1) Which of the following is a characteristic of a corporation?

A.Salaries given to owners is a mean of distributing income

B.Separate legal entity
C.Unlimited liability
D. Limited life

2) Total Shareholders’ equity represents

A.A claim to specific assets contributed by the owners.
B.The maximum amount that can be borrowed by the entity.
C.A claim against a portion of the total assets of an entity.
D. Only the amount of earnings that have been retained in the business.

3) Equity is generally classified into two major categories, namely

A. Contributed capital and appropriated C. Retained Earnings and unearned capital
capital
B. Appropriated capital and retained D. Earned capital and contributed capital
earnings

1) The issuer should charge retained earnings for the fair value of shares issued in a
A 1 for 5 share B. 1 for 8 share C. 4 for 1 share D. 2 for 1 share split
. dividend dividend split

4) The term residual interest means that ordinary shareholders

A.are entitled to a dividend every year in which the entity earns a profit
B.have the right to specific assets of the entity
C.bear the ultimate risks and uncertainties and receive the benefits of ownership
D. can negotiate individual contracts on behalf of the entity

5) Which is not a basic right of a shareholder?

A.The right to participate in earnings
B.The right to vote in the election of directors and in the determination of corporate policies.
C.The right to share in the net assets of the corporation upon liquidation
D. The right to inspect the accounting records of the corporation.

6) Ownership of share capital entitles the holders to all of the following rights except:
A.To elect the board of directors of the corporation
B.To share in the profits of the corporation
C.To purchase new shares of stock when they are offered for sale
D. To participate in the daily operations of the corporation

7) The preemptive right of an ordinary shareholder is the right to

A.Share proportionately in corporate assets upon liquidation
B.Share proportionately in any new issue of shares of the same class
C.Receive cash dividends before they are distributed to preference shareholders
D. Exclude preference shareholders from voting rights

8) Which of the following is not an equity component?

A. Par value of share capital C. Accumulated profits/losses
B. Dividends distributed to owners D. Share premium

9) The par value of ordinary share capital represents

A.The liquidation value of the share capital
B.The book value of the share capital
C.The legal nominal value assigned to the share capital
D. The amount received by the corporation when the share was originally issued.

10) Which of the following will not require journal entry under the memo entry method?
A. Authorization of shares to be issued C. Shares issued
B. Subscription received D. Re-acquisition of previously issued shares

11) Using the journal entry method, what is the appropriate entry when there is an issuance of share
capital?
A. Credit to unissued share capital C. Credit to share capital
B. Credit to authorized share capital D. Debit to authorized share capital

12) What do you call that body that is regarded as the supreme authority in matters of management of
the regular and business affairs of a corporation?
A. Board of directors C. Majority stockholders
B. Minority stockholders D. None of the above

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 13) What is the accounting treatment for the excess of issue price over par value of stocks issued?
A. Debited to share premium C. Credited to extra ordinary gain
B. Credited to accumulated profits D. Credited to share premium

14) What is the accounting treatment of the direct issue costs of shares of stocks?
A.Debit to the related share premium during organization stage and operating stage
B.Debit to organizational cost during the organization stage
C.Debit to revenue expenditure during the operating stage
D. Debit to accumulated expenses during the operating stage

15) What is the total number of shares that a corporation may issue under its charter?
A Authorized B. Issued shares C. Unissued shares D. Treasury shares
. shares

16) Choose the situation which illustrate the minimum requirement of the law for corporate formation
Authorized Capital Subscribed Capital Paid In Capital
A. P100,000 P 5,000 P5,000
B. P100,000 P15,000 P5,000
C. P 50,000 P10,000 P5,000
D. P 15,000 P12,500 P5,000

17) In case shares are issued for outstanding liabilities, what is the measure of recording share capital
and share premium?
A. Par value of the shares issued C. Fair value of the shares issued
B. Amount of liabilities set-off D. Book value of the shares issued

18) When ordinary shares are issued in payment for services, the least appropriate basis for recording
the transactions is
A.Fair value of the services received
B.Par value of the shares issued
C.Fair value of the shares issued
D. Any of these provides an appropriate basis for recording the transaction.

19) When should the share premium be recorded for shares issued at higher than par?
A. Date of subscription C. Date of issuance of certificate
B. Date of full payment D. Date of re-acquisition of shares

20) The entry to record the issuance of ordinary shares for fully paid subscription is
A.Ordinary Share Subscribed C. Ordinary Share Subscribed
Ordinary Share Ordinary Share
B.Share Premium – Ordinary Share
Ordinary Share Subscribed D. A memorandum entry
Subscription Receivable

21) On February 1, authorized ordinary share capital was sold on a subscription basis at a price in
excess of par value, and 20% of the subscription price was collected. On May 1, the remaining 80%
of subscription price was collected. Share premium would increase on
A February 1 B. May 1 C. Both A and B D. Neither A nor B
.

22) Organization costs are incurred before actual operation, and as such these are treated as
A.Outright expense charged to the first year of operation
B.Other tangible assets amortized over 5 years
C.Other intangible assets amortized over a period not exceeding 5 years
D. Deferred expenses to be amortized based on actual revenue earned for the period

23) Which of the following describes legal capital?

A. Total stockholder’s equity C. Stated value of capital stock and share
premium
B. Paid-up capital and subscribed capital D. Par value of capital stock issued and share
premium

24) The purchase of treasury shares would have the following effects:
Assets Equity Shares Outstanding
issued shares
A. Increase Decrease No effect Decrease
B. Decrease Increase Decrease Decrease
C. Decrease Decrease Decrease Decrease

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 D. Decrease Decrease No effect Decrease

25) Treasury stocks are recorded at

A. Acquisition cost C. Par value
B. Fair value at date of acquisition D. Not recorded at the date of acquisition

26) The cost of treasury stocks acquired for non-cash consideration is measured by
A.Fair value of non-cash consideration given up
B.Prevailing market price of the shares acquired as treasury stock
C.Carrying cost of the non-cash asset surrendered
D. Par value of shares acquired as treasury stock

27) Gains on the sale of treasury stock should be credited to

A. Paid in capital from treasury stock C. Majority stockholders
B. Share capital D. None of the above

28) Which statement is incorrect concerning treasury stock?

A.Treasury stock shall be recorded at cost irrespective of whether acquired below or above par value.
B.The total cost of treasury stock shall be deducted from equity.
C.Treasury stock may be recognized as a financial asset.
D. Gains or losses on sales of treasury stock shall not be included in profit or loss.

29) Treasury share is appropriately presented on the statement of financial position as a

A. Trading security or available for sale C. Deduction at cost from total shareholders’
security equity
B. Deduction at cost from total contingent D. Deduction at par from total shareholders’
liabilities equity

30) Gains or losses on the purchased and resale of treasury share is reflected in
A.Paid-in capital accounts only
B.Paid-in accounts and accumulated profits accounts
C.Income, paid-in capital accounts, and accumulated profits accounts.
D. Income and paid-in capital accounts

31) Treasury shares (TS) were acquired for cash at a price in excess of its par value. The treasury
shares were subsequently reissued for cash at a price in excess of its acquisition price. What is the
effect on accumulated profits of the acquisition of treasury shares and of the reissuance of treasury
shares?
Acquisition of TS Reissuance of TS
A. No effect Increase
B. Increase No effect
C. No effect No effect
D. Increase Decrease

32) Which of the following best describes a possible result of treasury share transactions?
A. May increase but not decrease retained C. May decrease but not increase retained
earnings earnings
B. May increase net income if the cost method D. May decrease but not increase net income
is used

33) Which of the following statements pertaining to share capital transaction is not correct?
A.The total stockholder’s equity is increased by the amount of cash received
B.The excess of par value over the fair value of noncash item received increases the share premium
C.The noncash item received is recorded at its fair value
D. The total stockholder’s equity is increased by the value of liability set off

34) Which of the following will not affect the number of outstanding shares?
A. Retirement of treasury stock C. Subscription received
B. Cash sale of stock at par value D. Authorization of additional shares

35) At the date of financial statements, ordinary shares issued would exceed ordinary shares
outstanding as a result of the
A. Declaration of a share split C. Purchase of treasury shares
B. Declaration of a bonus issue D. Payment in full of subscribed shares

36) How would a share split affect each of the following?

Asset SHE APIC
A. Increase Increase No effect
B. No effect No effect No effect
C. No effect No effect Increase

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 D. Decrease Decrease Decrease

37) Deposits on subscription to a proposed increase in capital stock should be shown as

A. Part of liabilities C. Part of stockholders’ equity
B. Part of accumulated profits D. Memorandum entry only

38) The stockholder’s equity account representing the earnings of the corporation available for
distribution is known as
A Accumulated B. Share premium C. Share capital D. Treasury shares
. profits

39) If management wishes to capitalize part of the retained earnings, it may issue a
A Cash dividend B. Share dividend C. Property D. Liquidating
. dividend dividend

40) A company declared a cash dividend on its ordinary shares in December 2009, payable in January
2010. accumulated profits would
A. Increase on the date of declaration C. Not be affected on the date of payment
B. Not be affected on the date of declaration D. Decrease on the date of payment

41) Preference share that has a claim on any prior year dividends that may have passed is
A Cumulative B. Non-cumulative C. Participating D. Non-participating
.

42) Fully participating preference share means that

A.The ordinary shareholders receive a dividend rate per share equal to the preference share and all
excess dividends are given to the ordinary shareholders
B.The ordinary shareholders receive a dividend rate per share equal to the preference share and all
excess dividends go to the preference shareholders
C.The ordinary shareholders receive a dividend rate per share equal to the preference share and all
excess dividends are shared proportionately between the two classes
D. The preference shareholders receive their full dividend and any excess is given to the ordinary
shareholders

43) Select the statement that is incorrect concerning the appropriation of accumulated profits
A.Appropriations of accumulated profits do not change the total amount of shareholders’ equity
B.Appropriations of accumulated profits reflect funds set aside for a designated purpose, such as
plant expansion
C.Appropriations of accumulated profits can be made as a result of contractual requirements
D. Appropriations of accumulated profits can be made at the discretion of the board of directors

44) Non-stock dividends shall be recognized as liabilities on the

A. Date of declaration C. Date of record
B. Date of payment D. Date of issuance of check

45) When shareholders may elect receive cash in lieu of stock dividend, the amount to be charged to
retained earnings is equal to the
A. Optional cash dividends C. Fair value of the shares
B. Par value of the shares D. Book value of the shares

46) Dividends in arrears are shown on the financial statements as

A. Current liabilities C. Contra-equity accounts
B. Contra-equity accounts D. Note disclosures only

47) Noncumulative preference dividends in arrears

A.Are not paid and not disclosed
B.Must be paid before any other cash dividend can be distributed
C.Are disclosed as a liability until paid
D. Are paid to preference shareholders if sufficient funds are available

48) The declaration and issuance of a share dividend

A.Increases ordinary shares outstanding and total equity
B.Decreases retained earnings but does not change total equity
C.May increase or decrease share premium but does not change total equity
D. Increases retained earnings and total equity

49) A company issued rights to its existing shareholders to purchase, for P30 per share, unissued
shares of P15 par value ordinary share capital. Share premium will be credited during
Issuance of Rights Exercise of Rights Expiration of Rights
A. Yes No No

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 B. No No Yes
C. No Yes No
D. Yes Yes Yes

50) A company issued rights to its existing shareholders to purchase ordinary shares. When the rights
are exercised, share premium would be credited if the purchase price
A.Exceeded the par value
B.Was the same as the par value
C.Was the same as the par value, but less than the market value at the date of exercise
D. Was less than the par value

51) A company issued rights to its existing shareholders to purchase, for P30 per share, unissued
ordinary shares of P15 par value. When the rights lapse
A. No entry will be made C. Additional paid-in will be credited
B. Share premium will be debited D. Stocks rights outstanding will be debited

52) Assuming that the issuing company has only one class of share capital, a transfer from
accumulated profits to contributed capital equal to the market value of the shares issued is ordinarily
a characteristic of
A. Either a bonus issue or a share split C. A share split but not a bonus issue
B. Neither a bonus issue nor a share split D. A bonus issue but not a share split

53) Which is incorrect in relation to appropriations of retained earnings

A.Appropriations do not reduce total retained earnings
B.The only proper way to eliminate an appropriation of retained earnings after it has served its
purpose is to credit the unappropriated retained earnings account
C.An appropriation of retained earnings does not mean the assets are segregated
D. When treasury shares are purchased, retained earnings must be appropriated equal to the par or
stated value of such shares.

54) Earnings per share shall be computed on the basis of

A.Average ordinary shares outstanding during the year.
B.Ordinary shares outstanding at the end of the year.
C.Ordinary shares outstanding at the beginning of the year.
D. Average ordinary and preference shares outstanding during the year.

55) For an entity having several different issues of convertible securities, and share options and
warrants, the standard requires selection of the combination of securities producing
A.The lowest possible earnings per share
B.The highest possible earnings per share
C.The EPS figure midway between the lowest possible and highest possible EPS.
D. Any EPS figure between the lowest possible and the highest possible EPS.

56) Earnings per share should always be shown separately for

A. Net Income and gross profit C. Income from continuing operations
B. Net Income and pretax income D. Discontinued operations and prior period
adjustments

57) Options and warrants are dilutive if

A.The exercise price is higher than the average market price.
B.The exercise price is lower than the average market price.
C.The exercise price is equal to the average market price.
D. The option shares represent 20% of the common shares actually outstanding.

58) Under the treasury share method, the number of potential ordinary shares is equal to
A. Option shares C. Assumed treasury shares acquired
B. Option shares minus assumed treasury shares D. Option shares actually issued during the
acquired year.

59) A written put option

A.A contract that requires an entity to repurchases its own ordinary shares
B.A contract that gives the holder the right to sell ordinary shares at a specified price for a given
period.
C.A financial instrument that gives the holder the right to purchase ordinary shares.
D. An agreement to issue ordinary shares that is dependent on the satisfaction of specified
conditions.

60) Which statement is incorrect concerning earnings per share?

A.An entity shall present on the face of the income statement basic and diluted earnings per share for
income or loss from continuing operations.

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 B.An entity that reports a discontinued operation is not required to disclose the basic and diluted
earnings per share for the discontinued operation either on the face of the income statement or in
the notes.
C.Earnings per share of common stock as reported on the income statement should be computed on
the basis of a weighted average of the number of shares outstanding during the year except that
minor fluctuations in the number of shares may be disregarded.
D. A company with a simple capital structure for purposes of computing earnings per share would
include dividends on nonconvertible cumulative preferred stock.

61) What will be the effect on earnings per share and stockholder’s equity with the reacquisition by an
entity of its own stock?
A. Decrease in EPS and stockholders’ equity C. Increase in EPS and decrease in stockholders’
equity
B. No effect on EPS and increase in stockholders’ D Decrease in EPS and increase in stockholders’
equity . equity

62) As of January 1, 2021 there are 2 years of dividends in arrears on an issue of cumulative
nonconvertible preference share. No dividends on preference share were declared in 2021.
Therefore, in the 12/31/21 financial statements, the firm issuing the preference share:
A.reports a liability equal to 3 years of dividends on preference share.
B.reports a liability equal to 2 years of dividends on preference share.
C.subtracts 3 years of dividends on preference share from earnings when computing earnings per
share for 2021.
D. discloses in a footnote to 2021’s statement of financial position that there are 3 years of dividends
on preference share in arrears.
E.discloses in a footnote to 2021’s statement of financial position that there are 2 years of dividend
on preference share in arrears.

63) The order in which dividends are allocated to ordinary and preference share depends upon the
provisions in the respective share contracts. Choose the correct statement regarding this allocation.
A.When noncumulative preference share is fully participating, the rate of dividends allocated to
preference share is the ratio of total par of preference share outstanding to total par of both
classes of shares outstanding.
B.When noncumulative preference share is not participating, the rate of dividends to ordinary share is
limited to the ratio of total par of ordinary shares outstanding to total par of both classes of shares
outstanding.
C.When 8% cumulative preference share is participating to a total of 12%, any arrear dividends are
ignored in the allocation since they pertain to a previous year.
D. When 8% noncumulative preference share is participating to a total of 12%, the preference share
must receive all arrear dividends and 12% of total preference share par outstanding prior to
ordinary share receiving any dividends.

64) Which of the following statements is incorrect?

A.Retained earnings, if not designated otherwise, represents the unappropriated portion of retained
earnings.
B.Total retained earnings include both appropriated arid unappropriated retained earnings.
C.The existence of a bond sinking fund implies an appropriation of retained earnings for a bond
sinking fund.
D. When retained earnings is restricted, it must also be appropriated.

65) Which of the following statements is true?

A.When treasury share is accounted for by the cost method, the treasury share account is reported as
an unallocated negative element of total shareholders’ equity.
B.When treasury share is formally retired, the only accounting recognition needed is a note to the
financial statements.
C.No entry is required to record treasury share received as a donation because it has no cost.
D. If treasury share is purchased at a cost in excess of its book value and then retired, book value per
share (for the remaining shares) will remain the same.

66) Which of the following statements is false?

A.The conversion of preference shares into ordinary share results in no change in total shareholders’
equity.
B.The purchase of treasury share often reduces the amount of retained earnings which can legally be
paid out as dividends.
C.Issuing ordinary share in exchange for equipment would reduce the debt to equity ratio.
D. The conversion of preference shares into ordinary share results in a change in total shareholders’
equity.

67) Which of the following statements is correct?

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 A.When share rights are issued to existing shareholders, no disclosure of this needs to be made in the
financial statements.
B.Often cash and more than one right issue are required to acquire an additional share of the related
share at the option price.
C.Share rights seldom have value and, as a consequence, are seldom bought and sold in the capital
markets.
D. Liquidating dividends are similar to share dividends because neither one reduces total
shareholders’ equity.

68) Which of the following statements is correct?

A.Rights issues usually do not have value and cannot be bought and sold in the market.
B.Rights issues, once issued, seldom if ever lapse.
C.When rights are issued to existing shareholders, no disclosure of this needs to be made in the
financial statements.
D. Between the declaration date and the ex-dividend date, the market price of the share includes the
dividend.

69) Choose the correct statement concerning retained earnings appropriations and restrictions.
A.All retained earnings restrictions are appropriations.
B.An appropriation for plant expansion must be made for the exact amount of the future expansion
cost.
C.Where bondholders require a restriction on retained earnings, the board of directors must also set
up a sinking fund for the eventual bond retirement.
D. Unrestricted retained earnings are available for dividend declaration.

70) Posy Corp. acquired treasury shares at an amount greater that their par value, but less than their
original issue price. Compared to the cost method of accounting for treasury stock, does the par value
method report a greater amount for additional paid-in capital and a greater amount for retained
earnings?
Additional paid-in capital Retained earnings
A. Yes Yes
B. Yes No
C. No No
D. No Yes

71) On incorporation, Dee Inc. issued stock at a price in excess of its par value. No other stock
transactions occurred except treasury stock was acquired for an amount exceeding this issue price. If
Dee, immediately retired the stocks acquired, what is the effect of the acquisition on the following?
Net Common Stock Additional Paid-in Capital Retained Earnings
A. No effect Decrease No effect
B. Decrease Decrease Decrease
C. Decrease No effect Decrease
D. No effect Decrease Decrease

72) Instead of the usual cash dividend, Macho Corp. declared and distributed a property dividend from
its overstocked merchandise. The excess of the merchandise's carrying amount over its market value
should be
A.Ignored.
B.Reported as a separately disclosed reduction of retained earnings.
C.Reported as an extraordinary loss, net income taxes.
D. Reported as a reduction in income before discontinued items.

73) How would total stockholders' equity be affected by 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

74) Redeemable preference shares are classified by the issuer as

A Share capital B. Financial liability C. Financial asset D. Contra-equity
. account

75) The following will not cause a change in the total stockholder’s equity, except
A Quasi- B. Recapitalization C. Share splits D. “large” share
. reorganization dividends

76) Which of the following is not a characteristic of a corporation

A. Limited liability of shareholders C. Flexible ownership
B. Separate legal entity D. Nontaxable entity

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 77) The residual interest in a corporation belongs to the
A. Management C. Ordinary shareholders
B. Creditors D. Preference shareholders

78) Categories of equity include all of the following, except

A. Noncontrolling interest C. Liquidating dividends
B. Cumulative other comprehensive D. Treasury shares
income

79) Shares that have a fixed per-share amount printed on each share certificate are called
A. Stated value shares C. Uniform value shares
B. Fixed value shares D. Par value shares

80) What is a primary element that distinguishes accounting for corporation from accounting for other
legal form of business organization (e.g., partnership)?
A.The corporation draws sharper distinction in accounting for sources of capital
B.The entity theory relates primarily to the other forms of business organization
C.In corporation, retained earnings may be reduced only by the declaration of dividends
D. GAAP apply to corporations but have only little applicability to other forms of organization

81) Which of the following is not among the basic rights of a shareholders?
A.To share in corporate earnings
B.To vote in the election of directors
C.To subscribe for additional share issues
D. To represent himself in the name of the corporation

82) The par value of an ordinary share represents

A.the book value of the share
B.the liquidation 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

83) When shares are sold at an amount higher than par value, the excess over par shall be credited to
A. Share premium C. Share options
B. Share warrants D. Retained earnings

84) Any direct costs incurred to issue shares above par value (i.e., share issue cost) shall be debited to
A. Expense C. Organization cost
B. Share premium D. Retained earnings

85) Share issued for noncash consideration such as property, plant and equipment shall be measured at
A. Par value of the share issued C. Fair value of the non cash consideration
received
B. Fair value of the shares issued D. Carrying amount of the noncash consideration
received

86) Shares issued to extinguish financial liability shall be measured initially at

A. Fair value of liability extinguish C. Far value of instrument issued
B. Par value of equity instrument issued D. Carrying amount of liability extinguish

87) Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury
shares within a specific time at a specific price?
A. Share option C. Share dividend
B. Share warrants D. Share split

88) 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. Are issued C. Are exercisable
B. Are exercised D. Are not exercised

89) Treasury shares are recorded at

A.Par value of the shares reacquired
B.Cost only if acquired below par value

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 C.Cost only if acquired above par value
D. Cost regardless of whether they are acquired above or below par value

90) The purchase (acquisition) of treasury shares

A. Decreases shares outstanding C. Decreases share issued
B. Increases share outstanding D. Increases share issued

91) How should a corporation reflect treasury shares on its balance sheet?
A. As part of current assets C. As a deduction form retained earnings
B. As part of noncurrent assets D. As a deduction from shareholders’ equity

92) The ‘gain’ on sale (re-issuance) of treasury shares is

A. Credited to retained earnings C. Disclosed in the notes to the financial
statements
B. Credited to share premium D. Considered in the computation of profit or loss

93) The ‘loss’ on sale (re-issuance) of treasury shares is

A.Considered in the computation of profit or loss
B.Disclosed in the notes to the financial statements
C.Debited to retained earnings even when share premium is sufficient to absorb the loss
D. Debited to retained earnings only when share premium is insufficient to absorb the loss

94) A restriction of retained earnings is most likely to be required by the

A.Purchase of treasury stock
B.Amortization of past service cost
C.Payment of last maturing series of a serial bond issue
D. Exhaustion of potential benefits of the investment credit

95) A retained earnings appropriation is used to

A.Smooth periodic income
B.Restrict earnings available for dividends
C.Absorb a fire loss when a company is self-insured
D. Provide for a contingent loss that is probable and measurable

96) Which dividend when declared does not create a liability?

A. Cash dividend C. Scrip dividend
B. Share dividend D. Property dividend

97) Dividend paid out of preference shares with mandatory redemption (i.e., financial liability) are
A. Not recorded C. Charged against retained earnings
B. Charged as expense D. Charged against related financial liability

98) When dividends are declared and paid in shares of stock

A. Current ratio increases C. Total shareholders’ equity decreases
B. Working capital decreases D. Total shareholders’ equity does not change

99) At what amount per share should retained earnings be reduced for a 20% stock dividend?
A. Zero C. Market value at the date of declaration
B. Par value D. Market value at the date of issuance

100) If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?
A. Par value of the shares C. Fair value of the shares on the date of issuance
B. Fair value of the shares on the date of D. Fair value of the shares on the date of
record declaration

101) Dividends in arrears are

A.Dividends on common stock that have not been declared
B.Dividends on preferred stock that have been declared but not paid
C.Cumulative preferred dividends that have not been declared for a given period of time
D. Noncumulative preferred dividends that has not been declared for a given period of time

102) When the total shareholders’ equity is smaller than the contributed capital, this deficiency is called
A. A net loss C. A liability

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 B. A dividend D. A deficit

103) The primary purpose of a quasi-reorganization is to give the entity the opportunity to
A.Obtain relief from its creditors
B.Eliminate a deficit in retained earnings
C.Revalue understated assets to their fair value
D. Distribute shares of a newly created subsidiary to shareholders

104) When an entity goes through a quasi-reorganization, the balance sheet carrying amounts are stated
at
A. Original cost C. Replacement value
B. Original book value D. Fair value

105) Immediately after the quasi-reorganization, the retained earnings account

A.Has a zero balance
B.Remains the same as it was before the quasi-reorganization
C.Has a debit balance equal to the write-down of the assets which were overstated
D. Is appropriated to the full amount until the company shows sign of financial recovery

106) The accounting for quasi-reorganization usually involves

A.Write-up of assets and write-down of retained earnings
B.Write-up of both assets and retained earnings
C.Write-down of assets and elimination of a deficit
D. Write-up of assets and elimination of deficit

107) A company mate effect a stock split in order to

A. Lower the market price per share C. Decrease the number of shares outstanding
B. Raise the unit market price of its share D. Narrow down distribution of its hares to
shareholders

108) Choose the most correct statement regarding a 2-for-1 share split and a 100% share dividend.
A.Neither affect par value
B.Both double the number of share outstanding
C.Both cause the same reduction in retained earnings
D. Both cause significant increase in the ordinary shares account

109) Which of the following items does not affect the retained earnings of a corporation?
A.Transfer of cumulative balance of unrealized gain on investment at fair value through other
comprehensive income upon sale.
B.Transfer of revaluation surplus of PPE upon disposal.
C.Write-down of assets and elimination of deficit during quasi-reorganization
D. Dividends paid to holders of equity instrument classified as financial liability

110) Which of the following transactions would not lead to the recognition of a share premium?
A.Donation of land by a shareholder
B.Gain on sale of shares as a result of exercise of stock rights
C.Issuance of convertible bonds
D. Appropriation of retained earnings for treasury share
111) When treasury shares are purchased for more than the par value of the shares and the cost method
is used to account for treasury shares, what account should be debited?
A.Treasury shares for the par value and share premium for the excess of the purchase price over the
par value.
B.Share premium for the purchase price
C.Treasury shares for the purchase price
D. Treasury shares for the par value and retained earnings for the excess of the purchase price over
the par value.

112) Share premium could not arise from

A. Donated capital C. Distribution of “large” bonus issue
B. resale of treasury stock D. Distribution of “small” bonus issue

113) What is the corporation’s legal capital?

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 A.It is the portion of the paid-in capital arising from the issuance of capital stock that cannot be
returned to the stockholders in any form during the lifetime of the corporation.
B.In case of par value stock, legal capital is the aggregate par value of all shares issued and
subscribed.
C.In case of no-par value stock, legal capital is the aggregate stated value of shares issued and
subscribed plus any excess over stated value.
D. All of the above statements would describe the concept of legal capital.

114) The retained earnings account represents the cumulative balance of periodic net income, dividend
distribution, retroactive adjustments and other capital adjustments. One of the following refers to
appropriated retained earnings:
A.This is known as a debit balance in the retained earnings.
B.This results when the deficit exceeds the total of all the stockholders’ equity account.
C.This represents that portion that is free and can be declared as dividends to stockholders.
D. This represents that portion that is restricted and hence cannot be declared as dividends.

115) Which of the following is an invalid approach of recording various dividends?

A. Property dividend as liability C. Stock dividend distributable as liability
B. Property dividend at market value D. Stock dividend distributable as equity

116) It is defined as the issuance by an entity of its own ordinary shares to its ordinary shareholders
without considerations 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 their
unit market price
A. Share split C. Share option
B. Rights issue D. Share appreciation rights

117) Motherhood Company declared a 10% stock dividend. The declaration

A.Would decrease both retained earnings and total stockholders’ equity
B.Would decrease retained earnings but would have no effect on total stockholders’ equity
C.Would have no effect on retained earnings but would decrease total stockholders’ equity
D. Would have no effect both retained earnings and total stockholders’ equity

118) Unlike a share split, a bonus issue requires a formal journal entry in the financial accounting records
because
A.Bonus issue increase the book value of an individual’s shareholdings
B.Bonus issue increase the shareholders’ equity in the issuing firm
C.Bonus issue is payable on the date they are declared
D. Bonus issue represents a transfer from retained earnings to share capital

119) The retirement of the treasury shares

A. Decreases share outstanding C. Decreases shares issued
B. Decreases shares authorized D. Has no effect on shares issued

120) Dividends paid out of a financial liability (e.g., preference shares with mandatory redemption) are
A. Not recorded C. Charged against retained earnings
B. Charged as expense D. Charged against related financial liability

121) The retained earnings balance is nil after a company undergoes

A. Corporate reorganization C. Equity swap
B. Modification of terms D. Asset swap

122) Which feature of preference shares makes the security more like debt than an equity instrument?
A. Participating C. Redeemable
B. Voting D. Noncumulative

123) When preference shares ratably with the ordinary shareholders in any profit distribution beyond the
prescribed rate this is known as the
A. Cumulative feature C. Callable feature
B. Participating feature D. Redeemable feature

124) Which dividends do not reduce equity?

A. Cash dividend C. Property dividends

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 B. Share dividend D. Liquidating dividends

125) An entity makes only a memorandum entry when

A.Entities give warrants to executives and employees as a form of compensation
B.Entities include warrants to make a security more attractive
C.Entities issue rights to existing shareholders.
D. All of the choices are correct

126) The distribution of share rights to existing shareholders would increase share premium at
A. Date of issuance of rights C. Date of expiration of rights
B. Date of exercise of rights D. All of these are correct choices

127) When bonds are issued with detachable warrants, the amount to be recorded as share premium is
preferably
A.Zero
B.Calculated as the excess of the proceeds over the face amount of the bonds.
C.Equal to the market value of the warrants.
D. Calculated as the excess of the proceeds over the fair value of the bonds.

128) The major difference between convertible debt and share warrants is that upon exercise of the
warrants
A.The shares are held by the entity for a definite period of time before they are issued to the warrant
holder.
B.The holder has to pay a certain amount of cash to obtain the shares.
C.The share involved are restricted and can only be sold by the recipient after a certain period.
D. No share premium can be a part of the transactions

129) When convertible debt is not converted at maturity

A.A gain or loss is recorded for the difference between the carrying amount of the debt and the
present value of the cash flows.
B.The amount originally allocated to equity is recorded as a gain on retirement,
C.The amount allocated to the equity component at the issuance date is recorded as a loss on
retirement.
D. The carrying amount of the bond equals face amount and it is removed from the books.

130) The conversion of preference shares into ordinary shares requires than any excess of the par value
of the ordinary shares issued over the carrying amount of the preference shares converted should be
A. Reflected currently in income C. Treated as a prior period adjustment
B. Reflected currently in OCI D. Treated as a direct reduction of retained
earnings

131) When collectability is reasonably assured, the excess of the subscription price over the stated value
of the no par ordinary shares subscribed should be recorded as
A.No par ordinary share
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 ordinary shares are issued

132) Which statement is incorrect regarding equity

A.Equity is the residual interest in the assets of the equity after deducting all its liabilities.
B.Equity may be sub-classified in the balance sheet.
C.The amount at which equity is shown in the balance is depended on the measurement of assets
and liabilities.
D. All the statement are correct.

133) The components of equity generally recognized by companies in the Statement of Financial Position
are:
I. Provisions
II. Debentures
III. Share capital
IV. Other reserves
V. Retained earnings

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 A. I, II and III only C. II, III and V only
B. I, III, IV and V only D. III, IV and V only

134) Which statement is true concerning share capital transactions?

A.Deposits on subscription to a proposed increase in share capital should be reported as part of
shareholders’ equity.
B.Subscription receivable from sale of share capital not currently collectible should be reflected as
deduction from the related subscripted share capital.
C.Discount on share capital should be shown as deduction from total shareholders’ equity.
D. All of these statements are true concerning share capital transactions.

135) Total shareholders’ equity represents

A.A claim to specific asset contributed by the owners.
B.The maximum amount that can be borrowed by the entity.
C.A claim against a portion of the total asset of an entity.
D. Only the amount of earnings that have been retained in the business.

136) Equity is generally classified into major category, namely

A.Contributed capital and appropriated retained earning
B.Appropriated capital and retained earnings
C.Retained earnings and unearned capital
D. Earned capital and contributed capital

137) The term residual interest means that ordinary shareholders

A.Are entitled to a dividend every year in which the entity earns a profit.
B.Have the right to specific asset of the entity.
C.Bear the ultimate risks and uncertainties and receive the benefit of ownership.
D. Can negotiate individual contracts on behalf of the entity.

138) Which is not a basic right of a shareholder?

A.The right to participate in earnings.
B.The right to vote in the election of directors and in the determination of corporate policies.
C.The right to share in the net assets of the corporation upon liquidation.
D. The right inspect the accounting records of the corporation.

139) The preemptive right of an ordinary shareholder is the right to

A.Share proportionately in corporate assets upon liquidation.
B.Share proportionately in any new issue of shares of the same class.
C.Receive cash dividends before they are distributed to preference shareholders.
D. Exclude preference shareholders from voting rights.

140) What is the total number of shares that a corporation may issue under its charter?
A Authorized B. Issued shares C. Unissued shares D. Treasury shares
. shares

141) If shares are issued for a consideration other than cash, the proceeds shall be measured by
A. Fair value of the noncash consideration C. Par value of the shares issued
received
B. Fair value of the shares issued D. Carrying amount of the noncash consideration
received

142) When ordinary shares are issued in payment for services, the least appropriate basis for recoding
the transaction is the
A.Fair value of the service received.
B.Par value of the shares issued
C.Fair value of the share issued
D. Any of these provides an appropriate basis for recording the transaction

143) When collectability is reasonably assured, the excess of the subscription price over the stated value
of the no par share capital subscribed should be recorded as
A. No par share capital C. Share premium when the subscription is collected

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 B. Share premium when the subscription is D. Share premium when the shares are issued
recorded

144) Treasury shares are

A.Shares held as investment by the treasurer of the corporation
B.Shares held as an investment of the corporation
C.Issued and outstanding shares
D. Issued but not outstanding shares

145) Which of the following best describes a possible result of treasury share transactions?
A. May decrease but not increase retained C. May increase net income if the cost method is
earnings used
B. May decrease but not increase net asset D. May increase but not decrease retained earnings

146) Redeemable preference share should be

A. Included with ordinary shares C. Excluded from the statement of financial position
B. Included as liability D. Included as a contra item in shareholders’ equity

147) Cumulative preference dividends in arrears should be reported as

A. An increase in current liabilities C. A footnote
B. An increase in equity D. An increase in noncurrent liabilities

148) Noncumulative preference dividends in arrears

A.Are not paid and not disclose
B.Must be paid before any other cash dividend can be distributed
C.Are disclosed as a liability until paid
D. Are paid to preference shareholders if sufficient funds are available

149) The cumulative feature of preference shares

A.Limits the amount of cumulative dividends to the par value of the preference share.
B.Requires that dividends not paid in any year must be made up in a later year before dividends are
distributed to ordinary shareholders.
C.Means that the shareholder can accumulate preference shares equal to the par value of ordinary
shares.
D. Enables a preference shareholder to accumulate dividends equal to the par value of the shares
and receive the shares in place of the cash dividends.

150) The features frequently associated with preference shares includes all, except
A. Callable at the option of the shareholder C. Non voting
B. Convertible into ordinary share D. Preference as to assets in the event of liquidation

151) An entry is not made on the

A. Date of declaration C. Date of payment
B. Date of record D. Al entry is made on all of these dates

152) If management wishes to “capitalize” part of the retained earnings, it may issue a
A Cash dividend B. Share dividend C. Property D. Liquidating
. dividend dividend

153) The declaration and issuance of a large share dividend

A.Increases ordinary shares outstanding and total equity
B.Decrease retained earnings but does not change total equity
C.May increase or decrease share premium but does not change total equity
D. Increase retained earnings and total equity

154) The issuer of a small ordinary share dividend to ordinary shareholders should transfer from retained
earnings to contributed capital an amount equal to
A. Fair value of the shares issued C. Minimum legal capital
B. Book value of the shares issued D. Par or stated value of the shares issued

155) At the date of declaration of a small ordinary share dividend, the entry should not include
A. A credit to ordinary share dividend C. A debit to retained earnings
payable

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 B. A credit to share premium – ordinary D. All of these are acceptable

156) What amount is charged to retained earnings when treasury shares are reissued as dividends?
A. Cost of the treasury shares C. Par value of the treasury shares
B. Fair value of the treasury shares D. Book value of the treasury shares

157) When shareholders may elect to receive cash in lieu of a stock dividend, the amount to be charged
to retained earnings is equal to
A. Optional cash dividend C. Par value of the stock dividend
B. Fair value of the stock dividend D. Either fair value or par value of the stock dividend

158) A dividend which is a return to shareholders of a portion of their original investment is

A Liquidating B. Property C. Liability D. Compensating
. dividend dividend dividend dividend

159) Dividends are not paid on

A. Noncumulative preference share C. Treasury shares
B. Nonparticipating preference share D. Dividends are paid on all of these

160) An entity may effect reverse share split in order to

A. Increase the number of share C. Reduce the market price per share
outstanding
B. Raise the unit market price of the share D. Obtain a wider distribution of shares

161) A feature common to both share split and share dividend is

A. A transfer to earned capital of a C. An increase in total liabilities of a corporation
corporation
B. There is no effect on total equity D. A reduction in the contributed capital of a
corporation

162) Which of the following is not a legal restriction related to profit distribution?
A.The amount distributed must be in compliance with the laws governing corporations.
B.The amount distributed can never exceed the net income reported for the year.
C.Profit distribution must be formally approved by the board of directors.
D. Dividends must be in full agreement with the capital contracts as to preferences.

163) Which statement is incorrect in relation to appropriation of retained earnings?

A.Appropriation do not reduce total retained earnings.
B.The only proper way to eliminate an appropriation of retained earnings after it has served its
purpose is to credit the unappropriated retained earnings account.
C.An appropriation of retained earnings does not mean that assets are segregated.
D. When treasury shares are purchased, retained earnings must be appropriated equal to the par or
stated value of such shares.

164) Which is incorrect concerning share capital transactions?

A.Deposits on subscription to a proposed increase in share capital should be classified as noncurrent
liability.
B.Subscriptions receivable from sale of share capital which are not currently collectible should be
reflected as deduction from the related subscribed share capital.
C.Discount on share capital should be shown as deduction from total shareholder’s equity.
D. When the total shareholders’ equity is smaller than the amount of contributed capital, this
deficiency is called a deficit.

165) Share capital is said to be “watered” when

A. It is sold at a price in excess of book C. Assets are overstated
value
B. Liabilities are overstated D. It is issued for assets other than cash

166) A “secret reserve” will be created if

A. Inadequate depreciation is charged to C. Liabilities are understated
income
B. A capital expenditure is charged to D. Shareholders’ equity is overstated
expense

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 167) The distribution of share rights to existing shareholders would increase share premium at
A. Date of issuance of rights C. Date of expiration of rights
B. Date of exercise of rights D. All of these are correct choices

168) Trading on equity is

A.The ratio of the cash dividend to net income.
B.A return on assets that is higher than the cost of financing these assets.
C.The amount each share would receive if the entity were liquidated.
D. The revaluation surplus.

169) Convertible preference shares

A.Are compound instrument with both a liability and an equity component.
B.Include an option for the holder to convert preference share into ordinary share.
C.Use the “with-and-without” method to value the compound instrument.
D. All of the choices are correct

170) The conversion of preference shares may be recorded by

A Incremental B. Book value C. Par value D. Market value
. method method method method

171) Which of the following statements about property dividend is not true?
A.A property dividend is usually in the form of securities of other entities.
B.A property dividend is also called dividend in kind.
C.The accounting for property dividend should be based on the carrying amount of nonmonetary
asset transferred.
D. All of these statement are true.

172) An entity shall adjust the carrying amount of the dividend payable at the end of reporting period
and at the date of settlement with any changes in the carrying amount recognized
A. In profit or loss C. As component of other comprehensive income
B. As adjustment of general reserve D. In equity as adjustment to the amount of
distribution

173) When an entity settles the dividend payable, it shall recognize the difference between the carrying
amount of the asset distributed and the carrying amount of the dividend payable in
A. Profit or loss C. Equity
B. Other comprehensive income D. Retained earnings

174) An entity shall measure a noncurrent asset classified as held for distribution to owners at
A.Carrying amount
B.Fair value less cost to distribute
C.Lower of carrying amount and fair value less cost to distribute
D. Higher of carrying amount and fair value less cost to distribute

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