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Financial Accounting & Reporting
FINAL GRADING EXAMINATION
1. The branch of accounting that deals with providing financial information to external decision makers
is
a. Public accounting.
b. Government accounting.
c. Financial accounting.
d. Managerial accounting.
2. Financial accounting applies to which of the following:
a. Businesses
b. Non-profit organizations
c. Governments
d. All of the above
3. The main purpose of accounting is
a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the state of the industry’s economy.
4. Under the accrual basis of accounting,
a. income is recorded only when cash is received and expenses are recorded only when cash is paid.
b. liabilities, owner's capital, and drawings all have normal credit balances.
c. all real accounts have normal debit balances.
d. income is recorded in the period it is earned and expense is recorded in the period it is incurred,
irrespective of when cash is received or paid.
5. Under this concept, some costs are initially recognized as assets and recognized only as expenses when
the related revenue is recognized.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle
6. It is the official accounting standard setting body in the Philippines.
a. Philippine Institute of Certified Public Accountants
b. Financial Reporting Standards Council
c. Accounting Standards Council
d. American Accounting Association
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7. Businesses are required by law to file tax returns with this government agency.
a. Security and Exchange Commission
b. Bureau of Internal Revenue
c. Cooperative Development Authority
d. Bangko Sentral ng Pilipinas
8. Under this concept, assets are initially recorded at their acquisition cost.
a. Single entity concept
b. Historical cost concept
c. Going concern concept
d. Matching principle
9. Under this concept, the business is assumed to continue to exist for an indefinite period of time.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle
10. Which of the following is not a correct expanded accounting equation?
a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses
11. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner and an
additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000
d. ₱250,000
12. Which of the following statements is correct?
a. Of the five major types of accounts, only two have normal debit balances.
b. All accounts are increased by a debit and decreased by a credit.
c. A contra asset account is increased through debit.
d. A debit and a debit result to a credit.
13. It is the aggregate of estimated losses from uncollectible accounts receivable.
a. Bad debts expense
b. Allowance for bad debts
c. Accounts receivable
d. Notes receivable
14. Journal entries are recorded in the journal
a. chromatically.
b. chronologically.
c. pharmaceutically.
d. cutely.
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15. Which of the following is not one of the important parts of a journal entry?
a. Date
b. Account titles and amounts to be debited and credited
c. A detailed narrative of the reason why management entered into the transaction
d. Short description of the transaction
e. All of these
16. The primary purpose of posting is to
a. record transactions.
b. classify transactions.
c. summarize transactions in a report form.
d. all of these
17. The balance of an accounts receivable from a certain customer at any given point of time can be
determined by referring to the
a. general journal.
b. general ledger.
c. subsidiary ledger.
d. financial statements.
18. In accounting, recording a transaction in a debit-credit form is called
a. journalinging.
b. posting.
c. identifying and analyzing.
d. journalizing.
19. You are an accountant. You obtained the source documents for the business transactions your
company has entered into during the day and started inspecting the documents. What step of the
accounting cycle are you performing?
a. Reading
b. Identifying and analyzing
c. Journalizing
d. Posting
20. Your business sells goods to a credit customer. Which of the following accounts is increased?
a. Accounts receivable
b. Cost of sales
c. Sales
d. All of these
21. Your business collects ₱80,000 accounts receivable. What is the effect of this transaction on the
accounts?
Sales
Accounts receivable
Cash
a. Increase
Increase
No effect
b. No effect
Increase
Decrease
c. No effect
Decrease
Increase
d. Increase
Increase
Increase
22. Which of the following is not an example of a source document?
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a.
b.
c.
d.
Delivery receipt
Sales invoice
Special journal
Bank statement
23. It is a report that a business sends to its customer listing the transactions with the customer during a
period, the payments made by the customer and any remaining balance due from the customer. It also
serves as a notice of billing.
a. Check
b. Bank statement
c. Delivery receipt
d. Statement of account
24. Which of the following is not an external event?
a. Rendering services to clients
b. Production of goods for sale
c. Purchase of raw materials for processing
d. Payment of notes payable
25. If the ending balance of accounts receivable is ₱100,000 and the total debits and credits to that account
during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000
26. The equipment of ABC Co. has a historical cost of ₱500,000 and an accumulated depreciation of
₱120,000. How much is the carrying amount of the equipment?
a. 620,000
b. 500,000
c. 480,000
d. 380,000
27. The heading of a trial balance does not include which of the following?
a. Name of the business
b. Title of the report
c. Type of activity that the business is engaged with
d. Date of the report
28. In accounting, it means the allocation of the cost of an asset over the periods in which the asset is used.
a. Allocationing
b. Depreciation
c. Bad debts
d. Cost spreading
29. Real accounts are presented in what formal report?
a. Income statement
b. Balance sheet
c. Unadjusted trial balance
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d. Worksheet
30. Under the liability method of initial recording of advanced collections of income, an end-of-period
adjusting entry is needed to recognize the
a. earned portion of the mixed account.
b. unearned portion of the mixed account.
c. expired portion of the cost.
d. No adjusting entry is needed.
31. The bottom parts of the income statement and balance sheet columns of a worksheet show the
following:
Income statement
Debit
Credit
3,215,500
3,215,500
Balance sheet
Debit
Credit
3,200,000
1,169,500
15,500
15,500
3,215,500
1,185,000
1,185,000
1,185,000
Which of the following is correct?
a. The entity earned profit during the year.
b. The entity incurred loss during the year.
c. There is insufficient information to support a conclusion.
d. The entity’s worksheet is torn.
32. Which of the following adjustments cannot be reversed in the next accounting period?
a. Accruals for income or expense
b. Prepayments initially recorded using the expense method
c. Advanced collections initially recorded using the income method
d. Prepayments initially recorded using the asset method
33. Which of the following adjustments can be reversed in the next accounting period?
a. Adjusting entry to take up depreciation expense
b. Adjusting entry to record bad debts expense
c. Adjusting entry to record accrued interest income
d. All of these
34. If debits do not equal credits, the first step to find the error is to
a. call your manager and ask for advice.
b. add the debit and credit columns again.
c. review the journal entries for errors.
d. make correcting entries rather than adjusting entries.
35. What is the normal balance of the sales returns account?
a. debit
b. credit
c. zero
d. none of these
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36. Entity A has a beginning inventory of ₱280,000. During the period Entity A purchased inventories
costing ₱890,000. Freight paid on the purchase totaled ₱30,000. If the ending inventory is ₱220,000, how
much is the cost of goods sold?
a. 1,360,000
b. 980,000
c. 950,000
d. 920,000
37. Entity A has gross purchases of ₱360,000. Freight paid on the purchases amounted to ₱50,000.
Purchase discounts totaled ₱20,000 while purchase returns totaled ₱15,000. How much is the net
purchases?
a. 375,000
b. 390,000
c. 410,000
d. 445,000
38. Entity A has a beginning inventory of ₱340,000. During the period Entity A purchased inventories
costing ₱990,000. Freight paid on the purchase totaled ₱40,000. The ending inventory was ₱360,000. If
the net sales were ₱1,200,000, how much is the gross profit?
a. 1,010,000
b. 1,200,000
c. 190,000
d. 260,000
39. Entity A has a beginning inventory of ₱140,000. During the period Entity A purchased inventories
costing ₱790,000. Freight paid on the purchase totaled ₱10,000. The ending inventory was ₱60,000.
Gross sales were ₱1,800,000 while sales returns and discounts totaled ₱220,000. How much is the gross
profit?
a. 680,000
b. 700,000
c. 780,000
d. 880,000
40. Accounts are listed in the trial balance in this sequence.
a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income
41. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
42. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with carrying
amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of ₱200,000 which is
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assumed by the partnership. How much is the correct valuation of B’s capital immediately after the
partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000
43. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr.
A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the
difference in the amount of contribution and the amount of credit to the partner’s capital shall be
treated as compensation for the expertise that the partner will be bringing to the partnership. How
much is the correct valuation of A’s capital immediately after the partnership formation?
a. 84,000
b. 92,000
c. 100,000
d. 108,000
44. A and B formed a partnership. The following are their contributions:
Cash
Accounts receivable
Building
Total
A, capital
B, capital
Total
A
500,000
100,000
600,000
B
700,000
700,000
600,000
600,000
700,000
700,000
Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership. Partner B
promised to pay for the mortgage himself.
How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000
b. 580,000
c. 650,000
d. 720,000
45. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr.
A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the
difference in the amount of contribution and the amount of credit to the partner’s capital shall be
treated as cash settlement between the partners. The compound entry to record the partners’
contributions includes a credit to B’s capital account in the amount of
a. 84,000.
b. 92,000.
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c. 100,000.
d. 108,000.
46. If the partnership agreement does not specify how income is to be allocated, profits and loss should be
allocated
a. equally.
b. in proportion to the number of hours they have spent on the business since partnership formation.
c. equitably so that partners are compensated for the time and effort expended on behalf of the
partnership.
d. in accordance with their capital contributions.
47. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital account
has a net increase of ₱50,000. Partner A made contributions of ₱10,000 and capital withdrawals of
₱60,000 during the year. How much was the share of B in the partnership profit for the year?
a. 100,000
b. 150,000
c. 200,000
d. 180,000
48. The partnership agreement of A, B and C stipulates the following:
 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to Partner A,
the managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.
The average capital investments of partners during the year are as follows:
A
₱100,000
B
60,000
C
120,000
The partnership earns profit of ₱100,000.
How much is the share of Partner C in the partnership profit?
a. 47,600
b. 32,200
c. 19,200
d. 33,200
49. The partnership agreement of A and B provides that interest at 10% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of B’s capital account for the
year ended December 31, 20x1 is as follows:
Balance, Jan. 1, 20x1
Additional investment, July 1
Withdrawal, August 1
Balance, Dec. 31, 20x1
252,000
72,000
(27,000)
297,000
How much is the interest on B’s weighted average capital?
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a.
b.
c.
d.
27,675
33,633
37,214
23,322
50. Red and White formed a partnership in 2003. The partnership agreement provides for annual salary
allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally and losses in a
60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any allowance to partners. What
amount of these earnings should be credited to each partner’s capital account?
Red
White
a. 40,000
40,000
b. 43,000
37,000
c. 44,000
36,000
d. 45,000
35,000
51. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000, ₱60,000, and
₱40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or loss is divided equally. In 2003
the partnership sustained a ₱33,000 loss before interest and salaries to partners. By what amount
should Fox’s capital account change?
a. 7,000 increase.
b. 11,000 decrease.
c. 35,000 decrease.
d. 42,000 increase.
52. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income in
the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.
The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount should
be allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000
53. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of Simm’s capital account
for the year ended December 31, 2003, is as follows:
Balance, January 1
Additional investment, July 1
Withdrawal, August 1
Balance, December 31
140,000
40,000
(15,000)
165,000
What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250
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b. 15,375
c. 16,500
d. 17,250
54. A partner who contributes cash or other non-cash assets to the partnership, rather than services, is
called a (an)
a. industrial partner.
b. capitalist partner.
c. silent partner.
d. limited partner.
55. It is the change in the relation of the partners caused by any partner being disassociated from the
business.
a. Formation
b. Operations
c. Dissolution
d. Liquidation
56. The retirement or death of a partner
a. dissolves the partnership agreement.
b. liquidates the partnership
c. may or may not dissolve the partnership agreement.
d. requires the consent of all the other partners.
57. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1,
2003, their respective capital accounts were as follows:
Blau
Rubi
60,000
50,000
On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an
investment of ₱40,000. The new partnership began with total capital of ₱150,000. Lind’s capital account
was credited equal to her proportionate share in the partnership net assets. Immediately after Lind’s
admission, Blau’s capital should be
a. 50,000
b. 54,000
c. 56,667
d. 60,000
58. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and losses
are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who
invested land valued at ₱15,000 for a 20% capital interest in the new partnership. Grant’s cost of the
land was ₱12,000. The partnership elected to use the bonus method to record the admission of Grant
into the partnership. Grant’s capital account should be credited for
a. 12,000
b. 15,000
c. 16,000
d. 19,000
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Use the following information for the next two questions:
On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with
their respective profit and loss sharing percentages were as follows:
Assets, net of liabilities
320,000
Eddy, capital (50%)
Fox, capital (30%)
Grimm, capital (20%)
160,000
96,000
64,000
320,000
59. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out of
partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement, what are the
capital balances of the other partners?
Fox
Grimm
a. 84,000
56,000
b. 102,000
68,000
c. 108,000
72,000
d. 120,000
80,000
60. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner
with a 25% interest in the capital of the new partnership for a cash payment of ₱140,000. The bonus
method shall be used to record the admission of Hamm. Immediately after admission of Hamm,
Eddy’s capital account balance should be
a. 280,000
b. 172,500
c. 160,000
d. 140,000
The next two items are based on the following information:
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash
45,000
Other assets
625,000
Beda, loan
30,000
700,000
Accounts payable
Alfa, capital
Beda, capital
120,000
348,000
232,000
700,000
61. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as
a new partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp
contribute in cash or other assets?
a. 110,000
b. 116,000
c. 140,000
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d. 145,000
62. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other
assets are sold for ₱500,000, what amount of the available cash should be distributed to Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000
63. Which of the following statements is correct regarding partnership dissolution?
a. Technically, dissolution is the same as liquidation.
b. Partnership dissolution need not be recorded in the partnership books.
c. The admission of a new partner dissolves the original partnership agreement.
d. The admission of a new partner always increases the partnership capital.
64. The statement of financial position of the partnership of A, B and C shows the following information:
Cash
Other assets
Total assets
22,400
212,000
234,400
Liabilities
A, capital (50%)
B, capital (25%)
C, capital (25%)
Total liabilities and equity
38,400
76,000
64,000
56,000
234,400
The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying amount
of ₱120,000. How much did B receive from the partial liquidation?
a. 25,000
b. 24,000
c. 16,000
d. 0
65. The statement of financial position of the partnership of A, B and C shows the following information:
Cash
Other assets
Total assets
40,000
720,000
760,000
Liabilities
B, loan
C, loan
A, capital (50%)
B, capital (30%)
C, capital (20%)
Total liabilities and equity
300,000
64,000
20,000
250,000
86,000
40,000
760,000
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The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of the
partners’ claims, how much additional contribution is required of Partner C?
a. 50,000
b. 30,000
c. 20,000
d. None
66. A, B and C are partners. Their respective personal assets, personal liabilities and partnership capital
balances are as follows:
Personal assets
Personal liabilities
Capital balances
A
90,000
75,000
150,000
B
240,000
150,000
(96,000)
C
180,000
216,000
210,000
Which of the partners is personally insolvent?
a. A
b. B
c. C
d. B & C
67. The equity section of the statement of financial position of the partnership of A, B and C shows the
following information:
A, capital (40%)
B, capital (40%)
C, capital (20%)
Total liabilities and equity
64,000
104,000
76,800
244,800
Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes
available. In the second sale of non-cash assets, the partners received the same amount of cash in the
distribution. In the third sale of non-cash assets, the amount of cash available for distribution is ₱100,000.
The carrying amount of the remaining non-cash assets is ₱260,000. Under the cash priority program, how
much cash is distributed to B in the third installment payment?
a. 40,000
b. 38,400
c. 28,200
d. 0
68. In partnership liquidation, which of the following accounts is settled first?
a. receivable from a partner
b. payable to a partner
c. accounts payable
d. partner’s capital balance
69. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the
lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first.
For no-par value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
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b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.
70. A person or an entity that has an interest in a corporation is called a
a. proprietor
b. partner
c. stockholder or shareholder
d. entrepreneur
71. 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.
72. Which of the following is not a characteristic of the corporate form of organization?
a. ownership represented by shares of stock
b. separate legal existence
c. unlimited liability of stockholders
d. can be easily dissolved by the incapacity of one of the owners
73. The amount printed on a stock certificate is known as:
a. stated value
b. premium
c. discount
d. par value
74. On February 1, authorized ordinary share 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. Share premium would increase on
February 1
May 1
a. No
Yes
b. No
No
c. Yes
No
d. Yes
Yes
75. The entry to record the issuance of ordinary shares for fully paid share subscriptions is
a. a memorandum entry.
b. Dr. Common Stock Subscribed; Cr. Common Stock; Cr. Additional Paid-In Capital
c. Dr. Subscribed Share Capital; Cr. Subscriptions Receivable
d. Dr. Subscribed Share Capital; Cr. Share Capital
76. 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.
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77. 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
78. Gains and losses on the purchase and resale of treasury stock may be reflected only in
a. share premium account.
b. share premium and retained earnings accounts.
c. income, paid-in capital, and retaining earnings accounts.
d. income and paid-in capital accounts.
79. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20X2, was as
follows:
Ordinary shares (₱10 par value, authorized 1,000,000
shares, issued and outstanding 900,000 shares) ₱ 9,000,000
Share premium
2,700,000
Retained earnings
1,300,000
On January 2, 20X3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000. Immediately
after retirement of these 100,000 shares, the balances in the share premium and retained earnings accounts
should be
Share premium
Retained earnings
a. ₱ 900,000
₱1,300,000
b. ₱1,400,000
₱ 800,000
c. ₱1,900,000
₱1,300,000
d. ₱2,400,000
₱ 800,000
80. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary shares.
During 20x1, the corporation had the following capital transactions:
Jan. 5
July 14
Dec. 27
Issued 20,000 shares at ₱15 per share.
Purchased 5,000 shares at ₱17 per share.
Reissued the 5,000 shares held in treasury at ₱20 per share.
Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December 31,
20x1, balance sheet, what amount should Asp report as share premium in excess of par?
a. 100,000
b. 125,000
c. 140,000
d. 115,000
81. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per share. In
20x1, Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to account for its
treasury stock transactions. What accounts and amounts should Newt credit in 20x1 to record the
issuance of the 3,000 shares?
Treasury sh.
Sh. premium
Retained earnings
Ordinary sh.
a. ₱54,000
₱21,000
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b. ₱54,000
c.
d.
₱21,000
₱72,000
₱51,000
₱21,000
₱3,000
₱3,000
82. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par value ordinary shares
from a shareholder. On that date, the stock’s market value was ₱35 per share. The stock was originally
issued for ₱25 per share. By what amount would this donation cause total stockholders’ equity to
decrease?
a. 70,000
b. 50,000
c. 20,000
d. 0
83. Nest Co. issued 100,000 shares of common stock (i.e., ordinary shares). Of these, 5,000 were held as
treasury stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock were as
follows:
 May 3 - 1,000 shares of treasury stock were sold.
 August 6 - 10,000 shares of previously unissued stock were sold.
 November 18 - a 2-for-1 stock split took effect.
Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2, how
many shares of Nest's common stock were issued and outstanding?
Shares Issued
Outstanding
a. 220,000
212,000
b. 220,000
216,000
c. 222,000
214,000
d. 222,000
218,000
84. At December 31, 20x0 and 20x1, Carr Corp. had outstanding 4,000 shares of ₱100 par value 6%
cumulative preferred stock and 20,000 shares of ₱10 par value common stock (i.e., ordinary shares). At
December 31, 20x0, dividends in arrears on the preferred stock were ₱12,000. Cash dividends declared
in 20x1 totaled ₱44,000. Of the ₱44,000, what amounts were payable to each class of stock?
Preference shares
Ordinary shares
a. ₱44,000
₱
0
b. ₱36,000
₱ 8,000
c. ₱32,000
₱12,000
d. ₱24,000
₱20,000
85. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following:
 30,000, 5% cumulative preference shares, par value ₱10 per share, fully participating as to
dividends. No dividends were in arrears.
 200,000 ordinary shares, par value ₱1 per share.
On December 15, 20x1, Arp declared dividends of ₱100,000. What was the amount of dividends payable to
Arp’s ordinary stockholders?
a. 10,000
b. 34,000
c. 40,000
d. 47,500
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86. The following share dividends were declared and distributed by Sol Corp.:
Percentage of ordinary shares
outstanding at declaration date
Fair value
Par value
10
₱15,000
₱10,000
28
40,000
30,800
What aggregate amount should be debited to retained earnings for these share dividends?
a. 40,800
b. 45,800
c. 50,000
d. 55,000
87. Ray Corp. declared a 5% stock (share) 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 60 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
88. The normal balance of Retained Earnings is
a. debit.
b. credit.
c. negative.
d. zero.
89. If income was ₱70,000, expenses were ₱59,000, and the dividends were ₱25,000, the amount of profit
(loss) was:
a. ₱11,000
c. (₱59,000)
b. ₱36,000
d. ₱70,000
90. The charter of a corporation (articles of incorporation) provides for the issuance of 100,000 shares of
common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently
reacquired. What is the number of shares outstanding?
a. 5,000
c. 60,000
b. 55,000
d. 100,000
Bonus question
91. Who was the first Filipino Certified Public Accountant?
a. Donald Esnara Bugtong
b. Andres Bonifacio
c. Joel Tan Torres
d. Don Vicente Fabella
“Hear my cry, O God; listen to my prayer.” (Psalms 61:1)
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