Seeds of the Nations

TOPIC: CORPORATION

A. Common Stock

1. ROAD TO SECOND YEAR. issued 1,000 shares of its $5 par common stock to CPAKANASOON as
compensation for 1,000 hours of legal services performed. Howe usually bills $160 per hour for legal
services. On the date of issuance, the stock was trading on a public exchange at $140 per share. By what
amount should the additional paid-in capital account increase as a result of this transaction?

a. $135,000 b. $140,000 c. $155,000 d. $160,000

B. Preferred Stock
2. On April 1, 2019, Hyde Corp., a newly formed company, had the following stock issued and
outstanding:
 Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share.
 Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share. Hyde’s
April 1, 2019 statement of stockholders’ equity should report
Common Preferred Additional paid-in
stock stock capital
a. $20,000 $60,000 $820,000
b. $20,000 $300,000 $580,000
c. $600,000 $300,000 $0
d. $600,000 $60,000 $240,000

C. Stock Subscriptions
3. When collectability is reasonably assured, the excess of the subscription price over the stated value of the no
par common stock subscribed should be recorded as

a. No par common stock.

b. Additional paid-in capital when the subscription is recorded.
c. Additional paid-in capital when the subscription is collected.
d. Additional paid-in capital when the common stock is issued.

4. On December 1, 2019, shares of authorized common stock were issued on a subscription basis at a price in
excess of par value. A total of 20% of the subscription price of each share was collected as a down payment on
December 1, 2019, with the remaining 80% of the subscription price of each share due in 2020. Collectability
was reasonably assured. At December 31, 2019, the stockholders' equity section of the balance sheet would
report additional paid-in capital for the excess of the subscription price over the par value of the shares of
common stock subscribed and

a. Common stock issued for 20% of the par value of the shares of common stock subscribed.
b. Common stock issued for the par value of the shares of common stock subscribed.
c. Common stock subscribed for 80% of the par value of the shares of common stock subscribed.
d. Common stock subscribed for the par value of the shares of common stock subscribed.
 D. Treasury Stock Transactions
5. In 2009, Seda Corp. acquired 6,000 shares of its $1 par value common stock at $36 per share. During 2019,
Seda issued 3,000 of these shares at $50 per share. Seda uses the cost method to account for its treasury stock
transactions. What accounts and amounts should Seda credit in 2010 to record the issuance of the 3,000 shares?

Treasury stock Additional paid-in capital Retained earnings Common stock

a $102,000 $42,000 $6,000
b $144,000 $6,000
c $108,000 $42,000
d $108,000 $42,000

6. Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, 2019, Cyan’s
retained earnings were $300,000. In March 2020, Cyan reacquired 5,000 shares of its common stock at $20 per
share. In June 2020, Cyan sold 1,000 of these shares to its corporate officers for $25 per share. Cyan uses the
cost method to record treasury stock. Net income for the year ended December 31, 20120, was $60,000. At
December 31, 2020, what amount should Cyan report as retained earnings?

a. $360,000 b. $365,000 c. $375,000 d. $380,000

E. Retirement of Stock
7. In 2019, Rona Corp. issued 5,000 shares of $10 par value common stock for $100 per share. In 2021, Rona
reacquired 2,000 of its shares at $150 per share from the estate of one of its deceased officers and immediately
canceled these 2,000 shares. Rona uses the cost method in accounting for its treasury stock transactions. In
connection with the retirement of these 2,000 shares, Rona should debit

Additional paid-in Retained

capital earnings
a. $20,000 $280,000
b. $100,000 $180,000
c. $180,000 $100,000
d. $280,000 $0
8. On December 31, 2019, Pack Corp.'s board of directors canceled 50,000 shares of $2.50 par value common
stock held in treasury at an average cost of $13 per share. Before recording the cancellation of the treasury stock,
Pack had the following balances in its stockholders' equity accounts:

Common stock $540,000

Additional paid-in capital 750,000
Retained earnings 900,000
Treasury stock, at cost 650,000
In its balance sheet at December 31, 2019, Pack should report a common stock balance of

a. $0
b. $250,000
c. $415,000
d. $540,000

F. Dividends
9. Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, 2019.Plack received a ? stock
dividend of 2,000 shares on April 30, 2019, when the market value per share was $35. Ty paid a cash dividend of
$2 per share on December 15, 2019. In its 2019 income statement, what amount should Plack report as dividend
income?

a. $20,000
b. $24,000
c. $90,000
d. $94,000

10. Arp Corp.'s outstanding capital stock at December 15, 2019, consisted of the following:
 30,000 shares of 5% cumulative preferred stock, par value $10 per share, fully participating as to
dividends. No dividends were in arrears.
 200,000 shares of common stock, par value $1 per share.
On December 15, 2019, Arp declared dividends of $100,000. What was the amount of dividends payable to Arp's
common stockholders?

a. $10,000
b. $34,000
c. $40,000
d. $47,500
11. East Corp., a calendar-year company, had sufficient retained earnings in 2019 as a basis for dividends, but
was temporarily short of cash. East declared a dividend of $100,000 on April 1, 2019 and issued promissory
notes to its stockholders in lieu of cash. The notes, which were dated April 1, 2010, had a maturity date of March
31, 2020, and a 10% interest rate. How should East account for the scrip dividend and related interest?

a. Debit retained earnings for $110,000 on April 1, 2019.

b. Debit retained earnings for $110,000 on March 31, 2020.
c. Debit retained earnings for $100,000 on April 1, 2019, and debit interest expense for $10,000 on March
31, 2020.
d. Debit retained earnings for $100,000 on April 1, 2019, and debit interest expense for $7,500 on
December 31, 2020.

12. Long Co. had 100,000 shares of common stock issued and outstanding at January 1, 2019. During 2019,

Long took the following actions:

March 15 —Declared a 2-for-1 stock split, when the fair value of the stock was $80 per share.
December 15 —Declared a $.50 per share cash dividend.

In Long's statement of stockholders' equity for 2019, what amount should Long report as dividends?

a. $50,000
b. $100,000
c. $850,000
d. $950,000

13. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common
stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was
distributed sixty days after the declaration date. By what amount did Ray’s current liabilities increase as a result
of the stock dividend declaration?
a. $0
b. $ 500
c. $1,000
d. $2,500
 G. Stock Splits

14. How would total stockholders' equity be affected by the declaration of each of the following?
Stock
dividend Stock split
a. No effect Increase
b. Decrease Decrease
c. Decrease No effect
d. No effect No effect

15. On July 1, 2019, Bart Corporation has 200,000 shares of $10 par common stock outstanding and the market
price of the stock is $12 per share. On the same date, Bart declared a 1-for-2 reverse stock split. The par of the
stock was increased from $10 to $20 and one new $20 par share was issued for each two $10 par shares
outstanding. Immediately before the 1-for-2 reverse stock split, Bart's additional paid-in capital was $450,000.
What should be the balance in Bart's additional paid-in capital account immediately after the reverse stock split is
affected?

a. $0
b. $450,000
c. $650,000
d. $850,000

F. Appropriations of Retained Earnings (Reserves)

16. At December 31, 2019, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the
construction of a new office building, which was completed in 2010 at a total cost of $1,500,000. In 2020, Eagle
appropriated $1,200,000 of retained earnings for the construction of a new plant. Also, $2,000,000 of cash was
restricted for the retirement of bonds due in 2021. In its 2010 balance sheet, Eagle should report what amount of
appropriated retained earnings?

a. $1,200,000
b. $1,450,000
c. $2,950,000
d. $3,200,000
ADDITIONALS:

1. Captain America had the following issuance of P100 par value shares of stock:

 Issued 2,500 shares of stock for machinery. The machinery has a fair value of P280,000 while the stock is
selling at P105 per share.
 Issued 1,000 shares of stock for patent. The stock is selling at P105 per share.
 Issued 500 shares of stock in full payment of organization services rendered from the legal counsel. The
fair value of such services is P60,000.

What is the balance of total share premium after recording the above
transactions?
A. 45,000 B. 30,000 C. 10,000 D. 5,000

2. On January 1, 2021, the statement of financial position of Captain Cross Company shows the following
information:
Share capital (authorized 10,000 share with par value of P400) 3,200,000
Share premium in excess of par 640,000
Retained earnings 2,160,000
Total shareholders’ equity 6,000,000

3) Assume instead on September 1, 2021, Captain Cross reissues the 1,000 treasury shares at P560. The
entry to record the transaction includes a
A. Credit to treasury shares for P560,000 C. Credit to share premium – treasury for P200,000
B. Credit to share premium for P360,000 D. Credit to retained earnings for P200,000

4) Assume instead on September 1, 2021, Captain Cross reissues the 1,000 treasury shares at P240. The
entry to record the transaction includes a
A. Credit to share premium for P120,000
B. Debit to share premium for P120,000
C. Debit to retained earnings for P120,000
D. Credit to retained earnings for P120,000

5) Tonight Company was incorporated on January 1, 2022 and provided the following information:
Jan. 1 Number of shares authorized 100,000
Feb. 1 Number of shares issued 80,000
July 1 Number of shares reacquired but not canceled 10,000
Dec. 1 Two for one share split
On December 31, 2022, what is the number of ordinary shares outstanding?
A. 140,000 B. 160,000 C. 150,000 D. 180,000
Use the following information for the next five (5) questions:
The following data were complied prior to preparing the statement of financial position of Arms Corporation.

Authorized share capital, P100 par value 4,000,000

Unissued share capital 800,000
Subscribed share capital 480,000
Subscription receivable 120,000
Premium on share capital 320,000
Premium on bonds payable 240,000
Gain on sale of treasury shares 80,000
Donated capital 800,000
Share warrants outstanding 200,000
Reserve for bond sinking fund 400,000
Reserve for treasury shares 144,000
Reserve for depreciation 600,000
Treasury shares, at cost 144,000
Retained earnings, unappropriated 576,000
Cash dividends payable 160,000
Revaluation increment on property 800,000
Net unrealized loss on available for sale securities 96,000

6) What is the legal capital of Arms Company?

A. 5,080,000 B. 3,680,000 C. 3,200,000 D. 3,080,000

7) What is the contributed capital of the Arms Company?

A. 5,080,000 B. 4,960,000 C. 4,816,000 D. 4,736,000

8) What is the total share premium of Arms Company?

A. 1,640,000 B. 1,560,000 C. 1,440,000 D. 1,400,000

9) What is the appropriated retained earnings of Arms Company?

A. 1,944,000 B. 1,144,000 C. 1,120,000 D. 544,000

10) What is the total shareholders’ equity?

A. 6,640,000 B. 6,500,000 C. 6,000,000 D. 5,080,000

Use the following information for the next five (5) questions:

Captain Marvel Company declared P7,200,000 cash dividends to its preference and ordinary shareholders out of
its profit in 2023. No dividends have been, declared since 2021. Captain Marvel shareholders’ equity
immediately before dividend declaration is as follows:

10% Preference share capital, P800 par P 8,000,000

Ordinary share capital, P400 par 32,000,000
Retained earnings 20,000,000
Total shareholders’ equity 60,000,000
11) How much is the dividend to ordinary shareholders if the preference shares are noncumulative?
A. 7,200,000 B. 5,080,000 C. 6,400,000 D. 6,000,000
12) How much is the dividend to ordinary shareholders if the preference shares are cumulative?
A. 2,400,000 B. 4,800,000 C. 5,600,000 D. 6,400,000
13) How much is the dividend to ordinary shareholders if the preference shares are noncumulative and fully
participating?
A. 7,560,000 B. 6,400,000 C. 5,120,000 D. 5,760,000
14) How much is the dividend to ordinary shareholders if the preference shares are cumulative and fully
participating?
A. 4,480,000 B. 5,1250,000 C. 5,760,000 D. 6,400,000
15) The dividend to ordinary shareholders if the preference shares are cumulative and participating up to 16% is
A. 5,120,000 B. 4,480,000 C. 5,480,000 D. 4,320,000

16) The following information pertains to Ox Company:

-Dividends on its 50,000 shares of 10%, P100 par value cumulative preference share capital have not been
declared or paid for 3 years.
-Treasury ordinary shares were acquired at a cost of P1,000,000 during the year. The treasury shares had not
been reissued as of year end.
-At the year, Ox appropriated P3,000,000 of retained earnings for the construction of a new plant.

Also, P2,000,000 of cash was restricted for the retirement of bonds payable due in the next year.
What amount of retained earnings should be appropriated as a result of these
items?
A. 4,000,000 B. 5,500,000 C. 6,000,000 D. 7,500,000