A

Non-stock dividends shall be recognized as liabilities on the

A. Date of Declaration
B. Date of record
C. Date of payment
D. Date of issuing check

A
When shareholders may elect to receive receive cash in lieu of stock dividend, the
amount to be charged to retained earnings is equal to

A. Optional cash dividend

B. Fair value of the shares
C. Par value of the shares
D. Book value of the shares

A
Treasury shares may be reissued as dividends in which case what amount should be
charged to retained earnings

A. Cost of the treasury shares

B. Par value of the treasury share
C. Fair value of the treasury shares on the date of declarations
D. Fair value of the treasury shares on the date of issuance

B
If the share dividend is less than 20%, what amount of the retained earnings should be
capitalized?

A. Par value of the shares

B. Fair value of the shares on the date of declaration
C. Fair value of the shares on the date of record
D. Fair value of the shares on the date of issuance

B
An entity issued what is called a "20% share dividend": At what amount per share
should retained earnings be reduced for the transaction?

A. Zero
B. Par value
C. Fair value at the declaration
D. Fair value at the date of issuance
B
The declaration and issuance of a 25% share dividend
A. Increases ordinary shares outstanding and total equity
B. Decreases retained earnings but does not change total equity
C. May increase or decrease share premium but does not change total equity
D. Increases retained earnings and total equity

C
Which of the following statements is incorrect concerning retained earnings?

A. Appropriated retained earnings shall be clearly distinguished from appropriated

retained earnings
B. A deficit is a debit balance in retained earnings
C. A deficit in retained earnings shall be presented as an asset
D. When the deficit exceeds the total of the other capital account balances, the excess
is a capital deficiency

B
Appropriations of retained earnings should be reported as

A. Component of equity as part of share premium

B. Component of equity as part as total retained earnings
C. Component of total liabilities as current liability
D. When the deficit exceeds the total of the other capital account balances, the excess
is a capital deficiency

B
An entity shall measure a liability to distribute non cash asset as dividend to the owners
at

A. Carrying amount of the asset distributed

B. Fair value of the asset distributed
C. Either the carrying amount or fair value of the asset
D. Neither the carrying amount nor fair value

A
An entity shall review and adjust the carrying amount of the dividend payable at the end
of each reporting period and at the date of settlement with any changes in the carrying
amount of the dividend payable recognized

A. In equity as adjustment to the amount of distribution

B. In profit or loss
C. As adjustment of share premium
D. As component of other comprehensive income

A
When an entity settles the property dividend payable, it shall recognized the difference
between the carrying amount of the asset distributed and the carrying amount of the
dividend payable in

A. Profit or loss
B. Other comprehensive income
C. Equity
D. Retained earnings

C
An entity shall measure a non current asset classified as held for distribution to owners
at

A. Carrying amount
B. Fair value less cost to distribute
C. Lower of carrying amount and fair value less cost to distribute
D. Fair value
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C
An entity declared a cash dividend on a certain date payable on another date. Retained
earnings would

A. Increase on the date of declaration

B. Not be affected on the date of declaration
C. Not be affected on the date of payment
D. Decrease on the date of payment

A
The actual total amount of a cash dividend to be paid is determined on the date of

A. Record
B. Declaration
C. Declaration or date of record, whichever is earlier
D. Payment

A
A dividend which is a return to shareholders of a portion of their original investment is

A. Liquidating dividend
B. Patronage dividend
C. Liability dividend
D. Participating dividend

D
When an entity declared and paid a liquidating dividend, the distribution resulted in a
decrease in
A. Neither paid in capital nor retained earnings
B. Both paid in capital and retained earnings
C. Retained earnings and no effect on paid in capital
D. Paid in capital and no effect on retained earnings

B
An entity declared a dividend a portion of which was liquidating. How would this
declaration affect contributed capital and retained earnings, respectively?

A. Decrease and No effect

B. Decrease and Decrease
C. No effect and Decrease
D. No effect and No effect

B
The issuer should charge retained earnings for the fair value of shares issued in a

A. 1 for 5 share dividend

B. 1 for 8 share dividend
C. 4 for 1 share split
D. 2 for 1 share split

D
If the entity has only one class of share capital, a transfer from retained earnings to
share capital equal to the fair value of the shares issued is ordinarily a characteristic of

A. Either a share dividend or a share split

B. Neither a share dividend nor a share split
C. A share split but not a share dividend
D. A share dividend but not a share split

C
Total shareholder's equity remains the same when there is

A. Issuance of preference shares in exchange for convertible debentures

B. Issuance of non-convertible bonds with share warrants
C. Declaration of share dividend
D. Declaration of cash dividend

D
Unlike a share split, a stock divided requires a formal journal entry in the accounting
records because

A. Stock dividends increases the relative book value of an individual's shareholdings

B. Stock dividends increase the shareholder's equity in the issuing equity
C. Stock dividends are payable on the date declared
D. Stock dividends represents a transfer from retained earnings to share capital

B
Which of the following would not affect retained earnings?

A. Conversion of preference shares into ordinary shares

B. Share split
C. Reissue of treasury share
D. Share dividend
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D
How would retained earnings be affected by the declaration of share dividend and share
split, respectively?

A. Decrease and Decrease

B. No effect and Decrease
C. No effect and No effect
D. Decrease and No effect

A
When a share dividend is declared and issued

A. Total shareholder's equity does not change

B. Total shareholder's equity decreases
C. The current ratio increases
D. The amount of working capital decreases

B
Undistributed share dividends shall be reported as

A. A current liability
B. An addition to share capital outstanding
C. A reduction in total shareholders' equity
D. A note to financial statements

B
An entry is not made on the

A. Date of declaration
B. Date of record
C. Date of payment
D. An entry is made on all of these dates

C
Cash dividends are paid on the basis of the number of shares

A. Authorized
B. Issued
C. Outstanding
D. Outstanding less the number of treasury shares

B
If an entity wishes to "capitalize" retained earnings, it may issue

A. Cash dividend
B. Share dividend
C. Property dividend
D. Liquidating dividend

C
Liquidating dividend

A. Are prohibited under IFRS

B. Require a credit to share capital
C. Reduce amounts paid in by shareholders
D. All of the choices are correct

D
A retained earnings appropriation is used to

A. Absorb a fire loss when an entity is self-insured

B. Provide for a contingent loss that is probable and measurable
C. Smooth periodic income
D. Restrict earnings available for dividends

D
An appropriation of retained earnings for future plant expansion will result in

A. The establishment of a fund to help finance future plant expansion

B. The setting aside of cash to be used for future plant expansion
C. A decrease in cash with an equal increase in the investment in fund
D. The disclosure that management does not intend to distribute in the form of
dividends assets equal to the amount of the appropriation

B
A restriction of retained earnings is most likely to be required by

A. Purchase of property plant and equipment

B. Purchase of treasury shares
C. Payment of last maturing series of a serial bond issue
D. Funding of past service cost

C
Retained earnings appropriated account is created for the purpose of

A. Earmarking cash to be used for particular purposes

B. Insuring the payment of dividends
C. Protecting the working capital positions
D. Preventing losses from contingencies

B
Which of the following statements is incorrect concerning the appropriation of retained
earnings?

A. Appropriations of retained earnings do not change the total amount of shareholders'

equity
B. Appropriations of retained earnings reflect funds set aside for a designated purpose,
such as plant expansion
C. Appropriations of retained earnings can made as a result of contractual requirements
D. Appropriations of retained earnings can be made at the discretion of the board of
directors

D
For which of the following purposes should an appropriation for possible loss
contingencies be established?

A. To match applicable costs with current revenue

B. To reduce fluctuations in net income in order to lend stability of the entity
C. To charge operations in periods of rising prices for the losses which may otherwise
be absorbed in periods of falling prices
D. To inform shareholders that a portion of retained earnings should be set aside from
amounts available for dividends because of such contingencies

D
Which of the following statements is true concerning appropriations of retained
earnings?

A. Appropriation do not reduce total retained earnings

B. The only proper way to eliminate an appropriation of retained earnings after it has
served its purpose is to revert to the unappropriated retained earnings
C. When treasury shares are purchased, retained earnings must be appropriated equal
to the cost of the treasury shares
D. All of these statements are true concerning appropriations of retained earnings

B
Which of the following is most likely to be found in corporate laws regarding payment of
dividends?

A. Dividends may be paid from legal capital

B. Retained earnings are available for dividends unless restricted by contract or by
statute
C. Legal capital is available for any type of dividend
D. Capital from donated asset is available for dividends
B
Which of the following is not a legal restrictions related to profit distribution?

A. The amount distributed must be i compliance with the laws governing corporations
B. The amount distributed can never exceed the net income reported for the year
C. Profit distribution must be formally approved by the board of directors
D. Dividends must be in full agreement with the capital contracts as to preferences
B
Th use of equity reserves under international accounting standards

A. Is strictly voluntary o the part of the management of an entity

B. Is based on whether a reserve is part of distributable or non-distributable equity
C. Is primarily for the benefit of shareholders rather than creditors
D. Results in the elimination of retained earnings from the total shareholders' equity
C
The primary purpose of a quasi-reorganization is to give the entity the opportunity to

A. Obtain relief from creditors

B. Revalue understated assets at fair value
C. Eliminate a deficit
D. Distribute the shares of a newly-created subsidiary to the shareholders in exchange
for part of their shares
D
When an entity goes through a quasi-reorganization, the carrying amounts are
measured at

A. Original cost
B. Original carrying amount
C. Replacement value
D. Fair value
C
The accounting or quasi-reorganization usually includes

A. Writeup of assets and writedown of retained earnings

B. Writedown of both assets and retained earnings
C. Writedown of assets and elimination of a deficit
D. Writeup of assets and elimination of a deficit
A
Immediately after a quasi-reorganization, the retained earnings account

A. Has a zero balance

B. Remains the same as it was before
C. Is frozen and dated and subsequent transactions will be shown separately
D. Has a debit balance equal to the writedown of the assets which were overstated

D
When shares with par value are sold, the proceeds shall be credited to the
A. Share capital account
B. Share premium
C. Retained earnings
D. Share capital account to the extent of the par value of the shares issued with any
excess being reflected in share premium

C
When shares with without par value are sold, the excess proceeds over stated value
shall be credited to
A. Income
B. Retained earnings
C. Share premium
D. Share capital
C
If shares are issued for a noncash consideration, the shares issued shall be measured
by
A. Fair value of the shares issued
B. Par value of the shares issued
C. Fair value of the noncash consideration received
D. Carrying amount of the noncash consideration received

B
If shares are issued to extinguish a financial liability, what is the initial measurement of
the shares issued?
A. Par value of the shares issued
B. Fair value of the shares issued
C. Fair value of liability extinguished
D. Book value of the shares issued
B
When shares are issued in payment for services, what is the least appropriate basis for
recording the transaction?
A. Fair value of the services received
B. Par value of the shares issued
C. Fair value of the shares issued
D. Any of these provides an appropriate basis for recording the transaction

B
The cost of treasury shares acquired for noncash consideration is usually measured by
A. Fair value of the noncash consideration
B. Carrying amount of the noncash asset surrendered
C. Par value of the shares
D. Book value of the shares

B
If treasury shares are reissued for noncash consideration, the proceeds shall be
measured by
A. Fair value of the treasury shares
B. Fair value of the noncash considerations
C. Carrying amount of the noncash consideration
D. Cost of the treasury shares

C
Which of the following statements is incorrect concerning treasury shares?
A. Treasury shares shall be recorded at cost irrespective of whether acquired below or
above par value
B. The total cost of treasury shares shall be deducted from shareholders equity
C. Treasury shares may be recognized as financial asset
D. Gain or loss on sale of treasury shares shall not be included in profit or loss

C
"Loss" from sale of treasury shares shall be charged to
A. Loss on sale of treasury shares to be reported as other expense
B. Retained earnings and then share premium from treasury shares
C. Share premium from treasury shares and then retained earnings
D. Share premium from original issuance, share premium from treasury shares and then
retained earnings

A
Gain and loss on retirement of treasury shares shall not be included in profit or loss. If
the retirement results in gain such gain shall be credited to
A. Share premium
B. Retained earnings
C. Share capital
D. Income

D
Loss on retirement of treasury shares shall be debited to
A. Retained earnings
B. Share premium from treasury shares and the retained earnings
C. Share premium from treasury shares, share premium from original issuance, then
retained earnings
D. Share premium from original issuance, share premium from treasury shares and then
retained earnings

C
Which statement best describes a possible result of treasury share transactions?
A. May increase but not decrease retained earnings
B. May increase net income if the cost method is used
C. May decrease but not increase retained earnings
B. May decrease but increase net income
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D
Which is true concerning share capital transactions?
A. Deposits on subscription to a proposed increase in share capital should be reported
as part of shareholders equity
B. Subscriptions receivable from sale of share capital not currently collectible should be
reflected as deduction from related subscribed share capital
C. Discount on share capital should be shown as deduction from total shareholders
equity
D. All of these statements are true concerning share capital transactions

D
Transaction costs that are directly attributable to the issuance of new shares should be
A. Expensed immediately
B. Charged to retained earnings
C. Deducted from equity
D. Deducted from equity, net of any related income tax benefit

A
Costs of public offering of shares or costs that relate to "stock market listing of shares"
should be
A. Expensed immediately
B. Considered as component of other comprehensive income
C. Deducted from equity
D. Deducted from equity, net of any related income tax benefit

D
Transaction costs that are directly attributable to the issuance of new shares include all
of the following, except
A. Documentary stamp tax
B. Underwriting fee
C. SEC registration fee for new shares
D. Road show presentation
D
What is the treatment of "joint costs" that relate to the concurrent listing and issuance of
new shares, and listing of old existing shares?
A. The joint costs should be expensed immediately
B. The joint costs should be deducted from equity, net of tax benefit
C.The joint costs should be deducted from equity, plus tax benefit
D. The joint costs should be allocated between the newly issued and listed shares and
the newly listed old existing shares prorata based on the number of shares outstanding

B
When collectibility is reasonably assured, the excess of the subscription price over the
stated value of the no-par subscribed share capital shall be recorded as
A. No par share capital
B. Share premium when the subscription is recorded
C.Share premium when the subscription is collected
D. Share premium when the subscription is issued
C
When treasury shares are purchased for more than par value, what account or accounts
shall be debited?
A. Treasury shares for the par value and share premium for the excess of purchase
price over the par value
B. Share premium for the purchase price
C. Treasury shares for the purchase price
D. Treasury shares for the par value and retained earnings for the excess of the
purchase price over the par value
C
The purchase of treasury shares
A. Decrease shares authorized
B. Decrease shares issued
C. Decrease shares outstanding
D. Has no effect on shares outstanding

C
At the date of the financial statements, shares issued would exceed shares outstanding
as a result of
A. Declaration of share split
B. Declaration of a share dividend
C. Purchase of treasury shares
D. Payment in full of subscribed shares

C
In accounting for shareholders equity, the accountant is primarily concerned with which
of the following?
A.Determining the total amount of shareholders equity
B. Distinguish between realized and unrealized revenue
C. Recording the source of each of the various elements of shareholders equity
D. Making sure that the directors do not declare dividends in excess of retained
earnings
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D
Contributed capital does not include
A. Share premium on ordinary and preference shares
B. Preference share capital
C. Capital resulting from reissuance of treasury shares at a price above acquisition price
D. Capital accumulated by retention of earnings

C
Total shareholders equity represents
A. A claim against specific assets contributed by the owners
B. The maximum amount that can be borrowed bu the entity
C. A claim against a portion of the total assets of an entity
D. Only the amount of retained earnings
C
The par value of an ordinary share represents
A. The liquidation value of the share
B. The book value of the share
C. The legal nominal value assigned to the share
D. The amount received by the entity when the share was originally issued

A
The issuance of preference shares
A. Increases preference shares outstanding
B. Has no effect on preference shares outstanding
C. Increases preference shares authorized
D. Decreases preference shares authorized

D
When an entity calls in all of the preference shares for more than the original issue
price, the excess paid above the original issue price should be
A. Accounted for as loss on exchange
B. Charged against share premium of ordinary shares
C. Charged to discount on preference shares
D. Charged against retained earnings

B
When preference share are purchased and retired by the issuing entity for less than
original issue price, proper accounting for the retirement
A. Increases the amount of dividends available to ordinary
B. Increases the contributed capital of the ordinary shareholders
C. Increases reported income for the period
D. Increases the treasury shares

B
Convertible preference shares
A. Are compound financial instrument
B. Include an option for the holder to convert preference shares into a fixed number
ordinary shares
C. Use the "with and without" method to measure the compound instrument
D. All of the choices are correct
B
How would a share split affect asset and shareholders equity, respectively?
A. Increase and Increase
B. No effect and No effect
C. No effect and Increase
D. Increase and No effect
B
How would a share split affect share premium and retained earnings, respectively?
A. Increase and Increase
B. No effect and No effect
C. No effect and Decrease
D. Increase and Decrease
C
The term residual owner means that shareholders
A. Are entitled to a dividend every year in which the entity earns an income
B. Have the rights to specific assets of the entity
C. Bear the ultimate risks and receive the benefits of ownership
D. Can negotiate individual contracts in behalf of the entity
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C
The residual interest in a corporation belongs to
A. Management
B. Creditors
C. Ordinary shareholders
D. Preference shareholders

D
Treasury shares are
A. Shares held as an investment by the treasurer
B. Shares held as an investment by the corporation
C. Issued and outstanding shares
D. Issued but not outstanding shares

C
Which of the following is not a method that may be used to account for treasury shares?
A. Cost method
B. Par value method
C. Retained earnings method
D. Constructive retirement method

C
Only a memorandum entry is made when
A. Entities grant share warrants to executives and employees as a form of
compensation
B. Entities include share warrants to make a security more attractive
C. Entities issue rights to existing shareholders
D. All of the choices are corrected

B
When an entity issued rights to existing shareholders to purchase unissued ordinary
shares at more than par value, share premium would be recorded when the rights
A. Lapsed
B. Are exercised
C. Become exercisable
D. Are issued
C
An ordinary shareholder does not possess which of the following?
A. The right to share in the earnings of the corporation when dividends are declared
B. The right to vote in the election of the board of directors of the corporation
C. The right to direct ownership of the corporate assets
D. The right to share proportionately in corporate assets in case of liquidation if such
assets exceed the claims of creditors
D
Which of the following is not one of the basic rights of a shareholder?
A. The right to participate in earnings
B. The right to maintain proportional interest in the corporation
C. The right to participate in the proceeds of the sale of corporate assets upon
liquidation of the corporation
D. The right to inspect the accounting records of the corporation

B
The preemptive right of an ordinary shareholder is the right to
A. Share proportionately in corporate assets upon liquidation
B. Share proportionately in any new issue of shares of the same class
C. Receive cash dividends before distribution to preference shareholders
D. Exclude preference shareholders from voting rights
D
Discount on share capital
A. May be recorded as either an asset or an expense
B. Shall be closed to income summary account
C. May be offset against share premium on the same class of share capital
D. None of the above may be done

D
When the total shareholders equity is smaller than the amount of contributed capital, the
deficiency is called
A. A net loss
B. A dividend
C. A liability
D. A deficit

1. What is a stock dividend?

An issuance by a corporation of its own common shares to its common shareholders
without consideration and under conditions indicating that such action is prompted
mainly by a desire to give the recipient shareholders some ostensibly separate evidence
of a part of their respective interests in accumulated corporate earnings without
distribution of cash or other property that the board of directors deems necessary or
desirable to retain in the business. A stock dividend takes nothing from the property of
the corporation and adds nothing to the interests of the stockholders; that is, the
corporation's property is not diminished and the interests of the stockholders are not
increased. The proportional interest of each shareholder remains the same.
2. What is a stock split?
An issuance by a corporation of its own common shares to its common shareholders
without consideration and under conditions indicating that such action is prompted
mainly by a desire to increase the number of outstanding shares for the purpose of
effecting a reduction in their unit market price and, thereby, of obtaining wider
distribution and improved marketability of the shares. Sometimes called a stock split-up.
3. This is a standard that deals with "substance over form." Explain.
The number of additional shares issued as a stock dividend may be so great that it has,
or may reasonably be expected to have, the effect of materially reducing the share
market value. In such a situation, because the implications and possible shareholder
belief discussed in paragraph 505-20-30-3 are not likely to exist, the substance of the
transaction is clearly that of a stock split.
4. When is a stock dividend in substance actually a stock split?
The point at which the relative size of the additional shares issued becomes large
enough to materially influence the unit market price of the stock will vary with individual
entities and under differing market conditions and, therefore, no single percentage can
be established as a standard for determining when capitalization of retained earnings in
excess of legal requirements is called for and when it is not. Except for a few instances,
the issuance of additional shares of less than 20 or 25 percent of the number of
previously outstanding shares would call for treatment as a stock dividend as described
in paragraph 505-20-30-3.
5. Explain the accounting for the issuance of a stock dividend.
In accounting for a stock dividend, the corporation shall transfer from retained earnings
to the category of capital stock and additional paid-in capital an amount equal to the fair
value of the additional shares issued. Unless this is done, the amount of earnings that
the shareholder may believe to have been distributed to him or her will be left, except to
the extent otherwise dictated by legal requirements, in retained earnings subject to
possible further similar stock issuances or cash distributions.
30-4 The accounting required in the preceding paragraph will likely result in the
capitalization of retained earnings in an amount in excess of that called for by the laws
of the state of incorporation; such laws generally require the capitalization only of the
par value of the shares issued, or, in the case of shares without par value, an amount
usually within the discretion of the board of directors. However, these legal
requirements are, in effect, minimum requirements and do not prevent the capitalization
of a larger amount per share.
6. Explain the accounting for a stock split.
In the case of a stock split, there is no need to capitalize retained earnings, other than to
the extent occasioned by legal requirements.
7. How is a shareholder's interest affected by the issuance of a stock dividend or a stock
split?
 A shareholder's interest in the corporation remains unchanged by a stock dividend or
stock split except as to the number of share units constituting such interest. Therefore,
the cost of the shares previously held shall be allocated equitably to the total shares
held after receipt of the stock dividend or stock split. When any shares are later
disposed of, a gain or loss shall be determined on the basis of the adjusted cost per
share.
Disclosure
Paragraph 505-20-25-2 identifies a situation in which a stock dividend in form is a stock
split in substance. In such instances every effort shall be made to avoid the use of the
word dividend in related corporate resolutions, notices, and announcements and that, in
those cases in which because of legal requirements this cannot be done, the
transaction be described, for example, as a stock split effected in the form of a dividend.

TOA1
TOA QUIZZER 1
Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1.     For an entity that has only ordinary shares outstanding, total shareholders’ equity divided by the number of shares
outstanding represents the

a. Return on equity c. Book value per share

b. Stated value per share d. Price-earnings ratio

____ 2.     The effect of recording a 100% stock dividend would be to

 a. Decrease the current ratio, decrease working capital and decrease book value per
share.
b. Leave inventory turnover unaffected, increase earnings per share and increase
book value per share.
c. Leave working capital unaffected, decrease earnings per share and decrease book
value per share.
d. Leave working capital unaffected, decrease earnings per share and decrease the
debt to equity ratio.

____ 3.     Which of the following shareholder rights is most commonly enhanced in an issue of preference shares?

a. The right to vote for the board of directors.

b. The right to maintain one’s proportional interest in the corporation.
c. The right to receive a full cash dividend before dividends are paid to other classes
of share capital.
d. The right to vote on major corporate issues.

____ 4.     Which of the following features of preference share would most likely be opposed by ordinary shareholders?

a. Par or stated value c. Redeemable

b. Callable d. Participating

____ 5.     An entity has not declared or paid dividends on its cumulative preference shares in the last three years. These dividends
shall be reported

a. In a note to the financial statements c. As a current liability

b. As a reduction in shareholders’ equity d. As a noncurrent liability

____ 6.     The standard requires disclosure on the face value of income statement of

a. Basic earnings per share only

b. Diluted earnings per share only
c. Neither basic nor diluted earnings per share
d. Both basic and diluted earnings per share

____ 7.     EPS disclosures are

a. Required for all public and nonpublic entities

b. Required for public entities and encouraged for nonpublic entities
c. Encouraged for public entities and required for nonpublic entities
d. Encouraged for all entities

____ 8.     An ordinary share

a. Is an equity intsrument that is subordinate to all other classes of equity instrument.

 b. Is a financial instrument or other contract that may entitle its holder to ordinary
shares.
c. Is a financial instrument that gives the holder the right to purchase ordinary shares.
d. Is any contract that gives rise both a financial asset of one entity and a financial
liability or equity instrument of another entity.

____ 9.     It is a financial instrument or other contract that may entitle its holder to ordinary shares.

a. Ordinary share c. Equity instrument

b. Preference share d. Potential ordinary share

____ 10.   It is a financial instrument that gives the holder the right to purchase ordinary shares.

a. Warrant or option
b. Debt or equity instrument convertible into ordinary share
c. Employee plan that allows employees to receive ordinary shares as part of their
remuneration
d. Contractual arrangement requiring issuance of ordinary shares upon the
satisfaction of certain conditions

____ 11.   Earnings per share shall be computed on the basis of

a. Ordinary shares outstanding at the end of the year

b. Ordinary shares outstanding at the beginning of the year
c. Ordinary shares outstanding at the middle of the year
d. Average ordinary shares outstanding during the year

____ 12.   Potential ordinary shares do not include

a. Financial liabilities or equity instruments, including preference shares, that are not
convertible into ordinary shares
b. Share warrants
c. Share options or employee plans that allow employees to receive ordinary shares
as part of their remuneration
d. Shares which would be issued upon the satisfaction of certain conditions resulting
from contractual arrangements, such as purchase of a business

____ 13.   Options and warrants are dilutive if

a. The exercise price is lower than the average market price.

b. The exercise price is higher than the average market price.
c. The exercise price is equal to the average market price.
d. The option shares represent 20% of the ordinary shares actually outstanding.
____ 14.   Under the treasury share method, the number of incremental ordinary shares is equal to

a. Option shares
b. Option shares minus assumed treasury shares acquired
c. Assumed treasury shares acquired
d. Option shares actually issued during the year

____ 15.   For employee share options, the exercise price shall include

a. Fair value of the share options

b. Intinsic value of the share options
c. Carrying amount of the share options
d. Par value of the share options

____ 16.   In computing basic earnings per share, the full amount of the required preference dividends on cumulative preference
share for the period shall be

a. Ignored
b. Deducted from the net income only when declared
c. Deducted from the net income whether declared or not
d. Added to net income whether declared or not

____ 17.   In computing basic loss per share, the required annual preference dividend on cumulative preference share shall be

a. Ignored
b. Deducted from the net loss whether declared or not
c. Added to the net loss whether declared or not
d. Added to the net loss only when declared

____ 18.   It is reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible
instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the
satisfaction of specified conditions.

a. Dilution c. Either dilution or antidilution

b. Antidilution d. Neither dilution or antidilution

____ 19.   In computing diluted EPS, interest expense on convertible bond payable shall be

a. Added back to net income at gross c. Deducted from net income net of tax
b. Added back to net income net of tax d. Ignored

____ 20.   In computing diluted EPS, dividends on convertible cumulative preference share shall be

a. Ignored
b. Deducted from net income, whether declared or not
 c. Deducted from net income only when declared
d. Added to net income net of tax

____ 21.   It is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities

a. Financial instrument c. Debt instrument

b. Equity instrument d. Ordinary share

____ 22.   A written put option is

a. A contract that requires an entity to repurchase its own ordinary shares.

b. A contract that gives the holder the right to sell ordinary shares at a specified price
for a given period.
c. A financial instrument that gives the holder the right to purchase ordinary shares.
d. An agreement to issue ordinary shares that is dependent on the satisfaction of
specified conditions.

____ 23.   If the written put options are “in the money” (choose the incorrect one)

a. It is assumed that at the beginning of the period sufficient ordinary shares will be
issued at the average market price to raise the proceeds to satisfy the contract.
b. It is assumed that the proceeds from the issue are used to buy back the ordinary
shares covered by the written put options.
c. The resulting incremental ordinary shares shall be included in
computing diluted earnings per share.
d. The resulting incremental ordinary shares shall be included in
computing basic earnings per share.

____ 24.  Which statement is incorrect concerning presentation of earnings per share?

I.    An entity shall present on the face of the income statement basic and diluted earnings per share for income or loss
from continuing operations.

II.   An entity that reports a discontinued operation is not required to disclose the basic and diluted earnings per share for
the discontinued operation either on the face of the income statement or in the notes.

a. I only c. Both I and II

b. II only d. Neither I nor II

____ 25.   An entity has an ordinary “A” class, nonvoting share, which is entitled to a fixed dividend of 6% per annum. The “A”
class ordinary share shall

a. Be included in the “per share” calculation after adjustment for the fixed dividend.
b. Be included in the “per share” calculation for EPS without adjustment for the fixed
dividend.
c. Not be included in the “per share” calculation for EPS.
 d. Be included in the calculation of diluted EPS.

____ 26.   Earnings per share shall be calculated before accounting for which of the following items?

a. Preference dividend for the period c. Taxation

b. Ordinary dividend d. Minority interest

____ 27.   Ordinary shares issued as part of a business combination are included in the EPS calculation in the case of the
“purchase” method from

a. The biginning of the accounting period.

b. The date of acquisition.
c. The end of the accounting period.
d. The midpoint of the accounting year.

____ 28.   When an entity makes a bonus issue/share split/stock dividend or a right issue

a. The previous year’s EPS is not adjusted for the issue.

b. The previous year’s EPS is adjusted for the issue.
c. Only a note of the effect on the previous year’s EPS is made.
d. Only the diluted EPS for the previous year is adjusted.

____ 29.   If a share option is converted on March 31 of the current year

a. The potential ordinary shares are included in diluted EPS up to March 31, and in
basic EPS from the date converted to the year-end, both weighted accordingly.
b. The ordinary shares are not included in the diluted EPS calculation but are
included in basic EPS.
c. The ordinary shares are not included in the basic EPS but are included in diluted
EPS.
d. The effects of the share option are included only in previous year’s EPS
calculation.

____ 30.   In calculating whether potential ordinary shares are dilutive, the profit figure used as the ‘control number” is

a. Net profit after taxation including discontinued operations

b. Net profit from continuing operations
c. Net profit before tax including discontinued operations
d. Retained profit for the year after dividends

____ 31.   Dividends payable in noncash asset shall be charged to retained earnings at

a. Carrying amount of the noncash asset

b. Fair value of the noncash asset
c. Fair value as determined by Board of Directors
 d. Appraised value

____ 32.   Treasury shares may be reissued as dividends, in which case what amount should be charged to retained earnings?

a. Cost of the treasury shares

b. Par value of the treasury shares
c. Fair value of the treasury shares on the date of declaration
d. Fair value of the treasury shares on the date of issuance

____ 33.   If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?

a. Par value of the shares

b. Fair value of the shares on the date of declaration
c. Fair value of the shares on the date of record
d. Fair value of the shares on the date of issuance

____ 34.   The issuer shall directly charge retained earnings for the par value of the shares issued in

a. Two for one share split

b. Share options
c. Twenty percent stock dividend
d. Share appreciation right

____ 35.   Which statement is incorrect concerning stock dividends?

a. A stock dividend gives rise to any change in either the entity’s assets or its
shareholders’ proportionate interest therein.
b. Stock dividends are recorded on the date declared.
c. An issuance of additional shares of 20% or more as stock dividend would require
capitalization of retained earnings at par or stated value.
d. A note to the financial statements is unnecessary to disclose the fact that the
proposed increase and dividend declaration have been reflected in the financial
statements.

____ 36.   In certain cases, stock dividends are declared on the basis of a proposed increase in authorized share capital, the
application for which has been filed but not yet approved by SEC at the end of reporting period. Under these
circumtances, which may not be done?

a. The proposed increase and such dividend declaration generally shall not be
reflected in the statement of financial position prior to SEC approval.
b. These matters shall be disclosed in the notes to financial statements.
c. If the proposed increase is approved by SEC after the end of reporting period but
before the issuance of the statements, the new authorized share capital may be
presented and the stock dividend may be shown as part of issued share capital.
d. A note to the financial statements is unnecessary to disclose the fact that the
 proposed increase and dividend declaration have been reflected in the financial
statements.

____ 37.   Which is incorrect concerning retained earning?

a. Appropriated retained earnings shall be clearly distinguished from unappropriated

retained earnings.          
b. A deficit is a debit balance in retained earnings. 
c. A deficit in retained earnings shall be presented as an asset.       
d. When the deficit exceeds the total of the other capital account balances, the excess
is a capital deficiency.

____ 38.   Appropriations of retained earnings, if reflected in separate account, shall be shown as

a. Component of equity as part of share premium

b. Component of equity as part as total retained earnings
c. Component of total liabilities as current liability
d. Component of total liabilities as noncurrent liability

____ 39.   An entity declared a cash dividend on its share capital in December of the current year, payable in January of the next
year. Retained earnings would

a. Increase on the date of declaration

b. Not be affected on the date of declaration
c. Not be affected on the date of payment
d. Decrease on the date of payments

____ 40.   The actual total amount of a cash dividend to be paid is determined on the date of

a. Record
b. Declaration
c. Declaration or date of record, whichever is earlier
d. Payment

____ 41.   At the beginning of the current year, Sun Company purchased 500,000 shares of Star Company. At year-end, Sun
distributed 250,000 shares of Star as a dividend to Sun’s shareholders. This is an example of

a. Liquidating dividend c. Property dividend

b. Investment dividend d. Stock dividend

____ 42.   A dividend which is a return to shareholders of a portion of their original investment is

a. Liquidating dividend c. Liability dividend

b. Patronage dividend d. Participating dividend
____ 43.   How would the declaration of a liquidating dividend by an entity affect each of the following?

     Contributed capital              Total shareholders’ equity

a. Decrease                           No effect
b. Decrease                           Decrease
c. No effect                           Decrease
d. No effect                           No effect

____ 44.   An entity declared a dividend, a portion of which was liquidating. How would this declaration affect each of the
following?

     Contributed Capital            Retained earnings

a. Decrease                         No effect
b. Decrease                         Decrease
c. No effect                         Decrease
d. No effect                         No effect

____ 45.   Which of the following is most likely to be found in corporate laws regarding payment of dividend?

a. Dividends may be paid from legal capital.

b. Retained earnings are available for dividends unless restricted by contract or by
statute.
c. Unrealized capital is available for any type of dividend.
d. Capital from donated assets is unavailable for dividends.

____ 46.   Which of the following would not affect the retained earnings balance?

a. Conversion of preference shares into ordinary shares

b. Share split
c. Reissue of treasury shares
d. Stock dividend

____ 47.   For which of the following purposes should an appropriation for possible loss contingencies be established?

a. To match applicable costs with current revenue.

b. To reduce fluctuations in net income in order to lend stability of the entity.
c. To charge operations in periods of rising prices for the losses which may otherwise
be absorbed in periods of falling prices.
d. To inform shareholders that a portion of retained earnings should be set aside from
amounts available for dividends because of such contingencies.

____ 48.   Which statement is correct concerning appropriation of retained earnings?

a. Appropriation reduce total retained earnings.

b. The only proper way to eliminate an appropriation of retained earnings after it has
 served its purpose is to revert to the unappropriated retained earnings.
c. An appropriation of retained earnings means that assets are segregated for a
specific purpose.
d. When treasury shares are purchased, retained earnings must be appropriated equal
to the par or stated value of the treasury shares.

____ 49.   An entity issued what is called a “20% stock dividend” on its share capital. At what amount per share, if any, should
retained earnings be reduced for this transaction?

a. Zero because no entry is made c. Market value at the declaration

b. Par value d. Market value at the date of issuance

____ 50.   The issuer should charge retained earnings for the market value of shares issued in a

a. 1 for 5 stock dividend c. 4 for 1 stock dividend

b. 1 for 8 syock dividend d. 2 for 1 stock split

____ 51.   How would the declaration of a 15% stock dividend by an entity affect each of the following?

     Retained earnings      Total shareholders’ equity

a. No effect                 No effect
b. No effect                 Decrease
c. Decrease                 No effect
d. Decrease                 Decrease

____ 52.   How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following
when the market value of the shares exceeds tha par value of the shares?

     Share capital       Share premium

a. No effect         No effect
b. No effect         Increase
c. Increase          No effect
d. Increase          Increase

____ 53.   The peso amount of total shareholders’ equity remains the same when there is

a. Issuance of preference shares in exchange for convertible debentures

b. Issuance of nonconvertible bonds with share warrants
c. Declaration of a stock dividend
d. Declaration of a cash dividend

____ 54.   Unlike a share split, a stock dividend requires a formal journal entry in the financial accounting records because

a. Stock dividends increase the relative book value of an individual’s shareholdings.

b. Stock dividends increase the shareholders’ equity in the issuing firm.
 c. Stock dividends are payable on the date they are declared.
d. Stock dividends represent a transfer from retained earnings to share capital

____ 55.   How would retained earnings be affected by the declaration of each of the following?

     Stock dividend         Share Split

a. Decrease               Decrease
b. No effect               Decrease
c. No effect               No effect
d. Decrease               No effect

____ 56.   Assuming the issuing entity has only one class of share capital, a transfer from retained earnings to share capital equal
to the market value of the shares issued is ordinary a characteristic of

a. Either a stock dividend or a share split

b. Neither a stock dividend nor a share split
c. A share split but not a stock dividend
d. A stock dividend but not a share split

____ 57.   When a dividend is declared and paid in stock?

a. Total shareholders’ equity does not change.

b. Total shareholders’ equity decreases.
c. The current ratio increases.
d. The amount of working capital decreases.

____ 58.   Undistributed stock dividends shall be reported as

a. A current liability
b. An addition to share capital outstanding
c. A reduction in total shareholders’ equity
d. A note to the financial statements

____ 59.   An appropriation of retained earnings for possible contingencies should be

a. Charged with all losses related to that contingency

b. Transferred to income as losses are realized
c. Classified in the liability section of the balance sheet
d. Shown within the shareholders’ equity section of the balance sheet

____ 60.   A restriction of retained earnings is most likely to be required by the

a. Exhaustion of potential benefits of the investment credit

b. Purchase of treasury shares
c. Payment of last maturing series of a serial bond issue
 d. Amortization of past service cost

TOA QUIZZER 1
Answer Section
MULTIPLE CHOICE

   1.   C

   2.   C

   3.   C

   4.   D

   5.   A

   6.   D

   7.   B

   8.   A

   9.   D

10.   A

11.   D

12.   A

13.   A

14.   B

15.   A

16.   C

17.   C

18.   A

19.   B

20.   A

21.   B

22.   A

23.   D
24.   B

25.   C

26.   B

27.   B

28.   B

29.   A

30.   B

31.   A

32.   A

33.   B

34.   C

35.   D

36.   D

37.   C

38.   B

39.   C

40.   A

41.   C

42.   A

43.   B

44.   B

45.   B

46.   B

47.   D

48.   B

49.   B

50.   B

51.   C
52.   D

53.   C

54.   D

55.   D

56.   D

57.   A

58.   B

59.   D

60.   B