lOMoARcPSD|4149475 Stockholders Equity Accountancy (University of the Philippines System) StuDocu is not sponsored or endorsed by any college or university Downloaded by Eanna Alvez (annkeaguillepa@gmail.com) lOMoARcPSD|4149475 STOCKHOLDERS EQUITY 1. Treasury stock was acquired for cash at more of its par value, and then subsequently sold for cash at its par value. Assuming the use of the preferred method, what is the effect of the subsequent sale of the treasury stock on each of the following? Additional paid-in-capital Retained earnings a. Increase Decrease b. Increase No effect c. No effect Decrease d. No effect Increase 2. Which of the following features of preferred stock would make the security more like a debt than an equity instrument? a. Participating b. Redeemable c. Voting d. Noncumulative 3. Fall Company owned shares of Hall Company on October 31, 2005. Fall declared and distributed a property dividend of Hall Company shares when the fair value exceeded the carrying amount. What would be the accounting effects as a consequence of the dividend declaration and distribution? a. The dividends are recorded at fair value and retained earnings decreased b. The dividends are recorded at cost and retained earnings increased c. The dividends are recorded at cost and retained earnings decreased d. The dividends are recorded at fair value and retained earnings increased 4. The bonus issue of shares has the following impact on the equity of a company; a. total equity increases; b. total equity decreases; c. one equity account increases and another equity account decreases by an equal amount; d. only the amount of issued share capital changes. 5. A company issued share option is an instrument that gives the holder the right but not the obligation to: a. buy a certain number of shares in the company by a specified date at a stated price; b. sell a certain number of shares in the company by a specified date at a stated price; c. receive a certain dividend declared by the company by a specified date; d. receive a bonus issue of shares in a proportion as notified by the company. 6. Dividends declared after the balance sheet date but before the financial statements are authorised for issue: a. meet the criteria for recognition as a liability; b. satisfy the criteria for recognition as an expense; c. are recognised in the balance sheet as they meet the definition of equity; d. do not meet the IAS 37 criteria of a present obligation. 7. Cash dividends are paid on the basis of the number of shares a. Authorized b. Issued c. Outstanding d. Outstanding less the number of treasury shares 8. “Gains” on sale of treasury shares under the cost method should be credited to a. Reserve b. Share premium c. Profit or loss d. Accumulated profit or loss 9. Stock dividends distributable should be classified a. On the income statement as an expense b. On the balance sheet as an asset c. On the balance sheet as a liability d. On the balance sheet as an item of stockholders’ equity 10. Which of the following transactions does not result in an increase in retained earnings? a. Correction of an error in which administrative expense was overstated in a previous year b. Issuance of a 3-for-1 stock split c. A quasi-reorganization d. Earning of net income for the period 11. All of the following distributions to stockholders are considered asset of capital distributions, except a. Liquidating dividends b. Stock splits c. Property distributions d. Cash dividends 12. A call option on a common share is more valuable when there is a lower a. Market value of the underlying share b. Exercise price on the option c. Time to maturity on the option d. Variability of market price on the underlying share 13. Various features and restrictions are often attached to preferred stock. Which of the following combinations of features are most typical of preferred stock with primarily debt characteristics rather than equity characteristics? a. Noncumulative, participating, nonredeemable, voting b. Cumulative, participating, redeemable, voting Downloaded by Eanna Alvez (annkeaguillepa@gmail.com) lOMoARcPSD|4149475 c. Cumulative, nonparticipating, redeemable, non-voting d. Noncumulative, nonparticipating, redeemable, non-voting 14. What is the accounting for treasury share transactions? a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the shares were issued and the repurchase price for the shares. b. On reissuance of treasury shares, a gain or loss is recognized equal to the difference between the previous repurchase rice and the reissuance price. c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized d. Treasury shares are accounted for as financial assets. 15. 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 16. The par value of ordinary share represents a. The liquidation value of the share b. The book value of the share c. The legal nominal value assigned to the share d. The amount received by the corporation when the share was originally issued 17. Select the statement that is incorrect concerning the appropriations of retained earnings a. Appropriations of retained earnings do not change the total amount of shareholders’ equity. b. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion. c. Appropriations of retained earnings can be made as a result of contractual requirements d. Appropriations of retained earnings can be made at the discretion of the board of directors 18. Undistributed stock dividends should be reported as a. A current liability b. An addition to share capital outstanding c. A reduction in total shareholders’ equity d. A note to the financial statements ANSWER KEY: 1. C 2. B 3. C 4. C 5. A 6. D 7. C 8. B 9. D 10. B 11. B 12. B 13. C 14. C 15. D 16. C 17. B 18. B Downloaded by Eanna Alvez (annkeaguillepa@gmail.com)
