Which of the following is true concerning organization cost?
a.
are recognized as income as they are to be incurred
b.
are expenditures incurred in relation to corporate formation and to be expensed as
incurred
c.
are to be deferred and amortized
d.
are recognized as intangible asset
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The correct answer is:
are expenditures incurred in relation to corporate formation and to be expensed as
incurred
Question 2
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The maximum life of a corporation to exist is a.
40 years
b.
30 years
c.
50 years
d.
perpetual (no limit)
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The correct answer is:
perpetual (no limit)
Question 3
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The Securities and Exchange Commission is permitted by law to register a corporation
engage solely in the practice practice of law.
Select one:
True
False
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The Securities and Exchange Commission is prohibited by law to register a corporation
engage solely in the practice practice of law.
The correct answer is 'False'.
Question 4
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A corporation that is controlled by another corporation, known as the parent
corporation.
Select one:
True
False
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A corporation that is controlled by another corporation, known as the subsidiary
corporation.
The correct answer is 'False'.
Question 5
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A share certificate can be issued to those subscribers who are partially paid their
subscriptions.
Select one:
True
False
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A share certificate can be issued to those subscribers who are fully paid their
subscriptions.
The correct answer is 'False'.
Question 6
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The following except one constitute the basic stages of formation of a corporation.
a.
Incorporation Stage
b.
Promotion Stage
c.
Commencement Stage
d.
Organization Stage
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The correct answer is:
Promotion Stage
Question 7
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It is a legal principle that prohibits a private corporation to distribute its legal capital to
the shareholders for the protection of corporate creditors during the lifetime of a
corporation.
a.
Pre-emptive Right
b.
Doctrine of Piercing the Veil of Corporate Entity
c.
Appraisal Right
d.
Trust Fund Doctrine
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The correct answer is:
Trust Fund Doctrine
Question 8
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Define a corporation. (5 points)
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence. The essential attributes of corporations are that a corporation is
an artificial being with a personality separate and apart from its individual shareholders
or members. It is created by operation of law, it enjoys the right of succession, and it has
the powers, attributes, and properties expressly authorized by law or incident to its
existence.
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Republic Act No. 11232 known as the Revised Corporation Code of 2019 defines
corporation as an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.
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Question 9
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A corporation may have a perpetual existence unless its articles of incorporation limits
its life.
Select one:
True
False
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Section 11 of the Revised Corporation Code states tat a "Corporation shall have
perpetual existence unless its Article of Incorporation provides otherwise". This means
that a corporation has an unending life of existence.
The correct answer is 'True'.
Question 10
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They are the owners and have the ultimate control of the corporation.
a.
Shareholders
b.
Board of Directors
c.
Incorporators
d.
Underwriters
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The correct answer is:
Shareholders
Question 11
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A corporation cannot be an incorporator of another corporation.
Select one:
True
False
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Section 10 of the Revised Corporation Code provides that "Any person, partnership,
association or corporation, singly or jointly with others but not more than fifteen (15) in
number, may organize a corporation for any lawful purpose or purposes: Provided, That
natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be allowed
to organize as a corporation unless otherwise provided under special laws. Incorporators
who are natural persons must be of legal age. Each incorporator of a stock corporation
must own or be a subscriber to at least one (1) share of the capital stock."
The correct answer is 'False'.
Question 12
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Death of a shareholder will dissolve the corporation.
Select one:
True
False
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Death of a shareholder will not dissolve the corporation.
The correct answer is 'False'.
Question 13
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Shares cannot be transferred without the consent of the other shareholders.
Select one:
True
False
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Shares can be transferred without the consent of the other shareholders.
The correct answer is 'False'.
Question 14
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These refer to the rules and regulations adopted by the corporation in administering its
internal governmenta.
Articles of Incorporation
b.
Minutes of Meeting
c.
Certificate of Registration
d.
By-laws
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The correct answer is:
By-laws
Question 15
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Refer to natural or artificial persons who have agreed to buy the original and unissued
shares of of a corporation.
a.
Subscribers
b.
Promoters
c.
Incorporators
d.
Corporators
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The correct answer is:
Subscribers
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The governing body of the corporation is called a.
Subscribers
b.
Shareholders
c.
Incorporators
d.
Board of Directors
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The correct answer is:
Board of Directors
Question 17
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Under the Revised Corporation Code, if a corporation failed to operate within 2 years
from date of incorporation, its corporate powers ceased and the corporation is deemed
revoke.
Select one:
True
False
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Under the Revised Corporation Code, if a corporation failed to operate within 5 years
from date of incorporation, its corporate powers ceased and the corporation is deemed
revoke.
The correct answer is 'False'.
Question 18
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Cite at least 2 advantages and disadvantages of a corporation. (6 points)
ADVANTAGES:
1. Greater source of capital because there can be as many shareholders as there are
authorized shares to be issued.
2. Shareholders are not liable to corporate obligations in excess of their contribution.
DISADVANTAGES:
1. It is not easy to organize because of complicated legal requirements.
2. A limited credit line my be extended by creditors because of limited liability of the
stockholders.
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Does death, withdrawal, insolvency or incapacity of individual shareholders dissolve the
Corporation created? Why or why not? (5 points)
No, a corporation has the capacity of continued existence subject to the period stated in
the Articles of Incorporation. The death, withdrawal, insolvency or incapacity of the
individual shareholders or members will not dissolve the corporation. The transfer of
ownership of shares of stock does not dissolve the corporation.
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No, under the Revised Corporation Code, corporation enjoys the right of succession. A
corporation has the capacity of continued existence subject to the period stated in the
Articles of Incorporation. The death, withdrawal, insolvency or incapacity of the
individual shareholders or members will not dissolve the corporation. The transfer of
ownership of shares of stock does not dissolve the corporation.
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Question 20
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The Liabilities and Stockholder's Equity portion of the Comparative Statement of
Financial Position of XYZ Corporation as of the period ending December 31, 2021 and
2020 showed the following:
2020
2021
Liabilities
100,000.00
100,000.00
Capital
Stock
400,000.00
600,000.00
Retained
Earnings
300,000.00
300,000.00
Total
800,000.00
1,000,00.00
The increase of capital stock in 2021 is primarily due to the additional shares issued at
Php 1 par value amounting to Php 200,000.00 which took effect on January 1, 2021. This
additional issuance of shares was offered first to existing stockholders based on their
pre-emptive rights.
As of December 31, 2020 the following are the stockholders and their respective
number of shares held.
Jeslyn Clarisse Niller
150,000
Krian Jill Saldivia
200,000
Amor Louella Pinol
50, 000
Assuming that all stockholders avail the offering of additional issuance in proportion to
their respective percentage of ownership. How many shares that Jeslyn Clarisse Niller be
entitled to avail of?
Answer:
75,000
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The correct answer is: 75,000
Question 21
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Enumerate at least 2 characteristics of a corporation and briefly explain each
characteristic. (4 points)
1. TRANSFERRABLE UNIT OF OWNERSHIP
- The ownership of the a corporation is dividend into “shares” which can be transferred
from one person to another without the consent of other shareholders.
2. CONTINUITY OF EXISTENCE
- This means that a corporation has the capacity for continued existence because it has
the right of succession as evidence by transferability of its shares.
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Question 22
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The Liabilities and Stockholder's Equity portion of the Comparative Statement of
Financial Position of XYZ Corporation as of the period ending December 31, 2021 and
2020 showed the following:
2020
2021
Liabilities
100,000.00
100,000.00
Capital
Stock
400,000.00
600,000.00
Retained
Earnings
300,000.00
300,000.00
Total
800,000.00
1,000,00.00
The increase of capital stock in 2021 is primarily due to the additional shares issued at
Php 1 par value amounting to Php 200,000.00 which took effect on January 1, 2021. This
additional issuance of shares was offered first to existing stockholders based on their
pre-emptive rights.
As of December 31, 2020 the following are the stockholders and their respective
number of shares held.
Jeslyn Clarisse Niller
150,000
Krian Jill Saldivia
200,000
Amor Louella Pinol
50, 000
Assuming that all stockholders avail the offering of additional issuance in proportion to
their respective percentage of ownership. What is the percentage of ownership for Krian
Jill Saldivia after she availed of the stock offering?
Answer:
50%
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The correct answer is: 50%
Question 23
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A one person corporation is required to file an Article of Incorporation but no by-laws.
Select one:
True
False
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The correct answer is 'True'.
Question 24
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Stock corporations are no longer required a minimum capital stock
Select one:
True
False
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The correct answer is 'True'.
Question 25
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Select the best answer that is described in each statement.
One which is organized "not for profit".
Answer 1
Non-stock Corporation
Is a private corporation which is given a franchise to
perform public duties but is organized for profits.
Answer 2
One in which ownership is limited to selected persons or
members of the family.
Answer 3
One which is organized for religious purposes.
One that is organized under the Philippine laws.
Quasi-Public Corporation
Closely-held Corporation
Answer 4
Ecclesiastical Corporation
Answer 5
Domestic Corporation
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Your answer is correct.
The correct answer is:
One which is organized "not for profit". → Non-stock Corporation,
Is a private corporation which is given a franchise to perform public duties but is
organized for profits. → Quasi-Public Corporation,
One in which ownership is limited to selected persons or members of the family. →
Closely-held Corporation,
One which is organized for religious purposes. → Ecclesiastical Corporation,
One that is organized under the Philippine laws. → Domestic Corporation
Question 26
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Refers to the maximum amount fixed by the corporate charter or articles of
incorporation to be subscribed and paid-in by the shareholders.
a.
Authorized share capital
b.
Issued share Capital
c.
Subscription Receivable
d.
Subscribed share capital
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The correct answer is:
Authorized share capital
Question 27
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Refer to corporations that are existing in fact and in law. They are organized with strict
conformity with the law.
a.
De facto corporations
b.
De jure Corporations
c.
Private Corporations
d.
Publicly-held Corporations
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The correct answer is:
De jure Corporations
Question 28
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Select the best answer that is described in each statement.
This shows the list of shareholders with the corresponding share
Answer 1
certificate number in numerical sequence and shares issued to
Stockholder's Ledger
them including share certificates that were cancelled.
This book principally records the stock issuances and
cancellations.
Answer 2
Stock and Transfer Book
They are the one who undertake to form a group of persons
Answer 3
interested in organizing a corporation. They procure subscriptions
Promoters
or capital for the corporation.
Those who composed the corporation whether as shareholders or Answer 4
Corporators
members.
Those who originally formed the corporation who executed and
signed the Articles of Incorporation.
Answer 5
Incorporators
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You have correctly selected 4.
The correct answer is:
This shows the list of shareholders with the corresponding share certificate number in
numerical sequence and shares issued to them including share certificates that were
cancelled. → Stockholder's Journal,
This book principally records the stock issuances and cancellations. → Stock and
Transfer Book,
They are the one who undertake to form a group of persons interested in organizing a
corporation. They procure subscriptions or capital for the corporation. → Promoters,
Those who composed the corporation whether as shareholders or members. →
Corporators,
Those who originally formed the corporation who executed and signed the Articles of
Incorporation. → Incorporators
Share capital
In the event of corporate liquidation, shareholders whose stock is preferred as to the
assets are entitled to receive the par value of their shares before any amounts are
distributed to creditors and ordinary shareholders.
Select one:
True
False
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The correct answer is 'False'.
Question 2
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Mercury Corporation issued 1,000 shares of its Php 5 par value ordinary shares to Venus as
compensation for 1,000 hours of legal services performed. Venus usually bills Php160 per hour
for legal services. On the date of issuance, the stock was trading on a public exchange of Php
140 per share. By what amount should the share premium account increase as a result of this
transaction?
a.
Php 155,000
b.
Php 135,000
c.
Php 140,000
d.
Php 160,000
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The correct answer is:
Php 155,000
Question 3
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Jimmy Lerios is a subscriber of JC Fruit Processing Corporation for 300 ordinary shares at
Php 150 par value per share. He failed to pay his subscription balance of Php 27,000
which is equivalent to 180 shares despite of lawful calls and notices being sent to him.
The corporation declared all the shares to be delinquent and advertises for the auction
sale. Three (3) bidders were received and all signified their intentions to pay the balance
of Php 27,000 plus advertising expenses of Php 560.00 but differ on the share that each
bidder will acquire.
Bongbong Tah
shares
- bids for 170
Sarah Tu
shares
- bids for 174
Manny Yu
- bid for 178 shares
How many shares are declared as "delinquent"?
a.
150 shares
b.
300 shares
c.
180 shares
d.
120 shares
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The correct answer is:
300 shares
Question 4
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Ordinary and preference shareholders have the same rights and both enjoy the same
privileges especially in the distribution of dividends.
Select one:
True
False
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Ordinary and preference shareholders DO NOT have the same rights
and only preference shareholders enjoy the privilege to preferred in the distribution of
dividends.
The correct answer is 'False'.
Question 5
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All of the following are found in a corporation's shareholders' equity section except
a.
Ordinary Shares
b.
Dividends in Arrears
c.
Retained Earnings
d.
Share Premium
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The correct answer is: Dividends in Arrears
Question 6
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Treasury shares are shares that are issued but not outstanding.
Select one:
True
False
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The correct answer is 'True'.
Question 7
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Jimmy Lerios is a subscriber of JC Fruit Processing Corporation for 300 ordinary shares at
Php 150 par value per share. He failed to pay his subscription balance of Php 27,000
which is equivalent to 180 shares despite of lawful calls and notices being sent to him.
The corporation declared all the shares to be delinquent and advertises for the auction
sale. Three (3) bidders were received and all signified their intentions to pay the balance
of Php 27,000 plus advertising expenses of Php 560.00 but differ on the share that each
bidder will acquire.
Bongbong Tah
shares
- bids for 170
Sarah Tu
shares
- bids for 174
Manny Yu
- bid for 178 shares
Who is the highest bidder in the auction sale?
Jimmy Lerios is a subscriber of JC Fruit Processing Corporation for 300 ordinary shares at
Php 150 par value per share. He failed to pay his subscription balance of Php 27,000
which is equivalent to 180 shares despite of lawful calls and notices being sent to him.
The corporation declared all the shares to be delinquent and advertises for the auction
sale. Three (3) bidders were received and all signified their intentions to pay the balance
of Php 27,000 plus advertising expenses of Php 560.00 but differ on the share that each
bidder will acquire.
Bongbong Tah
shares
- bids for 170
Sarah Tu
shares
- bids for 174
Manny Yu
- bid for 178 shares
How much cash that the subscriber Jimmy Lerios has paid to the corporation?
a.
Php 18,000
b.
Php 45,000
c.
Php 30,000
d.
Php 27,000
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The correct answer is:
Php 18,000
Question 8
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A corporation has ordinary shares with a Php 10 par value. A new share of this stock is
issued for Php 13 to an investor. Which of the following is correct?
I. The entity will debit ordinary shares for the par value of Php 10.
II. The entity will debit cash for Php 13 and credit share premium for Php 3.
a.
both I and II
b.
II only
c.
neither of I or II
d.
I only
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The correct answer is:
II only
Question 9
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What is the entry to record issuance of shares after all cash have been received from a
share subscription, assuming an entry to record authorized ordinary shares was made at
the time of incorporation?
a.
Subscribed Ordinary Shares
Ordinary Shares
b.
Subscribed Ordinary Shares
Unissued Ordinary Shares
c.
Subscribed Ordinary Shares
Ordinary Shares
Share Premium
d.
Subscription Receivable
Subscribed Ordinary Shares
Share Premium
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The correct answer is:
Subscribed Ordinary Shares
Unissued Ordinary Shares
Question 10
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When there is one class of stock issued by a corporation it is always understood to be
preference shares.
Select one:
True
False
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When there is one class of stock issued by a corporation it is always understood to
be ordinary shares.
The correct answer is 'False'.
Question 11
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Sunrise Corporation's records included in the following Shareholders' Equity accounts:
Preference Share, par value Php 15, authorized
200,000
Php 2,550,000
Preference
Share
150,000
Ordinary Share, no par, Php 50 stated value, 100,000 shares
authorized
3,000.000
Share Premium,
In Sunrise Corporation's Statement of Stockholders' Equity, the number of issued and
outstanding shares for each class of stock is;
a.
Preference - 170,000 shares
Ordinary - 60,000 shares
b.
Preference - 180,000 shares
Ordinary - 60,000 shares
c.
Preference - 63,000 shares
Ordinary - 170,000 shares
d.
Preference - 180,000 shares
Ordinary - 63,000 shares
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The correct answer is: Preference - 170,000 shares
Ordinary - 60,000 shares
Question 12
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Treasury stocks are part of the outstanding share capital of a corporation.
Select one:
True
False
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Treasury stocks are NOT part of the outstanding share capital of a corporation.
The correct answer is 'False'.
Question 13
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Select the best answer that is described in each statement.
This share carries a right to exchange preference shares
for a fixed number of ordinary shares.
Answer 1
Convertible Preference Shares
These are shares of stocks which have been issued and
Answer 2
fully paid for, but subsequently reacquired by the issuing
Treasury Stocks
corporation.
These shares give the issuing corporation the right to purchase Answer 3
Callable Preference Shares
(retire) the shares from its holders at a specified time.
This share gives its owners certain advantages over
ordinary shareholders.
This share represents the basic ownership class of the
corporation.
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The correct answer is:
Answer 4
Preference share
Answer 5
Ordinary Share
This share carries a right to exchange preference shares for a fixed number of ordinary
shares. → Convertible Preference Shares,
These are shares of stocks which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation. → Treasury Stocks, These shares give the issuing
corporation the right to purchase (retire) the shares from its holders at a specified
time. → Callable Preference Shares,
This share gives its owners certain advantages over ordinary shareholders. → Preference
share,
This share represents the basic ownership class of the corporation. → Ordinary Share
Question 14
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Which of the following is most relevant in determining the cost of assets acquired in
exchange for share capital?
a.
fair market value of the asset
b.
par or stated value of the share
c.
issuance price of share already outstanding
d.
fair market value of the share
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The correct answer is:
fair market value of the asset
Question 15
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Which of the following is a characteristic of ordinary shares?
a.
Guaranteed dividends
b.
Receive dividends before preference shareholders
c.
Maturing date
d.
Voting rights
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The correct answer is:
Voting rights
Question 16
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Jimmy Lerios is a subscriber of JC Fruit Processing Corporation for 300 ordinary shares at
Php 150 par value per share. He failed to pay his subscription balance of Php 27,000
which is equivalent to 180 shares despite of lawful calls and notices being sent to him.
The corporation declared all the shares to be delinquent and advertises for the auction
sale. Three (3) bidders were received and all signified their intentions to pay the balance
of Php 27,000 plus advertising expenses of Php 560.00 but differ on the share that each
bidder will acquire.
Bongbong Tah
shares
- bids for 170
Sarah Tu
shares
- bids for 174
Manny Yu
- bid for 178 shares
Who is the highest bidder in the auction sale?
a.
Bongbong Tah
b.
Corporation
c.
Manny Ka
d.
Sarah Tu
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Your answer is correct.
The correct answer is:
Bongbong Tah
Question 17
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ABC Corporation issued 1,000 shares of Php 20 par value ordinary shares at Php 24 per
share. ABC Corporation reacquired 100 shares of its own stock at a cost of Php 30 per
share. The entry to record the reacquisition is
I. Debit Share Premium - Treasury for Php 600 and Treasury Stock for Php 2,400
II. Debit Treasury Stock for Php 3,000
III. Credit Cash for Php 3,000
IV. Credit Share Premium-Treasury for Php 1,000
a.
I and IV are correct
b.
III and IV are correct
c.
II and III are correct
d.
I and II are correct
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The correct answer is: II and III are correct
Question 18
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Under the journal entry method, the amount of share capital issued is determined by
deducting the balance of unissued share capital account from the balance of the
authorized share capital.
Select one:
True
False
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The correct answer is 'True'.
Question 19
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On December 1, 2022, Saturn Corporation received a donation of 2,000 shares of its Php
50 par value ordinary shares from a stockholder. On that date, the share's market value
was Php 350 per share. The stock was originally issued for Php 250 per share. By what
amount would this donation cause total shareholder's equity to decrease?
a.
Php 200,000
b.
Php 700,000
c.
Php 500,000
d.
Php 0
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The correct answer is:
Php 0
Question 20
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Under the journal entry method, the amount of share capital issued is determined by
deducting the balance of unissued share capital account from the balance of the
authorized share capital.
Select one:
True
False
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The correct answer is 'True'.
Question 21
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Any amount received in excess of the par value of the ordinary shares sold is recorded
as a credit to the retained earnings account.
Select one:
True
False
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Any amount received in excess of the par value of the ordinary shares sold is recorded
as a credit to "Share Premium" account.
The correct answer is 'False'.
Question 22
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When ordinary shares is sold on a subscription basis and the entire subscription price has been
collected, the issuance of the share is recorded by
a.
Subscription Receivable
Subscribed Ordinary Shares
b.
Subscribed Ordinary Shares
Ordinary Shares
c.
Ordinary Shares
Subscription Receivable
d.
Cash
Ordinary Shares
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The correct answer is:
Subscribed Ordinary Shares
Ordinary Shares
Question 23
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If a corporation reissued at Php 200 per share 100 shares of treasury stock that it had
previously acquired for Php 280 per share and there wasn't any Share Premium Treasury, it would debit
a.
Share Premium - Ordinary for Php 8,000
b.
Treasury Stock for Php 8,000
c.
Retained Earnings for Php 8,000
d.
Loss on Sale of Treasury Stock for Php 8,000
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The correct answer is:
Retained Earnings for Php 8,000
Question 24
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If share capital is issued for a non-cash consideration, the proceeds is recorded at the
amount equal to the following in the order of priority: fair market value of share capital
issued, fair market value of the non-cash consideration received and par or stated value
of the share capital issued.
Select one:
True
False
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Question 25
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A par value share has a nominal value stated on the face of the share certificate.
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True
False
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Question 26
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If Sunshine Corporation has 80,000 ordinary shares authorized, has 50,000 ordinary
shares issued, and hold 4,000 shares as treasury stock, the total number of outstanding
shares of Sunshine Corporation amounts to
a.
34,000
b.
46,000
c.
30,000
d.
76,000
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The correct answer is:
46,000
Question 27
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Which of the following is not in Share Capital?
a.
Shares Distributable
b.
Ordinary Shares
c.
Appropriated Retained Earnings
d.
Donated Capital
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The correct answer is:
Appropriated Retained Earnings
Question 28
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A corporation might repurchase it own stock for all of the following reasons except to
a.
improve financial ratios
b.
vote for the board of directors
c.
deter a takeover attempt
d.
use for employees compensation
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The correct answer is:
vote for the board of directors
Question 29
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Madraza Corporation was incorporated on July 1, 20A with authorized ordinary share
capital of Php 1,000,000 and preference share of Php 2,000,000 with a par value of Php
100 each. During the year, the corporation had the following transactions affecting the
Shareholders' Equity:
1st: 120 ordinary shares were issued for cash at par value.
2nd: 380 ordinary shares were issued in exchange for land. The fair market value of land
is Php 50,000.
3rd: 200 ordinary shares were issued in payment of legal expenses incurred during the
incorporation process, Php 25,000.
How much is the balance of Ordinary Share Capital Account and the amount of Share
Premium to be reported in the Statement of Financial Position?
a.
Php 80,000 and 19,000 respectively
b.
Php 60,000 and Php 21,000 respectively
c.
Php 70,000 and Php 17,000 respectively
d.
Php 68,000 and Php 27,000 respectively
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The correct answer is: Php 70,000 and Php 17,000 respectively
Retained earnings
A share dividend exceeding 20% is properly treated as share split.
Select one:
True
False
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A share dividend exceeding 20% is properly treated as large share dividend.
The correct answer is 'False'.
Question 2
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In share split, the par value of all shares in the issued class is increased in proportion to
the additional shares issued.
Select one:
True
False
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In share split, the par value of all shares in the issued class is decreased in proportion to
the additional shares issued.
The correct answer is 'False'.
Question 3
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The reason why an appropriation from the Unrestricted Retained Earnings is required by
law when treasury shares are acquired in order to protect creditors shares so as by not
impairing the corporation's legal capital.
Select one:
True
False
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Question 4
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Retained Earnings represent cash readily available for dividends.
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True
False
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Retained Earnings do not necessarily represent cash readily available for dividends.
The correct answer is 'False'.
Question 5
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Property dividends are charged to retained earnings at cost or book value of the noncash assets distributed.
Select one:
True
False
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Property dividends are charged to retained earnings at fair value of the non-cash assets
distributed.
The correct answer is 'False'.
Question 6
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Dividends in arrears pertain to non-cumulative preference shares.
Select one:
True
False
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Dividends in arrears pertain to cumulative preference shares.
The correct answer is 'False'.
Question 7
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Cumulative preference shares entitle the holders to participate with the holders of
ordinary shares pro-rata in the remainder after the ordinary shareholders have received
their initial share.
Select one:
True
False
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Participating preference shares entitle the holders to participate with the holders of
ordinary shares pro-rata in the remainder after the ordinary shareholders have received
their initial share.
The correct answer is 'False'.
Question 8
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A person owning the stock on the date of declaration will receive share dividends that
have been declared.
Select one:
True
False
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A person owning the stock on the date of record will receive share dividends that have
been declared.
The correct answer is 'False'.
Question 9
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Share dividends increase the proportionate interests of the shareholders because of the
increase in their shareholdings.
Select one:
True
False
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Share dividends do not change stockholdings percentage interests in the corporation.
The correct answer is 'False'.
Question 10
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Dividends are contractual obligations of the corporation which must be paid at regular
intervals.
Select one:
True
False
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Shareholders are not guaranteed with dividends and dividends do not become a liability
of the corporation until the board of directors has formally declared a dividend
distribution.
The correct answer is 'False'.
Question 11
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The Income Summary account of a proprietorship is closed to the owner's capital
account; for a corporation, Income Summary is closed to
a.
Donated Capital
b.
Ordinary Shares
c.
Share Premium
d.
Retained Earnings
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The correct answer is:
Retained Earnings
Question 12
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The book value of ordinary shares is the same as
a.
net worth
b.
earnings per share
c.
par value
d.
liquidation value
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The correct answer is:
net worth
Question 13
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Mercury Corporation has a 8% participating preference shares issue, along with a
ordinary shares issue. Which of the following statements is true?
a.
Participating preference shareholders receive a maximum dividend payment of 8%
b.
Participating preference shareholders receive an average dividend payment of 8%
c.
Participating preference shareholders receive only 8% in dividends.
d.
Participating preference shareholders receive a minimum dividend payment of 8%.
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The correct answer is:
Participating preference shareholders receive a minimum dividend payment of 8%.
Question 14
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An investor owns 1,000 shares of Venus Corporation when the corporation announces a
1 for 2 reverse share split. Before the share split, Venus Corporation's stock was trading
at Php 2.00 per share. After the share split, what ownership position will the investor
have?
a.
500 shares at 2.00 per share
b.
2000 shares at 1.00 per share
c.
1,000 shares at 4.00 per share
d.
500 shares at 1.00 per share
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The correct answer is:
500 shares at 2.00 per share
Question 15
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Which of the following corporation accounts are not affected by the payment of a cash
dividend?
1.
2.
3.
4.
Shareholder's Equity
Total Assets
Liabilities
Retained Earnings
a.
2 and 3
b.
1 and 4
c.
1, 3, and 4
d.
1, 2, 3 and 4
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The correct answer is:
1 and 4
Question 16
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A share split by a corporation affects which account on the statement of financial
position?
a.
Par Value
b.
Retained Earnings
c.
Share Premium
d.
Shareholder's Equity
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The correct answer is:
Par Value
Question 17
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Earth Corporation has 900,000 shares outstanding. Recently, the corporation bought
100,000 shares of its own stock. At the end of the year, the corporation has Php 320,000
available to distribute to ordinary shareholders. How much is the dividend paid per
share?
a.
Php 0.46
b.
Php 0.40
c.
Php 2.19
d.
Php 2.5
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The correct answer is:
Php 0.40
Question 18
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When a small share dividend is declared, Retained Earnings is debited for
a.
zero; it is not affected by the declaration of a small share dividend.
b.
the par value of the shares to be distributed.
c.
the fair market value of the shares to be distributed
d.
the liquidation value of the shares to be distributed.
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The correct answer is:
the fair market value of the shares to be distributed
Question 19
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When preference shareholders have the right to receive a specified dividend and to
receive more after a matching dividend percentage is given to ordinary shareholders,
the preference shares are said to be
a.
convertible
b.
callable
c.
cumulative
d.
participating
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The correct answer is:
participating
Question 20
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Which of the following statements is not correct about a restriction on retained
earnings?
a.
reduces retained earnings available for the declaration of dividends.
b.
can be reported by an entry appropriating retained earnings.
c.
decreases assets
d.
has no effect on the total retained earnings
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The correct answer is:
decreases assets
Question 21
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Mars Corp. issued 100,000 ordinary shares. Of these, 5,000 were held as treasury stock at
Dec. 31, 2018. During 2019, transactions involving Mars Corp.'s ordinary shares were as
follows:



June 3
July 6
Nov 8
1,000 shares of treasury stock were sold
10,000 shares of previously unissued share were sold
A 2 for 1 share split took effect
At Dec. 31, 2019, how many ordinary shares are issued and outstanding?
a.
220,000 and 216,000 respectively
b.
220,000 and 212,000 respectively
c.
222,000 and 218,000 respectively
d.
222,000 and 214,000 respectively
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The correct answer is:
220,000 and 212,000 respectively
Question 22
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The following information pertained to Neptune Corporation:




Dividends on its 2,000 shares of 5%, 20 par value cumulative preference shares
have not been declared for three years.
Purchased 1,000 shares of the corporation's ordinary shares for Php 20,000.
Received donated land with a fair value of Php 100,000
Reissued 500 shares of treasury stocks for 8,000.
What amount of retained earnings should be appropriated as a result of these items?
a.
Php 20,000
b.
Php 26,000
c.
Php 10,000
d.
Php 12,000
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The correct answer is:
Php 10,000
Question 23
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Jupiter Company statement of financial position reported the following shareholder's
equity:




6% Cumulative Preference Shares, 100 par value, 2,500 shares issued and
outstanding
- Php 250,000
Ordinary Shares, Php 3.50 par, 100,000 shares issued and outstanding 350,000
Share Premium - Ordinary Php 60,000
Retained Earnings - Php 300,000
Php
Dividends in arrears on the preference shares amounted to Php 45,000. If Jupiter were
to be liquidated, the preference shareholders would receive par value plus the premium
of Php 50,000. The book value per share of ordinary shares is
a.
Php 6.60
b.
Php 7.00
c.
Php 7.50
d.
Php 6.00
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The correct answer is:
Php 6.00
Question 24
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Pluto Corp.'s outstanding shares at Dec. 31, 2019, consisted of the following:


30,000 shares of 5% Cumulative Preference Shares, Php 10 par value, fully
participating as to dividends. No dividends were in arrears.
200,000 Ordinary shares, Php 1 par value.
On December 15, 2019, Pluto declared dividends of Php 100,000. What was the amount
of dividends payable to Pluto's preference shares and ordinary shares?
a.
45,000 and 55,000 respectively
b.
60,000 and 40,000 respectively
c.
55,000 and 45,000 respectively
d.
40,000 and 60,000 respectively
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The correct answer is:
60,000 and 40,000 respectively
Question 25
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Zeus Corporation, a corporation with listed shares, declares a 10% share dividend. It has
10,000 shares issued and outstanding with par value of Php 100. On the date of
declaration, the market value per share is Php 105.
What amount of the retained earnings be capitalized or transferred to share capital?
a.
Php 5,000
b.
Php 100,000
c.
Php 0
d.
Php 105,000
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The correct answer is:
Php 105,000
Question 26
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Jolly Bee Inc. has 10,000 shares investment in Mc Do with a carrying amount of Php
600,000. On December 1, 2019, this growing food corporation declared a property
dividends this investment to all its outstanding par value shares tp be distributed on
December 15, 2019. The fair market value of the investment at the date of declaration
was Php 650,000. There was no change in fair value on settlement date.
By what amount did Jolly Bee's current liabilities increase as a result of this dividend
declaration?
a.
Php 650,000
b.
Php 600,000
c.
0
d.
Php 50,000
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The correct answer is:
Php 650,000
Question 27
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Seashore Corp. had 100,000 ordinary shares issued and outstanding on January 1, 2019.
During 2019, Seashore took the following actions:


March 15 Declared a 2 for 1 share split, when the fair market value of the share
was Php 80 per share.
Declared a Php 1 per share cash dividend.
In Seashore Corp.'s statement of changes in shareholder's equity for 2019, what amount
should Seashore report as dividends?
a.
950,000
b.
Php 100,00
c.
650,000
d.
50,000
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The correct answer is:
Php 100,00
Question 28
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On Jan. 5, 2019, Seahorse Corp. declared a cash dividend of Php 6,000,000 to
shareholders of record on Jan. 21, 2019. It was payable on February 11, 2019. The
following date pertained to 2018:



Profit for year ended 12/31/2018
Share premium, 12/31/2018
Retained Earnings, 1/1/2019
Php 1,900,000
6,750,000
4,250,000
The Php 6,000,000 dividend included a liquidating dividend of
a.
Php 1, 750,000
b.
Php 4,850,000
c.
0
d.
Php 4, 100,000
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The correct answer is:
Php 1, 750,000
Question 29
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The following data were taken from the records of Starfish Corporation.






10% Cumulative and Participating Preference Shares, Php 100 par, 1,000 shares
were issued and outstanding Php 100,000
Ordinary Shares, Php 50 par, 3,000 shares were issued and outstanding - Php
150,000
Retained Earnings:
Appropriated for Plant Expansion
Php 80,000
Unappropriated
120,000
Total Retained Earnings
200,000
The unappropriated Retained Earnings of Php 120,000, 90,000 was declared as cash
dividends in 20x1. No cash dividends were declared and paid in the past 2 years.
How much are the dividends per share for preference shares and ordinary shares?
a.
Php 48.00 and 14.00 respectively
b.
Php 10,00 and Php 26.67 respectively
c.
Php 36.00 and Php 18.00 respectively
d.
Php 30.00 and Php 20.00 respectively
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The correct answer is:
Php 48.00 and 14.00 respectively
Question 30
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Determine whether the following transactions increase, decrease or has no effect on the
total Retained Earnings.
The accountant of Mali Corporation failed to record the 2020 depreciation of
Answer 1
a new building in the amount of Php 50,000. The error was discovered in
Decrease
2021.
The company recorded a loss from sale of building for the period of Php
20,000.
A 5% share dividend was declared and issued by the board of directors.
Answer 2
Decrease
Answer 3
Decrease
Sold one-half of the treasury shares at Php 100 per share. These shares was
previously acquired at Php 110 per share.
Answer 4
Statement of Operations showed a company's net income after tax of Php
500,000.
Answer 5
2,000 shares of Php 100 par value convertible preference shares, which had
originally been issued at par, were converted to ordinary shares. Each share
of preference shares was convertible into four shares of ordinary shares.
Decrease
No Effect
Answer 6
No Effect
The Board of Directors declared during the year 2 for 1 ordinary shares split.
Sold 5,000 shares of treasury stock above its cost.
Paid the preference share and ordinary shares cash dividends.
Issued 12,000 ordinary shares for a building appraised at Php 96,000.
Answer 7
No Effect
Answer 8
No Effect
Answer 9
No Effect
Answer 10
No Effect
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You have correctly selected 9.
The correct answer is:
The accountant of Mali Corporation failed to record the 2020 depreciation of a new
building in the amount of Php 50,000. The error was discovered in 2021. → Decrease,
The company recorded a loss from sale of building for the period of Php 20,000. →
Decrease,
A 5% share dividend was declared and issued by the board of directors. → Decrease,
Sold one-half of the treasury shares at Php 100 per share. These shares was previously
acquired at Php 110 per share. → Decrease, Statement of Operations showed a
company's net income after tax of Php 500,000. → Increase,
2,000 shares of Php 100 par value convertible preference shares, which had originally
been issued at par, were converted to ordinary shares. Each share of preference shares
was convertible into four shares of ordinary shares. → No Effect, The Board of Directors
declared during the year 2 for 1 ordinary shares split. → No Effect,
Sold 5,000 shares of treasury stock above its cost. → No Effect, Paid the preference
share and ordinary shares cash dividends. → No Effect,
Issued 12,000 ordinary shares for a building appraised at Php 96,000. → No Effect