Financial Accounting Part 2 Shareholders’ Equity – Long Quiz Instructions: Write the letter that best corresponds to your answer in the booklet that was given to you. Do not write on the questionnaire and return it after use. Thank you and GODBLESS! 1. Which of the following is a characteristic of a corporation? a. Not a separate economic unit c. Separate legal entity b. Unlimited liability of owners d. Dissolved when ownership changes 2. On an entity’s statement of financial position, which of the following would not be listed as contributed capital? a. Ordinary share capital c. Retained earnings b. Preference share capital d. Share premium in excess of par value 3. Redeemable preference shares issued a. are reported in the shareholders' equity section of the statement of financial position. b. are reported after liabilities but before the equity section of the statement of financial position. c. must be measured at fair value at the end of each reporting period. d. are reported as liability measured at amortized cost 4. All of the following are components of Shareholder's equity except a. par value c. retained earnings b. dividends paid d. share premium 5. Shareholders' equity is a. the financial obligations of the company b. the rights to the assets of the business once the liabilities have been met c. assets plus liabilities d. all of these answers 6. The price for which a person could buy or sell an equity or preference shares is called as a. Fair value c. Redemption value b. Book value d. Par value 7. Treasury share is a. ordinary share issued by the government. b. preference share issued by the government. c. ordinary share that has been repurchased and is being held by the issuing company. d. a corporation's ordinary share outstanding. 8. Which of the following best describes the distinction between par value shares and no-par value shares? a. Par value shares are for preference share capital while No-par value shares are for ordinary share capital. b. Par value shares are included as legal capital while No-par value shares do not form part of the corporation’s legal capital. c. Par value shares have a value per share stated on the share certificate while No-par value shares do not have a value per share stated on the share certificate. d. Par value shares are for corporations whose top management plays golf, but not so well. 9. Treasury share is disclosed in the financial statements as a a. current asset. c. reduction in total shareholders' equity. b. note disclosure. d. current liability. 10. The Share premium in excess of par account normally arises in the accounting records when a. the fair value of the shares rises above par value. b. share capital is issued at an amount greater than par value. c. the stated value of share capital is greater than the par value. d. the number of shares issued equals the number authorized. 11. If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be: a. Reported as a gain in the income statement. b. Treated as a reduction in the carrying amount of remaining treasury stock. This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ c. d. Credited to share premium or additional paid-in capital. Credited to retained earnings. 12. Zinc Co.'s adjusted trial balance at December 31, 20x1, includes the following account balances: Ordinary shares, ₱3 par ₱600,000 Share premium 800,000 Treasury stock, at cost 50,000 Accumulated other comprehensive income (Debit) 20,000 Retained earnings appropriated for uninsured earthquake losses 150,000 Retained earnings unappropriated 200,000 What amount should Zinc report as total stockholders' equity in its December 31, 20x1, balance sheet? a. 1,680,000 b. 1,720,000 c. 1,780,000 d. 1,820,000 13. On April 1, 20x9, Hyde Corp., a newly formed company, had the following stock issued and outstanding: Ordinary shares, ₱1 par value, 20,000 shares originally issued for ₱30 per share. Preference shares, ₱10 par value, 6,000 shares originally issued for ₱50 per share. Hyde’s April Ordinary shares a. ₱20,000 b. ₱20,000 c. ₱600,000 d. ₱600,000 1, 20x9, statement Preference shares ₱60,000 ₱300,000 ₱300,000 ₱60,000 of shareholders’ Share premium ₱820,000 ₱580,000 ₱0 ₱240,000 equity should report 14. On March 1, 20x1, Rya Corp. issued 1,000 shares of its ₱20 par value ordinary shares and 2,000 shares of its ₱20 par value convertible preference shares for a total of ₱80,000. At this date, Rya’s ordinary share was selling for ₱36 per share, and the convertible preference share was selling for ₱27 per share. What amount of the proceeds should be allocated to Rya’s convertible preference share? a. 60,000 b. 54,000 c. 48,000 d. 44,000 15. 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 16. 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 Issued 20,000 shares at ₱15 per share. July 14 Purchased 5,000 shares at ₱17 per share. Dec. 27 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 additional paid-in capital in excess of par? a. 100,000 b. 125,000 c. 140,000 d. 115,000 17. 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 b. ₱54,000 ₱21,000 2 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ c. d. ₱72,000 ₱51,000 ₱21,000 ₱3,000 ₱3,000 18. 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 19. On July 1, 20x1, Vail Corp. issued rights to stockholders to subscribe to additional share of its common stock. One right was issued for each share owned. A stockholder could purchase one additional share for 10 rights plus ₱15 cash. The rights expired on September 30, 20x1. On July 1, 20x1, the market price of a share with the right attached was ₱40, while the market price of one right alone was ₱2. Vail’s stockholders’ equity on June 30, 20x1, comprised the following: Ordinary shares, ₱25 par value, 4,000 shares issued and outstanding……₱100,000 Share premium…………………….…………………………………………60,000 Retained earnings……………..……………………………………………..80,000 By what amount should Vail’s retained earnings decrease as a result of issuance of the stock rights on July 1, 20x1? a. 0 b. 5,000 c. 8,000 d. 10,000 20. On September 20x1, West Corp. made a dividend distribution of one right for each of its 120,000 shares of outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of West's ₱50 variable rate preference share at an exercise price of ₱80 per share. On March 20, 20x3, none of the rights had been exercised, and West redeemed them by paying each stockholder ₱0.10 per right. As a result of this redemption, West's stockholders' equity was reduced by a. 120 b. 2,400 c. 12,000 d. 36,000 Use the following information for the next four questions: On January 1, 20x1, DECRY BELITTLE Co. received authorization from the SEC to issue share capital of ₱4,000,0000 divided into 10,000 shares with par value per share of ₱400. Of the total authorized share capital, 25% was subscribed at par value and 25% of the total subscription was paid at subscription date. On February 1, 20x1, DECRY received full payment for 2,000 subscribed shares and issued the related share certificates. 21. Under the memorandum method, the authorized capitalization is recorded a. by a debit to unissued capital c. by a credit to unissued share capital b. by a debit to authorized share capital d. through a memo entry 22. Under the journal entry method, the authorized capitalization is recorded a. by a debit to unissued capital c. by a credit to unissued share capital b. by a debit to authorized share capital d. through a memo entry 23. Under the memorandum method, the entry on February 1, 20x1 includes a a. credit to unissued share capital for ₱600,000 b. credit to share capital for ₱800,000 c. credit to unissued share capital for ₱800,000 d. credit to authorized share capital for ₱600,000 24. Under the journal entry method, the entry on February 1, 20x1 includes a a. credit to unissued share capital for ₱600,000 b. credit to share capital for ₱800,000 c. credit to unissued share capital for ₱800,000 d. credit to authorized share capital for ₱600,000 Use the following information for the next two questions: The equity section of ROUSE AWAKEN Co.’s statement of financial position showed the following information: 6% Preference share capital, ₱400 par value 800,000 Share premium – preference share capital 200,000 Ordinary share capital 3,200,000 Share premium – ordinary share capital 1,200,000 Subscribed share capital – ordinary 400,000 Subscription receivable – ordinary share capital (200,000) Retained earnings 1,600,000 3 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ 25. How much is the legal capital assuming the ordinary shares have par value of ₱200 per share? a. 5,600,000 b. 4,200,000 c. 4,400,000 d. 5,400,000 26. How much is the legal capital assuming the ordinary shares are no-par value shares with stated value of ₱200 per share? a. 5,600,000 b. 4,200,000 c. 4,400,000 d. 5,400,000 Use the following information for the next four questions: On January 1, 20x1, the statement of financial position of GENESIS BEGINNING Co. shows the following information: Share capital (authorized 10,000 shares with par value of ₱400) 3,200,000 Share premium 640,000 Retained earnings 2,160,000 Total shareholders’ equity 6,000,000 27. On July 1, 20x1, GENESIS reacquires 1,000 shares at ₱360. The entry to record the transaction includes a a. debit to treasury shares for ₱360,000 b. credit to treasury shares for ₱360,000 c. debit to treasury shares for ₱400,000 d. memo entry 28. On September 1, 20x1, GENESIS reissues the 1,000 treasury shares at ₱360. The entry to record the transaction includes a a. debit to treasury shares for ₱360,000 b. credit to treasury shares for ₱360,000 c. credit to treasury shares for ₱400,000 d. memo entry 29. On September 1, 20x1, GENESIS reissues the 1,000 treasury shares at ₱560. The entry to record the transaction includes a a. credit to treasury shares for ₱560,000 b. credit to share premium for ₱360,000 c. credit to share premium for ₱200,000 d. credit to retained earnings for ₱200,000 30. On September 1, 20x1, GENESIS reissues the 1,000 treasury shares at ₱240. The entry to record the transaction includes a a. credit to share premium for ₱120,000 b. debit to share premium for ₱120,000 c. debit to retained earnings for ₱120,000 d. b or c On January 1, 20x1, the statement of financial position of PROFUSE EXTRAVAGANT Co. shows the following information: Share capital (authorized 10,000 shares with par value of ₱400) 3,200,000 Share premium 640,000 Share premium – treasury shares 20,000 Retained earnings 2,140,000 Total shareholders’ equity 6,000,000 31. On July 1, 20x1, PROFUSE reacquires 1,000 shares at ₱320. On September 1, 20x1, PROFUSE retires the 1,000 treasury shares. The entry on September 1, 20x1 includes a a. credit to “share premium – retirement” for ₱80,000 b. debit to “share premium – original issuance” for ₱80,000 c. credit to “share premium – retirement” for ₱160,000 d. b and c 32. On July 1, 20x1, PROFUSE reacquires 1,000 shares at ₱560 and immediately retires them. The entry on July 1, 20x1 includes a a. debit to “retained earnings” for ₱60,000 b. credit to “share premium – original issuance” for ₱80,000 4 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ c. d. credit to “share premium – retirement” for ₱560,000 b and c 33. Cyan Corp. issued 20,000 shares of ₱5 par ordinary share at ₱10 per share. On December 31, 20x1, Cyan's retained earnings were ₱300,000. In March 20x2, Cyan reacquired 5,000 shares of its common stock at ₱20 per share. In June 20x2, Cyan sold 1,000 of these shares to its corporate officers for ₱25 per share. Cyan uses the cost method to record treasury stock. Profit for the year ended December 31, 20x2, was ₱60,000. At December 31, 20x2, what amount should Cyan report as retained earnings? a. 360,000 b. 365,000 c. 375,000 d. 380,000 34. Selected information from the accounts of Row Co. at December 31, 20x1, follows: Total profit since incorporation ……….…………………….₱420,000 Total cash dividends paid ………………………………….....130,000 Total value of property dividends distributed ………………..30,000 Excess of proceeds over cost of treasury stock sold, accounted for using the cost method ………………….110,000 In its December 31, 20x1, financial statements, what amount should Row report as retained earnings? a. 260,000 b. 290,000 c. 370,000 d. 400,000 35. Nest Co. issued 100,000 shares of common stock. 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 Shares Issued Outstanding a. 220,000 212,000 c. 222,000 214,000 b. 220,000 216,000 d. 222,000 218,000 36. Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, 20x1. The following events occurred during 20x2: January 31……………………Declared 10% stock dividend June 30 ……………………….Purchased 100,000 shares August 1…………………….....Reissued 50,000 shares November 30…………………Declared 2-for-1 stock split At December 31, 20x2, how many shares of common stock did Rudd have outstanding? a. 560,000 b. 600,000 c. 630,000 d. 660,000 37. Long Co. had 100,000 ordinary shares issued and outstanding at January 1, 20x1. During 20x1, Long took the following actions: March 15 – Declared a 2-for-1 stock split, when the fair value of the stock was ₱80 per share. December 15 – Declared a ₱.50 per share cash dividend. What amount should Long report as dividends in its 20x1 financial statements? a. 50,000 b. 100,000 c. 850,000 d. 950,000 38. 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. 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 on 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 39. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following: 5 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ 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 common stockholders? a. 10,000 b. 34,000 c. 40,000 d. 47,500 40. In 20x1, Elm Corp. bought 10,000 shares of Oil Corp. at a cost of ₱20,000. On January 15, 20x2, Elm declared a property dividend of the Oil stock to shareholders of record on February 1, 20x2, payable on February 15, 20x2. During 20x2, the Oil stock had the following market values: January 15……………………..₱25,000 February 1 ………………………26,000 February 15 ……………………..24,000 The net effect of the foregoing transactions on retained earnings during 20x2 should be a reduction of a. 20,000 b. 24,000 c. 25,000 d. 26,000 41. On June 27, 20x1, Brite Co. distributed to its ordinary shareholders 100,000 outstanding ordinary shares of its investment in Quik, Inc., an unrelated party. The carrying amount on Brite’s books of Quik’s ₱1 par ordinary share was ₱2 per share. Immediately after the distribution, the market price of Quik’s stock was ₱2.50 per share. In its income statement for the year ended June 30, 20x1, what amount should Brite report as gain relating to the disposal of the stock? a. 250,000 b. 200,000 c. 50,000 d. 0 42. The following stock 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 stock dividends? a. 40,800 b. 45,800 c. 50,000 d. 55,000 43. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of ₱2 par value common stock, which had a fair value of ₱5 per share before the stock dividend was declared. This stock dividend was distributed 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 44. Effective April 27, 20x1, the stockholders of Bennett Corporation approved a two-for-one split of the company's common stock, and an increase in authorized common shares from 100,000 shares (par value ₱20 per share) to 200,000 shares (par value ₱10 per share). Bennett's stockholders' equity accounts immediately before issuance of the stock split shares were as follows: Common stock, par value ₱20; 100,000 shares authorized; 50,000 shares outstanding Share premium (₱3 per share on issuance of ordinary shares) Retained earnings ₱1,000,000 150,000 1,350,000 What should be the balances in Bennett's additional paid-in capital and retained earnings accounts immediately after the stock split is effected? Share premium Retained earnings a. ₱ 0 ₱ 500,000 b. ₱ 150,000 ₱ 350,000 c. ₱ 150,000 ₱1,350,000 d. ₱ 1,150,000 ₱ 350,000 45. On July 1, 1999, Bart Corporation has 200,000 shares of ₱10 par ordinary share outstanding and the market price of the stock is ₱12 per share. On the same date, Bart declared a 1-for-2 reverse stock split. The par of the stock was increased from ₱10 to ₱20 and one new ₱20 par share was issued for each two ₱10 par shares 6 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ outstanding. Immediately before the 1-for-2 reverse stock split, Bart's share premium was ₱450,000. What should be the balance in Bart's share premium account immediately after the reverse stock split is effected? a. 0 b. 450,000 c. 650,000 d. 850,000 46. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet consisted of the following: Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000 Share premium 150,000 Retained earnings (deficit) (210,000) On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to ₱5 and eliminating the deficit against share premium. Immediately after the quasi-reorganization, what amount should Brown report as share premium? a. (60,000) b. 150,000 c. 190,000 d. 400,000 END OF EXAMINATION! 7 This study source was downloaded by 100000836049865 from CourseHero.com on 09-30-2022 05:50:48 GMT -05:00 https://www.coursehero.com/file/28059625/SummerSHEdocx/ Powered by TCPDF (www.tcpdf.org)