1.

In Accounting for shareholders’ equity, the accountant is primarily concerned with which of the
following?
a. Determining the total amount of stockholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of stockholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings
 
2. It is the date on which the entity and another party agree to a share-based payment arrangement,
being when the entity and the counterparty have a shared understanding of the terms and
conditions of the arrangement-
a. Grant date                                                   c. measurement date
b. Exercise date                                              d. balance sheet date
 
3. When a corporation redeems all of its preference share for more than the original  issue price, the
excess paid above the original issue price should be-
a. Accounted for as loss on exchange in the income statement
b. Charged against share premium  of ordinary share
c. Charged to a discount on preference share account
d. Charged against retained earnings
 
4. When treasury share is purchased for more than the par value, what account or accounts should
be debited?
a. Treasury share for the par value and share premium for the excess of purchase price over the par
value
b. Share premium for purchase
c. Treasury share for the purchase price
d. Treasury share for the par value and retained earnings for the excess of the purchase price over
the par value
 
5. Treasury stock was acquired for cash at a price in excess of par value.  The treasury share was
subsequently sold for cash at a price in excess of its acquisition price.  What is the effect on total
shareholders’ equity?
Purchase of treasury share        Sale of treasury share
a.    Increase                                   decrease
b.     Decrease                                 no effect
c.      Decrease                                increase
d.      no effect                                  no effect
 
6. An entity issued ordinary share with par value.  If there is a change in the par value of as the
ordinary share, it is charged or credited to share premium.  If the increase in ordinary share
exceeds share premium, the entity shall charge the excess to-
a. Debited to share premium to the extent of the credit when the stock was issued
b. Debited to retained earnings
c. Credited to share premium relating to the same issue
d. Debited to share premium from previous treasury share transactions of the same class
 
7. If the treasury shares are reissued for non cash consideration the proceeds shall be measured
by-
a. Fair value of the treasury shares
b. Fair value of the noncash consideration received
c. Book value of the noncash consideration received
d. Book value of the treasury shares
 
8. The portion of the proceeds of debt securities issued with detachable warrants that is allocable to
the warrants shall be accounted for as-
a. Share capital                                      c.  retained earnings
b. Share premium                                  d.  long-term debt
 
9. When collectability is reasonably assured, the excess of the subscription price over the stated
value of the no par ordinary share subscribed should be recorded as –
a. No par ordinary share
b. Share premium when the subscription is recorded
c. Share premium when the subscription is collected
d. Share premium when the ordinary share is issued
 
10. When preferred stock is purchased and retired by the issuing corporation for less than its  original
issue price, proper accounting for the retirement-
a. Increases the amount of dividends available to ordinary shareholders
b. Increases the contributed capital of as the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury share held by the corporation

 
Problem
1. The following accounts appear at the year-end trial balance of Luigi Company:
Preference share capital authorized (P 100 par value)                                 P  5,000,000
Ordinary share capital (authorized 200,000 shares no par value, issued 
    180,000 shares, P 15 stated value)                                                               2,700,000
Unissued preference share capital                                                                     1,800,000
Subscriptions receivable, ordinary                                                                        170,000
Subscriptions receivable, preference                                                                    200,000      
Preference share capital subscribed                                                                     300,000
Ordinary share capital subscribed                                                                         270,000
Treasury preference shares (5,000 shares at cost)                                               600,000 
Retained earnings                                                                                               2,000,000
Share premium-ordinary                                                                                        950,000
 
Compute total contributed capital on December 31, 2017?
a.  P  8,450,000                                                    c.  P  6,100,000
b.      7,050,000                                                    d.       6,470,000
 

For Nos. 2 and 3

 The shareholders’ equity of Kate Company on January 1, 2017 contained the following
accounts:
 
Share capital, 250,000 shares authorized: 100,000 shares issued and outstanding P 
3,000,000
Share premium                                                                                                               
2,000,000
Retained earnings                                                                                                          
6,000,000
 
The board of directors declared a 10% dividend on April 1, 2017 when the market value of
the share was 
P 70.  The stock dividend was issued on July 1, 2017 when the market value of the share
was P 100.    The share has a par value of P 30.  Kate Company has a net income of P
900,000.
 
2. What amount should Kate Company report as Retained earnings on December 31,
2017?
a.  P 6,000,000                                                  c.  P 6,200,000
b.     6,600,000                                                  d.     6,900,000
 
3.  The total Shareholder’s equity as of December 31, 2017 is-
a.  P  11,200,000                                              c.  P  11,500,000
b.      11,900,000                                              d.       11,600,000

4.  In 2017, Colorful Company issued for P 110 per share, 15,000 convertible preference
shares of 
P 100 par value. One preference share may be converted into three ordinary shares with P
25 par value at the option of the preference shareholder.  On December 31, 2017, all of the
 preference shares were converted into ordinary shares.  The market value of the ordinary
share at the conversion date was P 40.  What amount should be credited to Share premium
-ordinary share on December 31, 2017?
a.  P  1,125,000                                            c.  P  375,000
b.          150,000                                            d.      525,000

5.  On September 30, 2017, Cloudy Company issued 4,000 shares of its P 100 par share
capital in connection with a stock dividend.  The market value per share on the date of
declaration was P 150.  The shareholders’ equity before issuance of the stock dividend
was as follows:
Share capital, P 100 par, 20,000 shares outstanding                           P  2,000,000
Share premium                                                                                          3,000,000
Retained earnings                                                                                      1,500,000
 
What should be the retained earnings balance immediately after the stock dividend?
a.  P  900,000                                         c.  P  1,100,000
b.    2,100,000                                        d.       1,500,000

6.  Rex Company provided the following  information for the year ended December 31,
2017:
Retained earnings-  Jan. 1                                                            P 1,200,000
Over depreciation of 2016 due to prior period error                            100,000
      Net income for 2017                                                                        1,300,000  
      Retained earnings appropriated for treasury shares
         (original balance is P  500,000.  It is reduced by
         P  200,000 by reason of reissuance of the treasury shares)           300,000
      Retained earnings appropriated for contingencies (beginning
          balance, P  700,000.  It is increased by current appropriation
           of P  100,000)                                                                                 800,000
      Cash dividends paid to shareholders                                                   500,000
      Change in accounting policy from FIFO to weighted average
           Method –credit adjustment                                                            150,000
     
      Compute Retained Earnings as of December 31, 2017
       a.  P  2,1500,000                b.  P  2,350,000            c.  P  1,950,000              d.  P  1,750,000
 
7. Alfonso Company issued 1,000 shares of its P 5 par ordinary share to Hernandez as
compensation for 1,000 hours of legal services performed.  Hernandez usually bills P
160 per hour for legal services.   On the date of issuance, the stock was trading on a
public exchange at P 140 per share.   By what amount should the share premium
account increase as a result of this transaction?
a.  P  135,000                                           c.  P  155,000
b.      140,000                                           d.      160,000
 

8. On July 1, 2017, Coll Corp., a closely-held corporation, issued 6% bonds with a maturity
value of 
P 600,000, together with 1,000 shares of its P 50 par value ordinary share, for a combined
cash amount of P 1,100,000.   The market value of Coll’s share cannot be ascertained.   If
the bonds were issued separately, they would have sold for P 400,000 on an 8% yield to
 maturity basis.   What amount should Coll report for share premium on the issuance of the
stock?
a.  P  750,000                                       c.  P  550,000
b.      650,000                                       d.      450,000

9. A corporation was organized in January 2016 with authorized capital of P 10 par value
ordinary  share.  On February 1, 2017, shares were issued at par for cash.   On March 1,
2017, the corporation’s attorney accepted 5,000 share of the ordinary share in
settlement for legal services with a fair value of P 60,000.   Share premium would
increase on-
      Feb.  1, 2017            March 1, 2017                Feb.  1, 2017         March 1, 2017
a.        Yes                             No                       c.            No                           No
b.        Yes                            Yes                      d.            No                           Yes
 
10. On April 1, 2017, JJ Corporation, a newly formed company, had the following share
issued and outstanding:
 Ordinary share, no par, P 10 stated value, 20,000 shares originally issued for P 300
per share
 Preference share, P 100 par value, 6,000 shares originally issued for P 500 per
share.
 
      JJ’s April 2017 statement of changes in Equity should report-
Ordinary share                       Preference share                       Share premium
a.  P   200,000                           P  600,000                           P  8,200,000
b.        200,000                               300,000                                5,800,000
c.     6,000,000                               300,000                                        0
d,     6,000,000                               600,000                                2,400,000

11. On December 1, 2017, shares of authorized ordinary shares were issued on a

subscription basis at a price in excess of par value.   A total of 20% of the subscription
price of each share was collected as a down payment on December 1, 2017, with the
remaining 80% of the subscription price of each share due in 2018.  Collectability was
reasonably assured.   At December 31, 2017, the shareholders’ equity section of the
Statement of Financial Position would report share premium account for the excess of
the subscription price over the par value of the share of ordinary share subscribed and –
a. Ordinary share issued for 20% of the par value of the share of ordinary share subscribed
b. Ordinary share issued for the par value of the shares of ordinary share subscribed
c. Ordinary share subscribed for 80% of the par value of the shares of ordinary share
subscribed
d. Ordinary share subscribed for the par value of the shares of ordinary share subscribed
 
 
 
 
12. Eden Corp., a calendar year company has sufficient retained earnings in 2017 as a
basis for dividends, but was temporarily short of cash.  Eden declared a dividend of P
100,000 on April 1, 2017, and issued promissory notes to its shareholders in lieu of
cash.  The notes, which were dated April 1, 2017, had a maturity date of March 31,
2018, and a 10% interest rate.  How should Eden account for the scrip dividend and
related interest?
a.  Debit retained earnings for P 110,000 on April 1, 2017
b.  Debit retained earnings for P 110,000 on March 31, 2018
c.  Debit retained earnings for P 100,000 on April 1, 2017, and debit interest expense for P
10,000 on 
     March 31, 2018
d.  Debit retained earnings for P 100,000 on April 1, 2017, and debit interest expense for P
7,500 on 
     December 31, 2017

13. Multiple  Company provided the following balances on December 31, 2017:
 Accounts payable                                                        P  500,000
Accrued taxes                                                                  100,000
Ordinary share capital                                                   5,000,000
Dividends-ordinary share                                              1,000,000
Dividends-preference share                                             500,000
Mortgage payable (P500,000 due in six months)          4,000,000
Note payable, due January 31, 2019                             2,000,000
Share premium                                                                  500,000
Preference share capital                                                3,000,000
Premium on note payable                                                 200,000
Income summary-credit balance                                    4,000,000
Retained earnings- January 1                                        2,500,000
Unamortized issue cost on note payable                            50,000
Unearned rent income                                                       150,000
 
What is the amount of retained earnings on December 31, 2017?
a.  P  6,500,000          b.  P  2,500,000           c.  P  1,000,000        d.  P  5,000,000
 

 
14. Luigi Company was incorporated on January 1, 2017,with the following authorized
capitalization:
 
200,000 ordinary shares, no par, stated value P 100 per share.  
200,000 preference shares, P 10 , par value P 50 per share
 
During 2017 Luigi issued 150,000 ordinary shares for a total of P 18,000,000 and 50,000
preference shares at P 60 per share.  In addition, on December 15, 2017, subscriptions for
20,000 preference shares were taken at a purchase price of P 100.  These subscribed
shares were paid for On January 15, 2018.  Net income for 2017 was P 5,000,000.
 
What should Luigi report as total contributed capital in its December 31, 2017 statement of
financial position?
a.  P  26,000,000                                                              c.  P  21,000,000              
b.  P  28,000,000                                                              d.  P  23,000,000
 
15. Presented below is information related to Hale Corporation:
Common Share, P1 par P4,300,000
Share Premium—Common Share 550,000
Preference 8 1/2% Stock, P 50 par 2,000,000
Share Premium —Preference share 400,000
Retained Earnings 1,500,000
Treasury Common Share (at cost) 150,000
 

          The total stockholders' equity of Hale Corporation is

a. P 8,600,000.                               c.  P   7,100,000               
b.    8,750,000.                                 D.       7,250,000