Camino, Craig Jimver Mikael C.
ACCCOB2 - C32A
CHAPTER 10 – RETAINED EARNINGS
Exercise 10 - 1: True or False – Theory
True 1. Retained earnings is an income account.
False 2. The amount to be debited to retained earnings is based on the market value of the
shares if a 25% share dividend is declared.
True 3. Subscription receivable is included in the calculation of the book value per share.
True 4. One-year current dividend for a participating preference share is deducted from net
income in computing for the earnings per share of ordinary share, whether or not there is a
declaration of dividend.
False 5. Gain on the sale of treasury share should be recorded in a share premium account
only.
True 6. When treasury share is purchased, retained earnings must be appropriated to the extent
of the cost of the treasury share or its par value, whichever is higher.
True 7. A share dividend is a distribution of corporate assets in the form of shares of stock.
False 8. Book value per share is the amount that should be paid to each share when the
corporation is being liquidated today.
True 9. In computing earnings per share where the firm has only one class of share, the net
income is divided by total issued ordinary shares.
True 10. Sale of treasury share at an amount that is higher than cost increases the corporation’s
net income.
False 11. The earnings per share is computed for ordinary shares only.
False 12. For dividend purposes, a subscriber is considered to have acquired full status of a
shareholder. This means that he is entitled to dividends even though he has not yet fully paid his
subscription.
True 13. Preference shares will always have a par value as required by law.
False 14. Total contributed capital decreases as a result of share dividend.
True 15. In computing for the book value per share, treasury shares and subscription receivable
are deducted while accumulated profits, share capital, subscribed share capital, share
premiums, and share dividend distributable are add
CHAPTER 10 – RETAINED EARNINGS
Exercise 10-2: Matching Type
A 1. This is the cut-off date that determines who will receive the dividend.
B 2. The distribution of profit in the form of cash.
H 3. The date on which the share dividend is received by the shareholders in the form of share
certificates.
I 4. The holder of this share is entitled to receive the dividends in arrears.
_______ 5. The distribution of profit in the form of shares of stock.
_______ 6. This is the amount that each share earned during the period.
_______ 7. This is the date when the Board of Directors announces the issuance or payment of
dividend which is worded as an official undertaking called board resolution.
_______ 8. This entitles the holder the right to receive dividends on top of the fixed or basic
dividend of the preference share.
E 9. This is the amount that each share would receive assuming the corporation will be
liquidated today in an amount equal to its book value.
C 10. A 20% share dividend declaration.
CHAPTER 10 – RETAINED EARNINGS
EXERCISE 10 - 3: Multiple Choice - Theory
Which of the following statements is incorrect concerning appropriations of retained earnings?
a. Appropriations do not reduce total retained earnings.
b. An appropriation of retained earnings does not mean that assets are segregated for a specific
purpose.
c. When treasury shares are purchased, retained earnings must be appropriated equal to the
par or stated value of the treasury shares.
d. The only proper way to eliminate an appropriation of retained earnings after it has served its
purpose is to revert the amount to the unappropriated retained earnings.
A restriction of retained earnings is most likely to be required by
a. reissuing treasury shares.
b. purchasing treasury shares.
c. incurring a net loss in the prior year.
d. incurring a net loss in the current year.
An entry is not made on the
a. date of record.
b. date of payment.
c. date of declaration.
d. an entry is made on all of these dates.
Which of the following would have an effect of increasing total retained earnings?
a. Share Premium – Treasury Share
b. Net income
c. Appropriations from retained earnings
d. Reversals of appropriation