P10 per share were issued initially at P12 per share. Subsequently, 1,000 of
these shares were acquired as treasury stock at P15 per share. Assuming that the par value method of accounting for treasury stock
transactions is used, what is the effect of the acquisition of the treasury stock on each of the following?
Additional Retained

Paid-In Capital Earnings

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

56. Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or
treasury stock?
a. Stock options
b. Stock rights
c. Stock dividends
d. Stock subscriptions

57. A company issued rights to its existing shareholders to purchase, for P30 per share, unissued shares of P15 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.

58. Unlike a stock split, a stock dividend requires a formal journal entry in the financial accounting records because
a. stock dividends increase the relative book value of an individual's stock holdings.
b. stock dividends increase the stockholders' equity in the issuing firm.
c. stock dividends are payable on the date they are declared.
d. stock dividends represent a transfer from Retained Earnings to Capital Stock.

59. 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

Problems

1. The Amelia Corporation was incorporated on January 1, 2002, with the following authorized capitalization:

• 40,000 shares of common stock, no par value, stated value P40 per share
• 10,000 shares of 5 percent cumulative preferred stock, par value P10 per share

During 2002, Amelia issued 24,000 shares of common stock for a total of P1,200,000 and 6,000 shares of preferred stock at P16 per share.
In addition, on December 20, 2002, subscriptions for 2,000 shares of preferred stock were taken at a purchase price of P17. These
subscribed shares were paid for on January 2, 2003. What should Amelia report as total contributed capital on its December 31, 2002,
balance sheet?
a. P1,040,000
b. P1,262,000
c. P1,296,000
d. P1,330,000

2. On June 1, Mason Company issued 8,000 shares of its P10 par common stock to Dixon for a tract of land. The stock had a fair market
value of P18 per share on this date. On Dixon's last property tax bill, the land was assessed at P96,000. Mason should record an
increase in Additional Paid-In Capital of
a. P96,000.
b. P64,000.
c. P40,000.
d. P16,000.

3. On August 1, 2002, B. Doran Company reacquired 4,000 shares of its P15 par value common stock for P18 per share. Doran uses the
cost method to account for treasury stock. What journal entry should Doran make to record the acquisition of treasury stock?
a. Treasury Stock ............................. 60,000
Additional Paid-In Capital ................. 12,000
  Cash ..................................... 72,000
b. Treasury Stock ............................. 60,000
Retained Earnings .......................... 12,000
  Cash ..................................... 72,000
c. Retained Earnings .......................... 72,000
   Cash ..................................... 72,000
d. Treasury Stock ............................. 72,000
  Cash ..................................... 72,000

4. Harbottle Corporation was organized on January 3, 2002, with authorized capital of 100,000 shares of P10 par common stock. During
2002, Harbottle had the following transactions affecting stockholders' equity:

• January 7--Issued 40,000 shares at P12 per share

• December 2--Purchased 6,000 shares of treasury stock at P13 per share

The cost method was used to record the treasury stock transaction. Harbottle's net income for 2002 is P300,000. What is the amount of
stockholders' equity at December 31, 2002?
a. P640,000
b. P702,000
c. P708,000
d. P720,000

5. Thorpe Corporation holds 10,000 shares of its P10 par common stock as treasury stock, which was purchased in 1999 at a cost of
P120,000. On December 10, 2000, Thorpe sold all 10,000 shares for P210,000. Assuming that Thorpe used the cost method of
accounting for treasury stock, this sale would result in a credit to
a. Paid-In Capital from Treasury Stock of P90,000.
b. Paid-In Capital from Treasury Stock of P110,000.
c. Gain on Sale of Treasury Stock of P90,000.
d. Retained Earnings of P90,000.

6. On March 2, 2002, Ross Corporation issued 4,000 shares of 6 percent cumulative P100 par value preferred stock for P434,000. Each
preferred share carried one nondetachable stock warrant which entitled the holder to acquire, at P17, one share of Ross P10 par
common stock. On March 2, 2002, the market price of the preferred stock (without warrants) was P90 per share and the market price
of the stock warrants was P15 per warrant. The amount credited to Paid-In Capital in Excess of Par-Preferred by Ross on the issuance
of the stock was
a. P0.
b. P8,000.
c. P34,000.
d. P62,000.

7. On January 2, 2002, Stoner Corporation granted stock options to key employees for the purchase of 60,000 shares of the company's
common stock at P25 per share. The options are intended to compensate employees for the next two years. The options are exercisable
within a four-year period beginning January 1, 2004, by grantees still in the employ of the company. The market price of Stoner's
common stock was P32 per share at the date of grant. Stoner plans to distribute up to 60,000 shares of treasury stock when options are
exercised. The treasury stock was acquired by Stoner at a cost of P28 per share and was recorded under the cost method. Assume that
no stock options were terminated during the year. How much should Stoner charge to Compensation Expense for the year ended
December 31, 2002?
a. P420,000
b. P210,000
c. P180,000
d. P90,000

8. On December 10, Daniel Co. split its stock 5-for-2 when the market value was P65 per share. Prior to the split, Daniel had 200,000
shares of P15 par value stock. After the split, the par value of the stock was
a. P3.00.
b. P6.00.
c. P15.00.
d. P26.00.

9. On December 10, Daniel Co. split its stock 5-for-2 when the market value was P65 per share. Prior to the split, Daniel had 200,000
shares of P15 par value stock. After the split, Daniel's outstanding shares would be
a. 1,000,000.
b. 200,000.
c. 300,000.
d. 500,000.

10. On July 1, Rainbow Corporation issued 2,000 shares of its P10 par common and 4,000 shares of its P10 par preferred stock for a lump
sum of P80,000. At this date, Rainbow's common stock was selling for P18 per share and the preferred stock for P13.50 per share. The
amount of proceeds allocated to Rainbow's preferred stock should be
a. P40,000.
b. P48,000.
c. P54,000.
d. P60,000.

11. Victor Corporation was organized on January 2 with 100,000 authorized shares of P10 par value common stock. During the year,
Victor had the following capital transactions:

• January 5 -- issued 75,000 shares at P14 per share

• December 27 -- purchased 5,000 shares at P11 per share

Victor used the par value method to record the purchase of the treasury shares.

What would be the balance in the paid-in capital from treasury stock account at December 31?
a. P0
b. P5,000
c. P15,000
d. P20,000

12. The stockholders' equity section of Hall Corporation's balance sheet at December 31, 2002, was as follows:

Common stock (P10 par value, authorized 1,000,000

shares, issued and outstanding 900,000 shares) ..... P 9,000,000
Paid-In capital in excess of par ..................... 2,700,000
Retained earnings .................................... 1,300,000
Total stockholders' equity ........................... P13,000,000

On January 2, 2003, Hall purchased and retired 100,000 shares of its stock for P1,800,000. Hall records treasury stock using the par value
method. Immediately after retirement of these 100,000 shares, the balances in the additional paid-in capital and retained earnings accounts
should be

Paid-In Capital Retained

in Excess of Par Earnings

a.  P900,000 P1,300,000
b.  P1,400,000 P800,000
c.  P1,900,000 P1,300,000
d.  P2,400,000 P800,000

13. In 2002, Wyatt Corporation issued for P110 per share, 15,000 shares of P100 par value convertible preferred stock. One share of
preferred stock may be converted into three shares of Wyatt's P25 par value common stock at the option of the preferred shareholder.
On December 31, 2003, all of the preferred stock was converted into common stock. The market value of the common stock at the
conversion date was P40 per share. What amount should be credited to the common stock account on December 31, 2003?
a. P1,125,000
b. P1,500,000
c. P1,650,000
d. P1,800,000

14. Cox Corporation was organized on January 1, 2001, at which date it issued 100,000 shares of P10 par common stock at P15 per share.
During the period January 1, 2001, through December 31, 2003, Cox reported net income of P450,000 and paid cash dividends of
P230,000. On January 10, 2003, Cox purchased 6,000 shares of its common stock at P12 per share. On December 31, 2003, Cox sold
4,000 treasury shares at P8 per share. Cox uses the cost method of accounting for treasury shares. What is Cox's total stockholders'
equity on December 31, 2003?
a. P1,720,000
b. P1,704,000
c. P1,688,000
d. P1,680,000

15. On February 24, BMC Company purchased 4,000 shares of Winn Corp.'s newly issued 6 percent cumulative P75 par preferred stock
for P304,000. Each share carried one detachable stock warrant entitling the holder to acquire at P10 one share of Winn no-par
common stock. On February 25, the market price of the preferred stock ex-warrants was P72 per share, and the market price of the
stock warrants was P8 per warrant. On December 29, BMC sold all the stock warrants for P41,000. The gain on the sale of the stock
warrants was
a. P0.
b. P1,000.
c. P9,000.
d. P10,600.
16. On July 1, Black Corporation had 200,000 shares of P10 par common stock outstanding. The market price of the stock was P12 per
share. On the same date, Black declared a 1-for-2 reverse stock split. The par value of the stock was increased from P10 to P20, and
one new P20 par share was issued for each two P10 par shares outstanding. Immediately before the 1-for-2 reverse stock split, Black's
additional paid-in capital was P650,000. What should be the balance in Black's additional paid-in capital account immediately after the
reverse stock split?
a. P450,000
b. P650,000
c. P850,000
d. P1,050,000

17. Clayton Co. owned 30,000 common shares of Dayton Corporation purchased in 1999 for P540,000. On September 20, 2002, Clayton
declared a property dividend of 1 share of Dayton for every 5 shares of Clayton stock held by a stockholder. On that date, there were
50,000 common shares of Clayton outstanding, and the market value of Dayton shares was P30 per share. The entry to record the
declaration of the property dividend would include a debit to Retained Earnings of
a. P0.
b. P300,000.
c. P360,000.
d. P540,000.

18. Beldon Co. was organized on January 2, 2002, with the following capital structure:

10 percent cumulative preferred stock, par value P100, and liquidation value P105; issued and
outstanding 2,000 shares P200,000
Common stock, par value P25; authorized 100,000 shares; issued and outstanding 20,000 shares
500,000

Beldon's net income for the year ended December 31, 2002, was P900,000, but no dividends were declared. Beldon's balance sheet would
report Dividends Payable at December 31, 2002, of
a. P90,000.
b. P20,000.
c. P2,000.
d. P0.

19. On September 20, 2002, Nozzle Corporation declared the distribution of the following dividend to its stockholders of record as of
September 30, 2002:

• Investment in 100,000 shares of Astro Corporation stock, carrying value P600,000; fair market value on September 20,
P1,450,000; fair market value on September 30, P1,575,000.

The entry to record the declaration of the property dividend would include a debit to Retained Earnings of
a. P1,575,000.
b. P1,450,000.
c. P850,000.
d. P600,000.

20. The board of directors of Overeager Co. decided that the company should undergo a quasi-reorganization effective on December 31,
2002. On that date, the company determined the following asset values.

Book Value Market Value

Inventory ..................... P 100,000 P110,000
Building ...................... 800,000 400,000
Equipment ..................... 180,000 140,000
P1,080,000 P650,000

The stockholders' equity section at December 31, 2002, is presented below.

Common stock, P20 par, 80,000 shares issued and

outstanding ......................................... P1,600,000 
Additional paid-in capital ............................ 800,000 
Retained earnings (deficit) ........................... (700,000)
Total ................................................. P1,700,000 

The quasi-reorganization is to be accomplished by reducing the par value of the stock to P15 per share. Immediately after the quasi-
reorganization, the common stock amount would be
a. P1,600,000.
b. P1,200,000.
c. P800,000.
d. P400,000.

21. On June 1, 2001, Patriot Corporation declared a stock dividend entitling its stockholders to one additional share for each share held. At
the time the dividend was declared, the market value of the stock was P10 per share and the par value was P5 per share. On this date
Patriot had 1,000,000 shares of common stock authorized of which 600,000 shares were outstanding. Assuming the par value of the
stock was not changed, what entry should Patriot make to record this transaction?
a. Retained Earnings .................. 6,000,000
Common Stock Dividend Distributable. 3,000,000
Capital in Excess of Par............ 3,000,000
b. Stock Dividend Payable ............. 6,000,000
Common Stock Dividend Distributable. 3,000,000
Capital in Excess of Par............ 3,000,000
c. Retained Earnings................... 3,000,000
Common Stock Dividend Distributable. 3,000,000
d. No entry

22. The stockholders' equity section of Dolphin Corporation as of December 31, 2002, contained the following accounts:

Common stock, 25,000 shares authorized; 10,000 shares issued and outstanding P 30,000
Capital contributed in excess of par 40,000
Retained earnings 80,000
P150,000

Dolphin's board of directors declared a 10 percent stock dividend on April 1, 2003, when the market value of the stock was P7 per share.
Accordingly, 1,000 new shares were issued. All of Dolphin's stock has a par value of P3 per share. Assuming Dolphin sustained a net loss
of P12,000 for the quarter ended March 31, 2003, what amount should Dolphin report as retained earnings as of April 1, 2003?
a. P61,000
b. P64,000
c. P68,000
d. P73,000

23. The Gradison Corporation had the following classes of stock outstanding as of December 31, 2002:
Common stock, P20 par value, 20,000 shares outstanding
Preferred stock, 6 percent, P100 par value, cumulative, 2,000 shares outstanding

No dividends were paid on preferred stock for 2000 and 2001. On December 31, 2002, a total cash dividend of P200,000 was declared.
What are the amounts of dividends payable on both the common and preferred stock, respectively?
a. P0 and P200,000
b. P164,000 and P36,000
c. P176,000 and P24,000
d. P188,000 and P12,000

24. On June 30, 2002, O'Hara Co. declared and issued a 10 percent stock dividend. Prior to this dividend, O'Hara had 60,000 shares of
P10 par value common stock issued and outstanding. The market value of O'Hara Co.'s common stock on June 30, 2002, was P24 per
share. As a result of this stock dividend, by what amount would O'Hara's total stockholders' equity increase (decrease)?
a. P0
b. P60,000
c. P84,000
d. P(84,000)

25. On January 2, 2000, the board of directors of Gimli Mining Corporation declared a cash dividend of P1,200,000 to stockholders of
record on January 18, 2000, and payable on February 10, 2000. The dividend is permissible by law in Gimli's state of incorporation.
Selected data from Gimli's December 31, 1999, balance sheet follow:

Accumulated depletion ................................. P 200,000

Capital stock ......................................... 1,100,000
Additional paid-in capital ............................ 800,000
Retained earnings ..................................... 500,000
The P1,200,000 dividend includes a liquidating dividend of
a. P800,000.
b. P700,000.
c. P600,000.
d. P200,000.

26. Cardinal Company's balance sheet at December 31, 2001, contained the following accounts:

Common stock, P20 par, 100,000 authorized, 60,000 outstanding P1,200,000 

Paid-In capital in excess of par ...................... 150,000 
Retained earnings (deficit) ........................... (540,000)

Cardinal's new management suggested, and received approval for a quasi- reorganization. The new par value is to be P10 a share,
Equipment is to be written down P152,000, and Inventory is to be increased P8,000. How much Additional Paid-In Capital from
Reorganization will initially be recorded with the entry to reduce the par value of the common stock?
a. P540,000
b. P600,000
c. P690,100
d. P1,000,000

27. Cardinal Company's balance sheet at December 31, 2001, contained the following accounts:

Common stock, P20 par, 100,000 authorized, 60,000 outstanding P1,200,000 

Paid-In capital in excess of par ...................... 150,000 
Retained earnings (deficit) ........................... (540,000)

Cardinal's new management suggested, and received approval for a quasi- reorganization. The new par value is to be P10 a share,
Equipment is to be written down P152,000, and Inventory is to be increased P8,000. What is the net increase in the deficit from revaluation
of assets?
a. P0
b. P144,000
c. P152,000
d. P540,000

28. On December 31, 2002, the stockholders' equity section of Addyson Co. was as follows:

Common stock, par value P10; authorized, 60,000 shares; issued and
outstanding, 18,000 shares P180,000
Additional paid-in capital 232,000
Retained earnings 192,000
Total stockholders' equity P604,000

On March 31, 2003, Addyson declared a 10 percent stock dividend, and accordingly 1,800 additional shares were issued, when the fair
market value of the stock was P16 per share. For the three months ended March 31, 2003, Addyson sustained a net loss of P64,000. The
balance of Addyson's Retained Earnings as of March 31, 2003, should be
a. P99,200.
b. P110,000.
c. P112,000.
d. P128,000.

29. Cash dividends on the P10 par value common stock of Sackville Company were as follows:

1st quarter of 2002 P400,000

2nd quarter of 2002 450,000
3rd quarter of 2002 500,000
4th quarter of 2002 550,000

• The 4th quarter cash dividend was declared on December 20, 2002, to stockholders of record on December 31, 2002. Payment
of the 4th quarter dividend was made on January 9, 2003.
• In addition, Sackville declared a 5 percent stock dividend on its P10 par value common stock on December 1, 2002, when
there were 150,000 shares issued and outstanding and the market value of the common stock was P20 per share. The shares
were issued on December 1, 2002.

What was the effect on Sackville's stockholders' equity accounts as a result of the 2002 dividend transactions?
 Additional
Common Stock Paid-In Capital Retained Earnings

a. P75,000 credit P0 P1,975,000 debit

b. P75,000 credit P75,000 credit P2,050,000 debit
c. P150,000 credit P150,000 credit P1,900,000 debit
d. P150,000 credit P75,000 credit P2,050,000 debit

30. On September 1, 2002, Steelers Corporation declared and issued a 20 percent common stock dividend. Prior to this date, Steelers had
20,000 shares of P2 par value common stock that were both issued and outstanding. The market value of Steelers' stock was P20 per
share at the time the dividend was issued. As a result of this stock dividend, Steelers' total stockholders' equity
a. decreased by P40,000.
b. decreased by P400,000.
c. increased by P400,000.
d. did not change.

31. Ellis Company has 1,000,000 shares of common stock authorized with a par value of P3 per share of which 600,000 shares are
outstanding. Ellis authorized a stock dividend when the market value was P8 per share, entitling its stockholders to one additional
share for each share held. The par value of the stock was not changed. Assuming the declaration is not recorded separately, what entry,
if any, should Ellis make to record distribution of the stock dividend?
a. Retained Earnings............... 4,800,000
  Common Stock.................. 1,800,000
  Gain on Stock Dividends....... 3,000,000
b. Retained Earnings............... 1,800,000
  Common Stock.................. 1,800,000
c. Retained Earnings............... 4,800,000
  Common Stock.................. 1,800,000
  Paid-In Capital from Stock Dividends 3,000,000
d. Memorandum entry noting the number of additional shares issued as a dividend

32. The following data are extracted from the stockholders' equity section of the balance sheet of Guthrie Corporation:

12/31/01 12/31/02
Common stock (P1 par value) ............... P50,000 P51,000
Paid-In capital in excess of par .......... 25,000 29,000
Retained earnings ......................... 50,000 52,300

During 2002, the corporation declared and paid cash dividends of P7,500 and also declared and issued a stock dividend. There were no
other changes in stock issued and outstanding during 2002. Net income for 2002 was
a. P2,300.
b. P9,800.
c. P10,800.
d. P14,800.

33. Cohen Corporation owns 1,000 shares of common stock of Berg, Inc., a large publicly traded company listed on a major stock
exchange. If Berg issues a 20 percent stock dividend when the par value is P10 per share and the market value is P70 per share, how
much and what type of income should Cohen report?
a. P0
b. P2,000 ordinary income
c. P14,000 ordinary income
d. P2,000 ordinary income and P12,000 extraordinary income

34. The following was abstracted from the accounts of the Oak Corp. at year-end:

Total income since incorporation ...................... P420,000

Total cash dividends paid ............................. 130,000
Proceeds from sale of donated stock ................... 45,000
Total value of stock dividends distributed ............ 30,000
Excess of proceeds over cost of treasury stock sold ... 70,000

What should be the current balance of Retained Earnings?

a. P260,000
b. P290,000
c. P305,000
d. P335,000
35. Stanley Corp. has incurred losses from operations for several years. At the recommendation of the new president, the board of
directors voted to implement a quasi-reorganization, subject to stockholder approval. Immediately prior to the restatement, on June 30,
Stanley's balance sheet was as follows:

Current assets ....................................... P 550,000 

Property, plant and equipment (net)................... 1,350,000 
Other assets ......................................... 200,000 
P2,100,000 
Total liabilities .................................... P 600,000 
Common stock ......................................... 1,600,000 
Additional paid-in capital ........................... 300,000 
Retained earnings (deficit)........................... (400,000)
P2,100,000 

The stockholders approved the quasi-reorganization effective July 1, to be accomplished by a reduction in other assets of P150,000, a
reduction in property, plant and equipment (net) of P350,000, and appropriate adjustment to the capital structure. To implement the quasi-
reorganization, Stanley should reduce the common stock account in the amount of
a. P0.
b. P100,000.
c. P400,000.
d. P600,000.

***end of handout***