MID-TERM EXAMS – ACTG6251

On November 1, 2018, Grande Company declared a property dividend of

equipment payable on March 1, 2019.
The carrying amount of the equipment is P3,000,000 and the fair value is
P2,500,000 on November 1, 2018.
However, the fair value less cost to distribute the equipment is P2,200,000 on
December 31, 2018 and P2,000,000 on March 1, 2019.
What is the measurement of the equipment on December 31, 2018?
Select one:
a. 2,200,000
b. 2,500,000
c. 3,000,000
d. 2,000,000

The pre-emptive right enables a stockholder to

Select one:
a. share proportionately in any new issues of stock of the same class.
b. receive cash dividends before other classes of stock without the pre-
emptive right.
c. sell capital stock back to the corporation at the option of the stockholder.
d. receive the same amount of dividends on a percentage basis as the
preferred stockholders.

At the beginning of current year, Hanna Company reported the following

shareholders’ equity:

Share capital, P10 par, outstanding 225,000 shares 2,250,000

Share premium 900,000
Retained earnings 2,190,000

During the current year, the entity had the following share transactions:
* Acquired 6,000 treasury shares for P270,000.
* Sold 3,600 treasury shares at P50 a share.
* Sold the remaining treasury shares at P41 per share.
What is the total amount of share premium at year-end?
Select one:
 a. 908,400
b. 927,600
c. 891,600
d. 870,000

Total stockholders' equity represents

Select one:
a. a claim against a portion of the total assets of an enterprise.
b. only the amount of earnings that have been retained in the business.
c. a claim to specific assets contributed by the owners.
d. the maximum amount that can be borrowed by the enterprise.

Pryor Corporation issued a 100% stock dividend of its common stock which had
a par value of P10 before and after the dividend. At what amount should
retained earnings be capitalized for the additional shares issued?
Select one:
a. Par value
b. Market value on the declaration date
c. Market value on the payment date
d. There should be no capitalization of retained earnings.

When a corporation issues its capital stock in payment for services,

the least appropriate basis for recording the transaction is the
Select one:
a. par value of the shares issued.
b. Any of these provides an appropriate basis for recording the transaction.
c. market value of the services received.
d. market value of the shares issued.

At the beginning of the current year, Cove Company, a closely held entity, issued 6% bonds with
a maturity value of P6,000,000, together with 10,000 ordinary shares of P50 par value, for a
combined cash amount of P11,000,000.
If issued separately, the bonds would have sold for P4,000,000 on an 8% yield to maturity basis.
What amount should be reported for share premium on the issuance of the ordinary shares?
Select one:
a. 4,500,000
 b. 7,500,000
c. 5,500,000
d. 6,500,000

Mara Company provided the following data at year-end:

Authorized share capital 5,000,000

Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 100,000

What total amount should be reported as shareholders’ equity?

Select one:
a. 5,100,000
b. 4,800,000
c. 5,500,000
d. 4,900,000

An entry is not made on the

Select one:
a. date of record.
b. An entry is made on all of these dates.
c. date of payment.
d. date of declaration.

Global Company, a real estate developer, is owned by five founding shareholders.

On December 31, 2018, the entity declared a property dividend of a “one-bedroom flat” for each
shareholder. The property dividend is payable on January 31, 2019.
On December 31, 2018, the carrying amount of a one-bedroom flat is P1,000,000 and the fair
value is P1,500,000.
However, the fair value is P1,800,000 on December 31, 2018 and P1,900,000 on January 31,
2018.
What amount of gain is included in profit or loss as a result of the settlement of the property
dividend on January 31, 2019?
Select one:
a. 2,000,000
b. 4,000,000
c. 2,500,000
d. 4,500,000

When treasury stock is purchased for more than the par value of the stock and
the cost method is used to account for treasury stock, what account(s) should
be debited?
Select one:
a. Paid-in capital in excess of par for the purchase price.
b. Treasury stock for the purchase price.
c. Treasury stock for the par value and paid-in capital in excess of par for the
excess of the purchase price over the par value.
d. Treasury stock for the par value and retained earnings for the excess of
the purchase price over the par value.

Negros Company was incorporated on January 1, 2018 with the following

authorized capitalization:

Ordinary share capital, 200,000 shares, no par, P100 stated value 20,000,000
Preference share capital, 200,000 shares, 10% fixed rate, P50 par value 10,000,000

During 2018, the entity issued 150,000 ordinary shares for a total of
P18,000,000 and 50,000 preference shares at P60 per share. In addition, on
December 15, 2018, subscriptions for 20,000 preference shares were taken at a
purchase price of P100. These subscribed shares were paid for on January 15,
2019. Net income for 2018 was P5,000,000.
What amount should be reported as total contributed capital on December
31, 2018?
Select one:
a. 23,000,000
b. 28,000,000
c. 21,000,000
d. 26,000,000
The residual interest in a corporation belongs to the
Select one:
a. common stockholders
b. preferred stockholders
c. creditors
d. management

At the beginning of the current year, Ria company issued 10,000 ordinary
shares of P20 par value and 20,000 convertible preference shares of P20 par
value for a total of P800,000.
At this date, the ordinary share was selling for P36, and the convertible
preference share was selling for P27.
What is the share premium from the issuance of ordinary shares?
Select one:
a. 0
b. 120,000
c. 160,000
d. 200,000

Global Company, a real estate developer, is owned by five founding

shareholders.
On December 31, 2018, the entity declared a property dividend of a “one-
bedroom flat” for each shareholder. The property dividend is payable on January
31, 2019.
On December 31, 2018, the carrying amount of a one-bedroom flat is
P1,000,000 and the fair value is P1,500,000.
However, the fair value is P1,800,000 on December 31, 2018 and P1,900,000 on
January 31, 2018.
What is the dividend payable on December 1, 2018?
Select one:
a. 7,500,000
b. 9,000,000
c. 5,000,000
d. 0

If management wishes to "capitalize" part of the earnings, it may issue a

Select one:
a. cash dividend.
b. property dividend.
c. stock dividend.
d. liquidating dividend.

At the beginning of the current year, Cove Company, a closely held entity,
issued 6% bonds with a maturity value of P6,000,000, together with 10,000
ordinary shares of P50 par value, for a combined cash amount of P11,000,000.
If issued separately, the bonds would have sold for P4,000,000 on an 8% yield to
maturity basis.
What amount of the proceeds should be allocated to the ordinary shares?
Select one:
a. 5,000,000
b. 7,000,000
c. 4,000,000
d. 8,000,000

During 2018, Hyatt Company issued P110 per share, 15,000 convertible
preference shares of P100 par value. One preference share may be converted
into three ordinary shares of P25 par value at the option of the preference
shareholder.
On December 31, 2018, all of the preference shares were converted into
ordinary shares. The market value of the ordinary share at the conversion date
was P40.
What amount should be credited to share premium as a result of conversion?
Select one:
a. 150,000
b. 0
c. 525,000
d. 375,000

In 2017, Rona Company issued 50,000 shares of P10 par value for P100 per
share.
In 2018, the entity reacquired 2,000 shares at P150 per share and immediately
canceled these 2,000 shares.
In connection with the retirement of shares, what amount should be debited to
retained earnings?
Select one:
 a. 100,000
b. 0
c. 280,000
d. 180,000

Global Company, a real estate developer, is owned by five founding shareholders.

On December 31, 2018, the entity declared a property dividend of a “one-bedroom flat” for each
shareholder. The property dividend is payable on January 31, 2019.
On December 31, 2018, the carrying amount of a one-bedroom flat is P1,000,000 and the fair
value is P1,500,000.
However, the fair value is P1,800,000 on December 31, 2018 and P1,900,000 on January 31,
2018.
What is the dividend payable on December 31, 2018?
Select one:
a. 5,000,000
b. 7,500,000
c. 9,000,000

Which dividends do not reduce stockholders' equity?

Select one:
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends

The pre-emptive right of a common stockholder is the right to

Select one:
a. share proportionately in any new issues of stock of the same class.
b. share proportionately in corporate assets upon liquidation.
c. exclude preferred stockholders from voting rights.
d. receive cash dividends before they are distributed to preferred
stockholders.

Glenn Company provided the following information at year-end:

Preference share capital, P100 par 2,300,000
Share premium – preference share 805,000
Ordinary share capital, P10 par 5,250,000
Share premium – ordinary share 2,750,000
Subscribed ordinary share capital 50,000
Retained earnings 1,900,000
Note payable 4,000,000
Subscription receivable – ordinary share 400,000

What is the amount of legal capital?

Select one:
a. 13,055,000
b. 7,550,000
c. 11,150,000
d. 7,600,000

Which of the following is not a legal restriction related to profit distributions by a

corporation?
Select one:
a. Dividends must be in full agreement with the capital stock contracts as to
preferences and participation.
b. The amount distributed to owners must be in compliance with the state
laws governing corporations.
c. The amount distributed in any one year can never exceed the net income
reported for that year.
d. Profit distributions must be formally approved by the board of directors.

Stockholders of a business enterprise are said to be the residual owners. The

term residual owner means that shareholders
Select one:
a. have the rights to specific assets of the business.
b. can negotiate individual contracts on behalf of the enterprise.
c. are entitled to a dividend every year in which the business earns a profit.
d. bear the ultimate risks and uncertainties and receive the benefits of
enterprise ownership.

A primary source of stockholders' equity is

Select one:
a. income retained by the corporation.
b. both income retained by the corporation and contributions by
stockholders.
c. appropriated retained earnings.
d. appropriated retained earnings.

On November 1, 2018, Grande Company declared a property dividend of

equipment payable on March 1, 2019.
The carrying amount of the equipment is P3,000,000 and the fair value is
P2,500,000 on November 1, 2018.
However, the fair value less cost to distribute the equipment is P2,200,000 on
December 31, 2018 and P2,000,000 on March 1, 2019.
What amount of loss on distribution of property dividend is recognized on March
1, 2019?
Select one:
a. 200,000
b. 300,000
c. 500,000
d. 0

East Company had sufficient retained earnings in 2018 as a basis for dividends
but was temporarily short of cash.
The entity declared a dividend of P1,000,000 on April 1, 2018, and issued
promissory notes to the shareholders in lieu of cash.
The notes, which were dated April 1, 2018, had a maturity date of March 31,
2019 and a 10% interest rate.
How should the scrip dividend and related interest be accounted for?
Select one:
a. Debit retained earnings P1,000,000 on April 1, 2018 and debit interest
expense P75,000 on December 31, 2018.
b. Debit retained earnings P1,100,000 on March 31, 2019.
c. Debit retained earnings P1,000,000 on April 1, 2018 and debit interest
expense P100,000 on March 31, 2019.
d. Debit retained earnings P1,100,000 on April 1, 2018.

At the beginning of the current year, Ria company issued 10,000 ordinary
shares of P20 par value and 20,000 convertible preference shares of P20 par
value for a total of P800,000.
At this date, the ordinary share was selling for P36, and the convertible
preference share was selling for P27.
What is the share premium from the issuance of preference shares?
Select one:
a. 80,000
b. 0
c. 180,000
d. 100,000

In January 2018, Castro Corporation, a newly formed company, issued 10,000 shares of its P10
par common stock for P15 per share. On July 1, 2018, Castro Corporation reacquired 1,000
shares of its outstanding stock for P12 per share. The acquisition of these treasury shares
Select one:
a. did not change total stockholders' equity.
b. increased total stockholders' equity.
c. decreased the number of issued shares.
d. decreased total stockholders' equity.

At the beginning of the current year, Ria company issued 10,000 ordinary shares of P20 par
value and 20,000 convertible preference shares of P20 par value for a total of P800,000.
At this date, the ordinary share was selling for P36, and the convertible preference share was
selling for P27.
What amount of the proceeds should be allocated to the preference shares?
Select one:
a. 600,000
b. 440,000
c. 540,000
d. 480,000

East Company issued 1,000 shares with P5 par to Howe as compensation for
1,000 hours of legal services performed.
Howe usually bills P160 per hour for legal services. On the date of issuance, the
share was trading on a public exchange at P140.
By what amount should the share premium account increase as a result of the
transaction?
Select one:
a. 140,000
b. 135,000
 c. 155,000
d. 160,000

Vicar Company was organized on January 1, 2018 with 100,000 authorized

shares of P100 par value. On January 5, the entity issued 75,000 shares at P140
per share.
On December 31, the entity purchased 5,000 shares at P110 per share. The
entity used the par value method to record the purchase of the treasury shares.
What is the balance of the share premium from treasury shares on December
31, 2018?
Select one:
a. 150,000
b. 0
c. 50,000
d. 200,000

Stock that has a fixed per-share amount printed on each stock certificate is
called
Select one:
a. fixed value stock.
b. uniform value stock.
c. par value stock.
d. stated value stock.

In a corporate form of business organization, legal capital is best defined as

Select one:
a. the amount of capital the state of incorporation allows the company to
accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government allows a corporation to
generate.
d. the total capital raised by a corporation within the limits set by the
Securities and Exchange Commission.

Treasury shares are

Select one:
a. shares held as an investment by the treasurer of the corporation.
b. issued and outstanding shares.
c. issued but not outstanding shares.
 d. shares held as an investment of the corporation.

Lauretta Company reported the following shareholders’ equity on January 1,

2018:
Share capital 1,500,000
Share premium 3,000,000
Retained earnings 2,000,000

The entity had 400,000 authorized shares of P5 par value, of which 300,000
shares were issued and outstanding.
On March 1, 2018, the entity acquired 50,000 shares for P10 per share to be
held as treasury. The shares were originally issued at P8 per share. The entity
used the cost method to account for treasury shares.
On December 31, 2018, the entity declared and distributed a property dividend
of inventory. The inventory had a P750,000 carrying amount and a P1,000,000
fair value. The net income for 2018 was P2,500,000.
What amount should be reported as unappropriated retained earnings on
December 31, 2018?
Select one:
a. 3,250,000
b. 3,000,000
c. 3,350,000
d. 3,500,000

Cash dividends are paid on the basis of the number of shares

Select one:
a. issued.
b. outstanding less the number of treasury shares.
c. outstanding.
d. authorized.

Which of the following represents the total number of shares that a corporation
may issue under the terms of its charter?
Select one:
a. issued shares
b. authorized shares
c. outstanding shares
 d. unissued shares

At the beginning of the current year, Ria company issued 10,000 ordinary
shares of P20 par value and 20,000 convertible preference shares of P20 par
value for a total of P800,000.
At this date, the ordinary share was selling for P36, and the convertible
preference share was selling for P27.
What amount of the proceeds should be allocated to the ordinary shares?
Select one:
a. 400,000
b. 320,000
c. 360,000
d. 200,000

Vicar Company was organized on January 1, 2018 with 100,000 authorized

shares of P100 par value. On January 5, the entity issued 75,000 shares at P140
per share.
On December 31, the entity purchased 5,000 shares at P110 per share. The
entity used the par value method to record the purchase of the treasury shares.
What is the balance of the share premium from the original issuance of shares
on December 31, 2018?
Select one:
a. 2,800,000
b. 3,800,000
c. 3,000,000
d. 4,000,000

Day Company held 10,000 shares of P10 par value as treasury reacquired for
P120,000. On December 31, 2018, the entity reissued all 10,000 shares for
P190,000.
What is credited for the excess of the reissue price over the cost of treasury
shares?
Select one:
a. Gain on sale of investment P70,000
b. Share premium P70,000
c. Retained earnings P70,000
d. Share capital P100,000
During 2018, Hyatt Company issued P110 per share, 15,000 convertible preference shares of
P100 par value. One preference share may be converted into three ordinary shares of P25 par
value at the option of the preference shareholder.
On December 31, 2018, all of the preference shares were converted into ordinary shares. The
market value of the ordinary share at the conversion date was P40.
What amount should be credited to ordinary share capital as a result of conversion?
Select one:
a. 1,500,000
b. 1,650,000
c. 1,800,000
d. 1,125,000

Cyan Company issued 200,000 shares of P5 par value of P10 per share. On
January 1, 2018, the retained earnings amounted to P3,000,000.
In March 2018, the entity reacquired 50,000 treasury shares at P20 per share. In
June 2018, the entity sold 10,000 of these shares to corporate officers for P25
per share. The entity used the cost method to record treasury shares.
Net income for the year ended December 31, 2018 was P600,000.
What amount should be reported as unappropriated retained earnings at year-
end?
Select one:
a. 3,750,000
b. 3,650,000
c. 2,800,000
d. 3,600,000

At the beginning of the current year, Ashe Company was organized with
authorized capital of 100,000 shares of P200 par value.
January 10 Issued 25,000 shares at P220 a share.
March 25 Issued 1,000 shares for legal services when the fair
value was P240 a share.
September 30 Issued 5,000 shares for a tract of land when the fair
value was P260 a share.
What amount should be reported as share capital?
Select one:
a. 7,440,000
b. 7,640,000
c. 6,200,000
 d. 5,000,000

On November 1, 2018, Grande Company declared a property dividend of

equipment payable on March 1, 2019.
The carrying amount of the equipment is P3,000,000 and the fair value is
P2,500,000 on November 1, 2018.
However, the fair value less cost to distribute the equipment is P2,200,000 on
December 31, 2018 and P2,000,000 on March 1, 2019.
What is the dividend payable on December 31, 2018?
Select one:
a. 2,200,000
b. 0
c. 3,000,000
d. 2,500,000

Cyan Company issued 200,000 shares of P5 par value of P10 per share. On
January 1, 2018, the retained earnings amounted to P3,000,000.
In March 2018, the entity reacquired 50,000 treasury shares at P20 per share. In
June 2018, the entity sold 10,000 of these shares to corporate officers for P25
per share. The entity used the cost method to record treasury shares.
Net income for the year ended December 31, 2018 was P600,000.
What is the total amount of retained earnings at year-end?
Select one:
a. 4,400,000
b. 3,600,000
c. 2,200,000
d. 3,400,000

In 2017, Rona Company issued 50,000 shares of P10 par value for P100 per
share.
In 2018, the entity reacquired 2,000 shares at P150 per share and immediately
canceled these 2,000 shares.
1. In connection with the retirement of shares, what amount should be
debited to share premium?
Select one:
a. 20,000
b. 180,000
c. 280,000
 d. 100,000

At the beginning of the current year, Ashe Company was organized with authorized capital of
100,000 shares of P200 par value.
January 10 Issued 25,000 shares at P220 a share.
March 25 Issued 1,000 shares for legal services when the fair value was P240 a
share.
September 30 Issued 5,000 shares for a tract of land when the fair value was P260 a
share.
What amount should be reported for share premium?
Select one:
a. 540,000
b. 500,000
c. 800,000
d. 840,000

Stockholders' equity is generally classified into two major categories:

Select one:
a. appropriated capital and retained earnings.
b. earned capital and contributed capital.
c. contributed capital and appropriated capital.
d. retained earnings and unappropriated capital.