B.

The acquisition of treasury shares will reduce the unrestricted earnings of the
corporation.

16. A capital deficiency in a partner’s capital, which is not made good is

a. a loss to the other partners c. the result of a loss in operations
b. a gain to the other partners d. the result of a sale of non cash assets at a gain

17. When a partnership is liquidated, all of the following may occur, except
a. a partner erases his deficiency by contributing cash
b. a partner erases his deficiency by contributing non cash asset
c. a partner erases his deficiency by declaring bankruptcy
d. the other partners absorb a partner’s deficiency

18. Dissolution will arise

a. whenever a new partner is admitted through purchase of interest or through
investment of cash or non cash assets
b. upon termination of the definite term or particular undertaking specified in the
agreement
c. in the case of civil interdiction of any partner
d. all of the above

19. Earnings per share is

a. net income minus annual dividends on undeclared non-cumulative preference shares
divided by the weighted average number of ordinary shares outstanding
b. net income divided by weighted average number of ordinary shares outstanding
c. net income minus annual dividends on cumulative preference shares divided by the
weighted average number of ordinary shares outstanding
d. B and C but not A

20. The retained earnings would be debited for the following transactions, except
a. a 2 for 1 split c. a 70% share capital dividend
b. a 5% share capital dividend d. an appropriation of retained earnings
contingencies

21. The ownership of share capital entitles ordinary shareholders to all of the following rights
except
a. voting right
b. right to receive a proportionate share of assets in corporate liquidation
c. right to receive guaranteed dividends
d. pre-emptive right

22. At the date of the financial statements, ordinary shares issued would exceed ordinary
shares
outstanding as a result of the
a. declaration of share split c. purchase of treasury shares
b. declaration of share capital dividend d. payment in full of subscribed shares
23. Select the statement that is correct concerning the appropriations of retained earnings
a. appropriations of retained earnings do not change the total shareholders’ equity
b. appropriations of retained earnings cannot reflect funds set aside for a designated
purpose, such as plant expansion
c. appropriations of retained earnings cannot be made as a result of contractual
requirements
d. appropriations of retained earnings can be made at the discretion of the board of
trustees

24. The total shareholders’ equity after the declaration of share capital dividend
a. is less than the total shareholders’ equity before the declaration
b. may be more than or less than the total shareholders’ equity before the declaration
depending
on whether the share capital dividend declared is small or large
c. is the same as the total shareholders’ equity before the declaration
d. is greater than the total shareholders’ equity before the declaration

25. When the total shareholders’ equity is smaller than the amount of contributed capital, then
there is
a. a net loss b. a deficit c. a liability d. a dividend

26. Assuming that the issuing corporation has only one class of share of capital, a transfer from
retained earnings equal to the market value of the shares issued is ordinarily a characteristic of
a. share split c. small share capital dividend
b. large share capital dividend d. donated shares

27. On June 1, authorized ordinary share capital was sold on a subscription basis at a price in
excess of par value, and 40% of the subscription price was collected. On October 1, the
remaining 60% of the subscription price was collected. Paid In Capital in excess of Par account
will credited on
June 1 October 1
a. Yes No
b. No No
c. Yes Yes
d. No Yes

28. When a corporation buys its own ordinary shares to hold as treasury shares
a. a gain or loss is recorded when the shares are reissued
b. the balance in Ordinary Share Capital account remains unchanged
c. there is a new asset account on the statement of financial position, Treasury Shares,
equal to the number of shares reacquired multiplied by the cost per share
d. all of the above statements are correct

29. Which dividends do not reduce total shareholders’ equity?

a. liquidating dividends c. share capital dividends
b. property dividends d. scrip dividends
30. Book value per share is computed by dividing total shareholders’ equity by
a. authorized shares
b. issued shares less treasury shares
c. issued shares less treasury shares plus subscribed shares
d. outstanding shares less treasury shares plus subscribed shares

C. Problem Solving (2.5 points each). Show supporting computations in a separate

worksheet.

31. Cute desires to invest P 200,000 for a ¼ capital and profit and loss interest in the
partnership of Beauty and Handsome, who at that time had capital balances of P
200,000 and P 300,000, respectively. Profit and loss ratio of the partners before the
admission was 6:4. If a positive asset revaluation is to be recorded, capital balances of
Cute, Beauty and handsome would be: Cute – P200,000; Beauty – P260,000; and
Handsome – P340,000

32. Jack and Poy are partners with capital balances, and profit and loss ratio as follows:

Capital P & L Ratio

Jack P 24,500 60%
Poy 15,500 40%

The partners decided to liquidate the partnership. The firm’s liabilities amount to P
36,000, including P 4,000 owing to Jack and P 3,500 owing to Poy on loans. After
realization of assets, the cash on hand amounts to P 37,500. How much is the total loss
on realization?
P38,500

33. Refer to data in no. 32, in the settlement to partners, how much did Jack receive?
P5,400

34. Clinton and Obama are partners who share profits equally and losses in a 2:1 ratio. If
they have beginning capiital balances of P 120,000 and P 118,000, respectively, made
no additional investments nor withdrawals, and suffered an unprofitable year with a loss
of P 48,000, their ending capital balances will be Clinton – P88,000 and Obama –
P102,000

35. Lakers, Celtics and Knicks are partners who share profits and losses in the ratio of 2:3:5.
The partners have decided to liquidate the partnership. Their capital accounts show the
following balances: Lakers – P 60,000 credit; Celtics – P 90,000 credit; Knicks – P
30,000 debit. What is the amount of cash available for distribution? P120,000

36. Partners John and George who have been dividing profits and losses in the ratio of 3:2,
respectively, decided to liquidate their partnership. Capital balances before liquidation
were: John – P 40,000; and George – P 30,000. After paying in full liabilities of P 30,000,
they have P 49,000 cash to divide. Loss on realization was: P21,000
37. Jag, Lee and Bench decided to dissolve and liquidate their partnership on August 31,
2020. They have been dividing profits and losses in the ratio of 40%; 30%; 30%,
respectively and their capital balances as of January 1, 2020 were as follows: Jag – P
75,000; Lee – P 90,000; and Bench – P 30,000. The operations of the partnership for the
period January 1, 2020 to August 31, 2020 resulted to a profit of P 66,000. As of August
31, 2020, cash balance is P 60,000 and the liabilities are P 135,000. For Jag to receive
P 60,000 in final settlement of his equity, the non-cash assets must be sold for P232,500

38. On June 1, 2020, Golden Warriors Corporation declared a share capital dividend
entitling its shareholders to one additional share for each share held. At the time the
dividend was declared, the market value was P 100 per share and the par value was P
50 per share. On this date, Golden had 65,000 shares issued and 5,000 shares in the
treasury. What entry should Golden make to record this June 1 transaction?

Retained Earnings (60,000 x P50) 3,000,000

Share Capital Dividends Distributable 3,000,000
To record the declaration of dividends

39. The accounts below appear in the December 31, 2020 trial balance of Spurs
Corporation:

Authorized Share Capital P 5,000,000

Unissued Share Capital 2,000,000
Subscribed Share Capital 1,000,000
Subscription Receivable-due 2018 400,000
Property Dividends Payable 800,000
Share Premium 500,000
Retained Earnings-unappropriated 600,000
Retained Earnings-appropriated 300,000
Treasury Shares-at cost 100,000

In its December 31, 2020, Statement of Financial Position, Spurs should report total
Shareholders’ Equity at P4,900,000

40. Miami Heat Inc. began operations in January 2018, and reported the following results for
each of its three years of operations. 2018 net loss-P 300,000; 2019 net loss-P 30,000;
2020 Profit-P 3,950,000 At December 31, 2020, the company’s capital accounts were as
follows:

P 5 Preference Shares, P 100 par, 100,000 shares authorized, 60,000 shares

issued and outstanding

Ordinary Shares, P 10 par, 1,000,000 shares authorized, 800,000 shares issued

and outstanding
 Miami Heat Inc. has never paid a cash or share capital dividend and there has been no
change in the capital accounts since its operations began. Assume the preference
shares are cumulative and upon corporate liquidation, shares are preferred as to assets
up to par. What is the book value per share of the preference shares on December 31,
2020? P115.00

41. Refer to data in no. 40, What is the book value per share of the ordinary shares on
December 31, 2020? P13.40

42. Portland Blazers Corporation has 2,000 shares of P 200 par value, 8% cumulative, non-
participating preference share capital outstanding. Last year, the corporation paid a total
of P 8,000 in dividends and this year, it declared and paid a total of P 96,000 in
dividends. What are the amounts of dividends paid on both the preference shares and
ordinary shares, respectively? Preference Share – P56,000 and Ordinary Share –
P40,000

43. On December 1, 2020, Bobcat Corporation received a donation of 2,000 shares with P
50 par value from a shareholder. On that date, the share market value was P 350. The
shares were originally issued for P 250 per share. By what amount would this donation
cause shareholder’s equity to decrease? P0

Nos. 44 and 45 are based on the given data:

The shareholders’ equity of Dallas Mavericks Corporation is presented below:

10% Preference Share, 2,000 shares outstanding P 200,000

Ordinary Shares, 5,000 shares outstanding 100,000
Preference share premium 20,000
Ordinary share premium 25,000
Retained Earnings 450,000

44. If 350 shares of Preference Shares were retired at P 125/share, how much will be
credited to the Retained Earnings account? P5,250

45. If 500 shares of Preference Shares were converted into Ordinary Shares at a rate of four
shares for every share of Preference Share, the amount to be credited to Ordinary Share
Capital account will be P40,000

46. On December 31, 2020 and 2019, Bucks Corporation had 105,000 Ordinary Shares
issued, 5,000 shares in the treasury, 10,000 shares subscribed and 10,000 cumulative
Preference Shares of 5%, P 100 par value. No dividends were declared in 2020 and
2019. Profit for the current year was P 900,000. What amount should be reported as
basic earnings per share? P8.5

47. An analysis of the Shareholders’ Equity of Atlanta Hawks Corporation as of January 1,

2020, is as follows:

Ordinary Shares, P 20 par, 120,000 shares Issued and outstanding P 2,400,000

 Additional Paid in Capital 240,000
Retained Earnings 1,540,000

Atlanta uses the cost method of accounting for Treasury Shares and during 2020,
recorded the following transactions:

• Reacquired 2,000 shares for P 70,000

• Sold 1,200 Treasury Shares at P 40 per share
• Retired the remaining Treasury Shares

The Ordinary Shares were originally issued at P 22 per share. Assuming no other equity
transactions occurred during 2020, what should Atlanta Hawks Corporation report at
December 31, 2020 as Total Additional Paid In Capital: P244,400

48. Refer to data in number 47 and assuming that the profit for the year 2020 amounted to P
500,000, how much is the balance of the Retained Earnings Unappropriated account on
December 31, 2020? P2,037,200

49. Boston Celtics Corporation issued 100,000 Ordinary Shares. Of these, 5,000 shares
were held as Treasury at January 1, 2020. During 2020, transactions were as follows:

May 1 1,000 shares of Treasury were sold

Aug. 1 10,000 unissued shares were sold
Nov 15 Share split 2 for 1 took effect

On December 31, 2020, how many shares were issued and outstanding?
Issued P220,000 Outstanding P212,000

Nos. 50 to 53 are based on the following given data:

The following accounts were found in the ledger of Chicago Bulls Corporation as of
December 31, 2020:

8% Preference Share, P 50 par, 20,000 shares authorized P 750,000

Preference Share Subscribed, 300 shares 15,000
Preference Share Subscription Receivable-current 7,000
Preference Share Premium 85,000
Ordinary Share, P 20 stated value 660,000
Ordinary Share Subscribed 22,000
Ordinary Share Subscription Receivable-due in 2022 10,000
Paid in capital in excess of stated value 56,000
Paid in Capital from Sale of Treasury Shares 5,000
Total Retained Earnings 395,000
Treasury Shares – Preferred (1,000 shares) 55,000
Property Dividends payable 25,000
50. How many shares are issued and outstanding for the Preference Share? Issued
P15,000 and Outstanding P14,000

51. How much is the legal capital? P1,503,000

52. Treasury Shares will have a cost per share of P55

53. Total Additional paid in Capital will be P146,000

54. On January 22, 2020, Guess Corporation split its share capital 2-for-5 when the market
value was P 65 per share. Prior to the split, Guess had 200,000 shares of P 15 par
Ordinary Share Capital. What is the value of each share after the split? P37.50

55. On August 1, 2020, Kobe Corporation received subscription for 7,000 shares of Ordinary
Share Capital, P100 par value, at P 110 per share. Received 10% down payment and
the balance payable in 3 equal installments. The entry to record the subscription default
assuming 1,500 shares out of 7,000 were unable to pay the last installment will be

Receivable from Highest Bidder 148,500

Ordinary Share Capital Subscription Receivable 148,500
1,500 x P110 x 90%

56. The following were taken from the accounts of Lebron Corporation at year end.

Total profit since incorporation P 300,000

Cash dividends paid 90,000
Proceeds from sale of donated shares 30,000
Total value of share dividends distributed 25,000
Excess of proceeds over cost of Treasury shares sold 45,000

The Retained Earnings account will a balance of P185,000

57. Cartier Corporation was organized on January 1, 2020 with authorized capital of P
500,000 Ordinary Shares, P 25 par value. Subsequently, incorporators subscribed for
the Securities and Exchange Commission’s required number of shares for incorporation
at P 30 per share. How much must be paid up upon subscription to comply with the
requirement of the Securities and Exchange Commission? P937,500

58. Garnett Corporation’s shareholders’ equity is composed of 10,000 shares of P 10 par

Ordinary Share, Ordinary Share Premium of P 40,000 and Retained Earnings of P
600,000. If a 40% share capital dividend is declared when the shares are selling at P50
per share, what amount should be transferred from the Retained Earnings account to the
Ordinary Share Premium account? P0
59. Utah Corporation has outstanding 10,000 shares of 10% Preference Share Capital with
a par value of P 100 and 42,500 shares of P 10 par value Ordinary share Capital. The
balance in the Retained Earnings account at the end of the fiscal year 2019 is P
1,650,000. If Utah purchases 1,000 shares of its own Ordinary Share capital at P 40 per
share, how much is the unrestricted Retained Earnings? P1,610,000

60. At December 31, the Shareholders’ Equity section shows:

Ordinary Share, P 5 par value, 1,320,000 shares issued P 6,600,000

Share Premium – Ordinary 1,400,000
Retained Earnings 500,000
Treasury Shares, at cost, 120,000 shares 700,000

The book value per share of Ordinary Share is: P6.5

61. Wade and Curry who share profits and losses in the ration of 3:7 are partners with
capital balances of P 40,000 and P 60,000, respectively. Anthony is to be admitted into
the partnership for 20% interest in the capital of the firm. If assets are revalued and the
capital balances of Wade and Curry after recording the admission of Anthony are P
52,000 and P 88,000, respectively, the cash paid by Anthony is P35,000

62. Pierce, Allen and Rondo are partners with capital balances of P 80,000, P 120,000 and
P 160,000, respectively. They share profits and losses in the ration of 30:40:30. Allen
decides to withdraw from the partnership. Allen receives P 160,000 in settlement of his
interest. If the bonus method is used, what is the capital balance of Rondo immediately
after the retirement of Allen? P140,000

63. Hip and Hop entered into a partnership on July 1, 2020 by investing the following assets:

HIP HOP
Cash P 30,000 –
Merchandise Inventory - P 90,000
Equipment - 160,000
Fixtures 200,000 –

The agreement between Hip and Hop provides that profits and losses are to be divided
into 40% to Hip and 60% to Hop, and that the partnership is to assume a liability on the
Equipment of P 60,000. The partnership further agreed that Hop is to receive a capital
credit equal to her profit and loss ratio. How much cash is to be invested by Hop?
P155,000

64. Mickey, Goofy and Donald decided to liquidate their partnership. Non-cash assets were
sold and all the creditors were paid. Profit and loss sharing ratios were: 20%, 30% and
50% respectively. Balances in each capital account before and after the sale follow:
 MICKEY GOOFY DONALD
Before the sale P 35,000 P 5,000 P 45,000
After the sale 25,000 (10,000) 20,000

How much is the share of Goofy in the total loss on realization? P15,000

65. Refer to data in number 64, if the non-cash assets were sold for P 225,000, how much is
the book value of the non-cash assets? P275,000

Solutions to FAR 2 – FINALS EXAMINATION

31. TCC Asset Reval. TAC
Beauty (6) 200,000 60,000 260,000
Handsome (4) 300,000 40,000 340,000
Cute 200,000 200,000
TOTAL 700,000 100,000 800,000

32. 40,000
36,000
76,000
(37,500)
38,500

33. J (6) P(4) Total

24,500 15,500 40,000
4,000 3,500 7,500
28,500 19,000 47,500
(23,100) (15,400) (38,500)
5,400 3,600 9,000

34. C (2/3) O (1/3) Total

120,000 118,000 238,000
(32,000) (16,000) (48,000)
88,000 102,000 190,000

36. 40,000
30,000
30,000
100,000
(49,000)
51,000
(30,000)
21,000
37. Jag (40) Lee (30) Bench (30) Total
75,000 90,000 30,000 195,000
26,400 19,800 19,800 66,000
101,400 109,800 49,800 261,000
(41,400) (31,050) (31,050) (103,500)
60,000 78,750 18,750 157,500

261,000
135,000
396,000
(60,000)
336,000
(103,500)
232,500

39. Authorized Share Capital P 5,000,000

Unissued Share Capital (2,000,000)
Issued Share Capital   P 3,000,000
Share Premium 500,000
Subscribed Share Capital 1,000,000
Subscription Receivable-due 2018 (400,000) 600,000
  P 4,100,000
Retained Earnings
Unappropriated 600,000

Appropriated 300,000 900,000

P 5,000,000
Treasury Shares-at cost (100,000)
Total Shareholder's Equity P 4,900,000

40- 5% Preference Share Capital, P100 par, 60,000 shares 6,000,000

41 Ordinary Shares, P10 par, 800,000 shares 8,000,000
Retained Earnings 3,620,000
Total Shareholders' Equity 17,620,000
Less Equity Identified with Preference Shares
Liquidation Value - 60,000 x P100 (6,000,000)
Div. in arrears- 6,000,000 x 5% x 3 (900,000)
Equity identified with Ordinary Shares 10,720,000
Preference Share = 6,900,000/60,000 sh = P115
Ordinary Share = 70,720,000/800,000 = P13.4
 42.
Last Year Preference Ordinary Total
Regular dividends
Required 32,000
Available 8,000 8,000 8,000
In arrears 24,000      
Total Dividends 8,000 8,000
Preference Ordinary Total
This year
Div. in arrears 24,000 24,000
Regular Dividends 32,000 40,000 72,000
Total Dividends 56,000 40,000 96,000

45.
500 Preference Shares x 4= 2,000
Par value of Ordinary Share (100,000 / 5,000 sh) P20
40,000

46. Profit 900,000

Less dividends on cumulative PS
100,000 x 5% (50,000)
Profit attributable to Ordinary Share 850,000

EPS = P850,000/100,000 = P8.5

47. 240,000
6,000
(1,600)
244,400

48. 1,540,000
500,000
2,040,000
(2,800)
2,037,200

49. Issued Outstanding

100,000 95,000
10,000 1,000
  10,000
110,000 106,000
x 2/1 x 2/1
220,000 212,000
51. 750,000
15,000
660,000
22,000
56,000
1,503,000

53. 85,000
56,000
5,000
146,000

54
. P15 x 5/2 = P37.5

56. 300,000
(90,000)
(25,000)
185,000

57. 500,000
x 25%
125,000
x P30
3,750,000
x 25%
937,500

59 P1,650,000 - (1,000 shares x P40) = P1,610,000

.

60. 6,600,000
1,400,000
500,000
(700,000)
7,800,000
/ 1,200,000
P6.5

61. 52,000
88,000
140,000
/ 80%
 175,000
x 20%
35,000

62. P (3) A (4) R (3)

80,000 120,000 160,000
(20,000) 40,000 (20,000)
60,000 160,000 140,000

63 HIP (40%) HOP (60%)

30,000 90,000
200,000 160,000
  (60,000)
230,000 190,000

230,000
/ 40%
575,000
x 60%
345,000
(190,000)
155,000

65 15,000
/ 30%
50,000
225,000
275,000