1.

What is the effect of the declaration of scrip dividends on total liabilities and shareholders’
equity, respectively?
a. Increase, decrease
b. Increase, increase
c. Decrease, decrease
d. No effect, decrease

2. On January 1, 2016, Easy Company had ordinary and preference shares outstanding. The
incorporators or original shareholders own ten ordinary shares but no preference shares. On
December 31, 2016, the entity declared dividends on the ordinary shares. The entity decided to
give ordinary shareholders a property dividend in the form of a non-cash asset. The non-cash
asset is a standard model from the entity’s car fleet. Each car has a cost of P500,000 and fair
market value of P600,000. What is gain on disposal that should be recognized on December 31,
2016?
a. P 0
b. P 100,000
c. P 500,000
d. P 1,000,000

(No gain or loss to be recognized on the date of DECLARATION (December 31, 2016)

3. How is the balance of the share dividends distributable presented in the statement of financial
position?
a. As deduction from retained earnings
b. As part of current liabilities
c. As addition to share capital
d. As addition to retained earnings