Chapter #18

Shareholders’ Equity

TRUE OR FALSE

1. Liquidating dividends are not distributions of earnings, but rather a return of capital to the investing shareholders.
True
2. The par value per share is also generally referred to as legal value, nominal value or face value per share. True
3. PAS 1 Presentation of Financial Statements suggests that shareholders' interests be categorized into three broad
subdivisions: issued share capital, retained earnings and other components of equity. True
4. Stock splits and large stock dividends have the same effect on a company’s retained earnings and total shareholders'
equity. False
5. The PFRS that governs shareholders' equity accounts and transactions is PFRS 18 Shareholders' Equity. True
6. Preferred shareholders are owners who have certain rights that are superior to those of ordinary shareholders such as
earnings or the assets of the entity. True
7. PAS 1 Presentation of Financial Statements requires that a distinction be made between shares that have been issued
and fully paid, on the one hand, and those that have been issued but not fully paid, on the other hand. True
8. Issued capital must consist solely of amounts invested by shareholders. False
9. PAS 32 Financial Instruments Presentation specifies that the costs associated with equity transactions are to be
accounted for as reductions of equity if the corresponding transaction was a share issuance, or as increases in the
contra equity account when incurred in connection with treasury share reacquisitions. True
10. Ordinary share is the residual corporate interest that bears the ultimate risks of loss. True
11. The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction
from capital stock. False
12. Mandatorily redeemable preference shares are reported as a liability. True
13. Disclosures of dividends proposed but not formally approved is required by PAS 1 Presentation of Financial
Statements. True
14. Companies allocate the proceeds received from a lump-sum sale of securities based on the securities' par values. False
15. When a stock dividend is less than 20-25 percent of the common stock outstanding, a company is required to transfer
the fair value of the stock issued from retained earnings. False
16. Donated capital can result from an outright gift to the entity or may result when services are provided to the entity.
True
17. Companies should record shares issued for services or noncash property at either the fair value of the shares issued,
or the fair value of the consideration received. True
18. If a compound financial instrument is issued, the amount allocated to the equity is the residual derived by deducting
the fair value of the liability component from the proceeds of issuance. True
19. Treasury stock is a company's own stock that has been reacquired and retired. False
20. All dividends, except for liquidating dividends, reduce the total shareholders’ equity of a corporation. False
21. Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later
year before paying any common dividends. False
22. When a corporation sells treasury stock below its cost, it usually debits the difference between cost and selling price
to Paid-in Capital from Treasury Stock. True
23. Dividends in arrears on cumulative preference shares are liabilities to be paid at a later date. False
24. Treasury shares transactions never increase retained earnings or net profit. True
25. Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.
True
26. The preemptive right allows shareholders the right to vote for directors of the company. False
27. Cash dividends become a binding liability as of the record date. False
28. Restrictions on retained earnings must be disclosed in the body of the statement of financial position. False
29. Bonus issues of shares do not change total shareholders' equity. True
30. Under PFRS, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the
property is different from its carrying value on the declaration date. True

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FINANCIAL ACCOUNTING THEORY QUESTIONS

1. An ordinary share
A. is an equity instrument that is subordinate to all other classes of equity instruments.
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 to both a financial asset of one entity and a financial liability or equity instrument of
another entity.

2. On February 1, authorized ordinary shares were sold on a subscription basis at a price in excess of par value, and 20%
of the subscription price was collected. On May 1, the remaining 80% of the subscription price was collected. Share
Capital would increase on
February 1 May 1
A. No Yes
B. No No
C. Yes No
D. Yes Yes

3. What effect does the issuance of a 2-for-l stock split have on each of the following?
Par Value per Share Retained Earnings
A. No effect No effect
B. Increase No effect
C. Decrease No effect
D. Decrease Decrease

4. A company issued rights to its existing shareholders to purchase ordinary shares. When the rights are exercised, share
premium would be credited if the purchase price
A. exceeded the par value.
B. was the same as the par value.
C. was the same as the par value, but less than the market value at the date of exercise.
D. was less than the par value.

5. Select the statement that is incorrect concerning the appropriations 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 be made as a result of contractual requirements.
D. Appropriations of retained earnings can be made at the discretion of the board of directors.

6. In January 2021, Eladamri Corporation, a newly formed company, issued 10,000 shares of its ₱10 par common stock
for ₱15 per share. On July 1, 2021, Eladamri Corporation reacquired 1,000 shares of its outstanding shares for ₱12
per share. The acquisition of these treasury shares
A. decreased total stockholders' equity.
B. increased total stockholders' equity.
C. did not change total stockholders' equity.
D. decreased the number of issued shares.

7. Assume common stock is the only class of stock outstanding in the Serra Corporation. Total stockholders' equity
divided by the number of common stock shares outstanding is called
A. book value per share.
B. par value per share.
C. stated value per share.
D. fair value per share.

8. Dividends are not paid on

A. noncumulative preferred stock.
B. nonparticipating preferred stock.
C. treasury common stock.
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 D. Dividends are paid on all of these.

9. Noncumulative preferred dividends in arrears

A. are not paid or disclosed.
B. must be paid before any other cash dividends can be distributed.
C. are disclosed as a liability until paid.
D. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

10. Gains and losses on purchase and resale of treasury shares is reflected in
A. paid in capital account only.
B. paid in capital and retained earnings accounts.
C. profit or loss, paid in capital and retained earnings accounts.
D. profit or loss and paid in capital accounts.

11. At the date of the financial statements, ordinary shares issued would exceed ordinary shares outstanding as a result of
the
A. declaration of a share split.
B. declaration of a share bonus.
C. purchase of treasury shares.
D. payment in full of subscribed shares.

12. Which of the following features of preferred stock makes the security more like debt than an equity instrument?
A. Participating
B. Voting
C. Redeemable
D. Noncumulative

13. 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.

14. Which of the following statements about property dividends is not true?
A. A property dividend is usually in the form of securities of other companies.
B. A property dividend is also called a dividend in kind.
C. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary
assets transferred.
D. All of these statements are true.

15. The issuer of a 5% common stock dividend to common shareholders preferably should transfer from retained
earnings to contributed capital an amount equal to the
A. fair value of the shares issued.
B. book value of the shares issued.
C. minimum legal requirements.
D. par or stated value of the shares issued.

16. These are preference shares that have no claim on any prior year dividends that may have passed.
A. Cumulative
B. Participating
C. Non-cumulative
D. Non-participating

17. A company declared a cash dividend on its ordinary shares in December 2020, payable in January 2021. 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.

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18. A company issued rights to its existing shareholders to purchase for ₱30 per share, unissued ₱15 par ordinary shares.
When the rights lapse,
A. no entry will be made.
B. share premium will be debited.
C. share premium will be credited.
D. share rights outstanding will be debited.

19. Assuming that the issuing company has only one class of share capital, a transfer from retained earnings to
contributed capital equal to the market value of the shares issued is ordinarily a characteristic of
A. either a bonus issue or a share split.
B. neither a bonus issue nor a share split.
C. a share split but not a bonus issue.
D. a bonus issue but not a share split.

20. Dividends in arrears are reported in the statement of financial position as

A. current liabilities.
B. contra-equity accounts.
C. contra asset accounts.
D. a note disclosure.

21. How would a share split affect the amount of each of the following?
Total share capital Total shareholders’ equity Retained earnings
A. Increase Increase No effect
B. No effect No effect No effect
C. No effect No effect Increase
D. Decrease Decrease Decrease

22. When a share dividend or bonus issue results in some shareholders being entitled to a fraction of a share, the
corporation may take any of the following alternatives, except to
A. issue fractional share warrants.
B. pay the shareholder an amount equal to the market price of the fraction share.
C. require the shareholder to surrender the equivalent fraction of a share.
D. require the shareholder to pay sufficient amount to receive a full share.

23. Which of the following is not a legal restriction related to profit distributions by a corporation?
A. The amount distributed to owners must be in compliance with the Philippine laws governing corporations.
B. The amount distributed in any one year can never exceed the net income reported for that year.
C. Profit distributions must be formally approved by the board of directors.
D. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

24. "Gains" on sales of treasury stock (using the cost method) should be credited to
A. paid-in capital from treasury stock.
B. capital stock.
C. retained earnings.
D. other income.

25. Fully participating preference share means that

A. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess dividends are
given to the ordinary shareholders.
B. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess dividends go to
the preference shareholders.
C. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess dividends are
shared proportionately between the two classes.
D. the preference shareholders receive their full dividend and any excess dividends on the ordinary shareholders.

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26. Which of the following best describes a possible result of treasury stock transactions by a corporation?
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.
D. May decrease but not increase net income.

27. How would the Share Dividends Distributable account balance be 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

28. Retained earnings balance is not affected by

A. understatement of profit of prior period.
B. unrealized gain on equity investments at fair value through profit or loss.
C. unrealized gain on equity investments at fair value through other comprehensive income.
D. realized revaluation surplus on building.

29. Other comprehensive income created during the current financial year
A. is a liability.
B. is reported in the statement of profit or loss and other comprehensive income.
C. includes net profit or loss.
D. is reported in the statement of financial position.

30. Other comprehensive income accumulated over the current and prior periods
A. is a liability.
B. is usually reported in the statement of profit or loss and other comprehensive income.
C. is an asset.
D. is usually reported in separate reserves accounts in the statement of financial position.

31. Ordinary shareholders usually have all of the following rights, except
A. to share in the profits.
B. to share in assets upon liquidation.
C. to elect a board of directors.
D. to participate in the day-to-day operations.

32. Each of the following is ownership right held by ordinary shareholders, unless specifically withheld by agreement,
except
A. the right to vote on policy issues
B. the right to share in profits when dividends are declared (in proportion to the percentage of shares owned by the
shareholders)
C. the right to dividends equal to a stated rate times par (if dividends are paid)
D. the right to share in the distribution of any assets remaining at liquidation after other claims are satisfied

33. The retained earnings balance reported in the statement of financial position is typically not affected by
A. net profit.
B. a prior period adjustment.
C. dividends paid.
D. restrictions.

34. Share splits are issued primarily to

A. increase the number of outstanding shares
B. increase the number of authorized shares
C. increase legal capital
D. induce a decline in market value per share

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35. When a company grants a bonus issue, which of the following would be affected?
A. Earnings per share
B. Total assets
C. Total liabilities
D. Total shareholders’ equity

36. In a corporate form of business organization, legal capital is best defined as

A. the amount of capital the corporation law allows the company to accumulate over its existence.
B. the par value of all capital stock issued.
C. the amount of capital the local government allows a corporation to generate.
D. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

37. Total shareholders’ equity represents

A. a claim to specific assets contributed by the owners.
B. the maximum amount that can be borrowed by the enterprise.
C. a claim against a portion of the total assets of an enterprise.
D. only the amount of earnings that have been retained in the business.

38. Which of the following represents the total number of shares that a corporation may issue under the terms in its
article of incorporation?
A. authorized shares
B. issued shares
C. unissued shares
D. outstanding shares

39. Stock that has a fixed per-share amount printed on each stock certificate is called
A. stated value stock.
B. fixed value stock.
C. uniform value stock.
D. par value stock.

40. A journal 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.

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PRACTICAL FINANCIAL ACCOUNTING

A. Minnesota Company is a publicly held company whose shares are traded in the over-the-counter market. The
shareholders equity accounts at December 31, 2020 had the following balances;

Preference share capital, ₱100 par, 12% cumulative; 50,000

₱ 2,000,000
shares authorized; 20,000 shares issued and outstanding
Ordinary share capital, ₱10 par; 150,000 shares authorized;
1,000,000
100,000 shares issued and outstanding
Share premium 8,000,000
Accumulated profits 2,586,000
Total shareholders’ equity ₱ 13,586,000

Transactions during 2021 and other information relating to shareholders’ equity accounts were as follows:
 February 1: Issued 30,000 ordinary shares to Ram Company in exchange for a piece of land. On this date, the
ordinary share had a market price of ₱20 per share. The land had a carrying amount on Ram’s book of
₱420,000 and an assessed value for property taxes of ₱400,000.
 March 1: Purchased 5,000 of its ordinary shares to be held as treasury for ₱24 per share.
 May 10: Declared property dividend (equity investments at fair value through profit or loss) to ordinary
shareholders. The investments had a carrying amount of ₱600,000 as of December 31, 2020 and fair values
were ₱720,000 on May 10, 2021 (declaration date) and ₱736,000 on June 1, 2021 (distribution date).
 October 1: Reissued 2,000 treasury shares at ₱26.
 Declared a cash dividend of ₱5 per share to ordinary shareholders of record of November 15, 2021 and
payable on November 25, 2021.
 Declared the required annual cash dividend on preference share for 2021.
The dividend was paid on January 5, 2017.
 Profit for 2021 was ₱8,380,000.

1. How many ordinary shares are outstanding at December 31, 2021?

A. 150,000
B. 130,000
C. 127,000
D. 100,000

2. How much is the total amount of cash dividends declared during 2021?
A. ₱890,000
B. ₱875,000
C. ₱635,000
D. ₱240,000

3. How much is the accumulated profits balance reported at December 31, 2021?
A. ₱9,371,000
B. ₱9,355,000
C. ₱9,340,000
D. ₱2,586,000

4. How much is the total shareholders’ equity at December 31, 2021?

A. ₱13,586,000
B. ₱20,955,000
C. ₱20,903,000
D. ₱20,887,000

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B. The capital structure of Pen Company at December 31, 2020 follows:

12% Preference share capital, ₱200 par, 15,000 shares

₱ 3,000,000
issued and outstanding
Ordinary share capital, ₱30 par, 250,000 shares issued
7,500,000
and outstanding
Share premium - preference 900,000
Share premium - ordinary 750,000
Retained earnings 2,100,000

The following selected transactions relating to shareholders’ equity were noted in 2021:
a. Purchased and retired 2,000 preference shares at ₱280 each.
b. Purchase 30,000 of its own ordinary shares at ₱35 per share.
c. Reissued 5,000 treasury shares at ₱38 each.
d. Shareholders donated to the company 20,000 ordinary shares when the market price is ₱36 per share.
e. One half of the donated shares were issued for ₱39 each.
f. Profit for 2021 was ₱1,850,000.
g. The board of directors declared and paid the regular annual dividend on the preference share and ₱1.50 per
ordinary share dividend.

5. How many preference shares are outstanding at December 31, 2021?

A. 18,000
B. 17,000
C. 15,000
D. 13,000

6. How many ordinary shares are issued and outstanding, respectively at December 31, 2021?
A. 250,000 and 215,000
B. 215,000 and 250,000
C. 250,000 and 285,000
D. 285,000 and 250,000

7. What is the total amount of dividends on preference and ordinary shares?

A. ₱687,000
B. ₱634,500
C. ₱322,500
D. ₱312,000

8. How much is the total shareholders’ equity at December 31, 2021?

A. ₱14,250,000
B. ₱14,435,500
C. ₱14,453,500
D. ₱14,500,000

C. Cage Company had 80,000 ordinary shares outstanding in January 2021. The company distributed a 15% share bonus
in March. After acquiring 10,000 shares in November, the company split its shares 1-for-4 in December.

9. How many ordinary shares are outstanding as of December 31, 2021?

A. 328,000
B. 23,000
C. 20,500
D. 13,000

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D. Dayton company had 8000 ordinary shares outstanding in January 2021. The company distributed a 15% bonus issue
in March and another 10% bonus issue in June. On July 31, 2021, the company reacquired 2000 treasury shares. On
October 15, it splits its shares on a 3-for-1 basis.

10. How many ordinary shares are outstanding as of December 31, 2021?
A. 30,360
B. 24,360
C. 10,120
D. 8,120

E. At the beginning of 2021, Better Company had retained earnings of ₱3,000,000. Throughout the year, the company
had 20,000 shares of ₱100 par value ordinary shares that are issued and outstanding.

During the year 2021, Better Company reported profit of ₱5,000,000, purchase treasury shares for ₱580,000,
declared cash dividends of ₱1,500,000, reissued all treasury shares at a gain of ₱180,000, and declared and issued
5,000 ordinary shares as bonus issue when the market value was ₱150 per share.

11. What is the retained earnings balance at December 31, 2021?

A. ₱6,180,000
B. ₱6,000,000
C. ₱5,930,000
D. ₱5,750,000

F. At the end of 2020, Cartoon Company has 18,000 shares of ₱20 par ordinary shares that were all issued at an average
price of ₱24 per share. The retained earnings balance on this date is ₱550,000.

During 2021, the company entered into the following transactions:

January 16 Issued 13,000 ordinary shares are ₱25 each.

Exchange 12,000 ordinary shares for an equipment. On this date, the ordinary shares is
March 21
selling at ₱27. There is no established fair market value for the equipment acquired.
May 7 Reacquired 5,000 of its own ordinary shares at ₱26.
Accepted subscriptions for 10,000 ordinary shares at ₱28. The contract called for 20%
July 1
down payment.
August 20 Sold 4,000 treasury shares at ₱29 each.
December 1 Collected the balance due on July 1 subscription and issued the corresponding certificates.

Profit for the year 2021 was ₱640,000. No dividends were declared during the year.

12. What is the Cartoons’ total shareholders’ equity at December 31, 2021?
A. ₱2,375,000
B. ₱2,537,000
C. ₱2,735,000
D. ₱1,895,000

G. At December 31, 2020, Travolta Company had 20,000 shares of ₱20 par value treasury shares that were acquired in
2020 at ₱24 per share. In May 2021, Travolta issued 15,000 of these treasury shares at ₱20 each. The cost method is
used to record the treasury share transactions.

13. At December 31, 2021, what amount should Travolta show in notes to financial statements as a restriction of
retained earnings as a result of its treasury share transactions?
A. ₱10,000
B. ₱100,000
C. ₱120,000
D. ₱180,000

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 H. The Power Company had 100,000 of ₱15 par value ordinary shares on January 1, 2021. During 2021, the following
transactions pertaining to its ordinary shares occurred:
 Purchased 5,000 shares as treasury at ₱30 each.
 The ordinary share was split 3-for-1.
 Reissued 3,000 treasury shares at ₱14 each.

14. What is the total cost of the remaining treasury shares at the end of 2021?
A. ₱120,000
B. ₱108,000
C. ₱60,000
D. ₱0

I. Rockwell Corporation has two classes of ordinary shares outstanding: 9%, ₱20 par preference share and ₱70 par
ordinary share. During the fiscal year ending December 31, 2021, the company had the following equity transactions
in chronological order:

No. of Shares Price per share

Issue of preference shares 10,000 ₱ 28
Issue of ordinary shares 35,000 70
Reacquisition and retirement of preference 2,000 30
Purchase of ordinary treasury shares 5,000 80
Share split 2-for-1
Reissue of ordinary treasury shares 5,000 52

Balances of the accounts in the shareholders’ equity section of December 31, 2020 statement of financial position
were:

Preference share capital (50,000 shares) ₱ 1,000,000

Ordinary share capital (100,000 shares) 7,000,000
Share premium - preference 400,000
Share premium - ordinary 1,200,000
Accumulated profits 550,000
Total shareholders’ equity ₱ 10,150,000

15. After considering the given transactions, how much is the total shareholders’ equity at December 31 2021?
A. ₱12,480,000
B. ₱12,680,000
C. ₱12,600,000
D. ₱10,150,000

16. What is the total cost of the remaining treasury shares?

A. ₱0
B. ₱200,000
C. ₱260,000
D. ₱400,000

J. On July 1, 2021, Wish Company issued rights to shareholders to subscribe to additional ordinary shares. One right was
issued for each share owned. A shareholder could purchase one additional share for ten rights plus ₱60 cash. The
rights expire on September 30, 2021. On July 1, 2021, the market price of a share with the right attached was ₱160
while the market price of one right alone was ₱8. Wish Company’s shareholders’ equity on June 30, 2021 comprised
the following:

Ordinary share capital, ₱100 par (4,000 shares issued & outstanding) ₱ 400,000
Share premium 240,000
Accumulated profits 320,000

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 17. By what amount should Wish Company’s retained earnings decrease as a result of issuance of the share rights on
July 1, 2021?
A. ₱0
B. ₱20,000
C. ₱32,000
D. ₱40,000

K. On April 1, 2021, Keene Corporation, a newly formed company, had the following shares issued and outstanding.

Ordinary share, ₱20 par (20,000 shares originally issued for ₱60 per share)
Preference share, ₱ 50 par (6,000 shares originally issued for ₱100 per share)

18. On April 1, 2021, Keene Company should report Ordinary Share Capital / Preference Share Capital / and Share
Premium, respectively of
A. ₱400,000/₱300,000/₱1,100,000
B. ₱1,200,000/₱300,000/₱300,000
C. ₱400,000/₱600,000/₱800,000
D. ₱1,200,000/₱600,000/₱0

L. At the beginning of 2019, True Company offered share options to its key officers with a vesting period of two years. By
the end of 2020, in anticipation of the exercise of the options, the company acquired 50,000 of its own ₱30 par
ordinary shares and these were held in the treasury. At the time, true company has 280,000 issued ordinary shares.
During 2021, transactions involving True Company’s ordinary shares were as follows:

January 1 through October 31 – 30,000 treasury shares were distributed to its key officers as part of the share
option plan
November 1 – a 5-for-2 share split took effect

19. At December 31, 2021, how many True Company’s ordinary shares were issued and outstanding, respectively?
A. 700,000 and 500,000
B. 112,000 and 104,000
C. 575,000 and 650,000
D. 700,000 and 650,000

20. What is the par value per ordinary share after the 5-for-2 share split?
A. ₱75.00
B. ₱60.00
C. ₱30.00
D. ₱12.00

M. Netrix Company’s outstanding share capital consisted of the following:

 8% Preference share capital, 15,000 shares, ₱100 par, cumulative and fully participating.
 Ordinary share capital, 100,000 shares, ₱10 par
There were no dividends in arrears prior to the declaration of cash dividends. On December 15, the board of directors
of Netrix Company declared cash dividends of ₱300,000.

21. What was the amount of dividends payable to Netrix ordinary shareholders?
A. ₱100,000
B. ₱120,000
C. ₱180,000
D. ₱300,000

22. Assume that prior to the declaration of cash dividends, unpaid dividends on the preference shares amounted to
₱75,000. How much is the dividend payable to each ordinary share of Netrix?
A. ₱0.90
B. ₱1.05
C. ₱1.80

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 D. ₱1.95
N. At December 31, 2019 and 2020, Eagle Company had outstanding 4,000 shares of ₱100 par value, 12% cumulative,
fully participating preference shares and 20,000, ₱10 par value ordinary shares. At December 31, 2019, dividends in
areas on the preference shares were ₱24,000. Cash dividends declared in 2020 totaled ₱108,000.

23. What is the total amount of dividends payable to preference shareholders?

A. ₱80,000
B. ₱72,000
C. ₱56,000
D. ₱24,000

24. What is the amount of dividend payable to each ordinary share?

A. ₱4.20
B. ₱2.60
C. ₱1.80
D. ₱1.40

O. Ben Company had the following classes of shares outstanding at December 31, 2020:

Ordinary Share Capital, ₱20 par ₱ 8,000,000

12% Preference Share Capital ₱100 par, cumulative and
4,000,000
fully participating
10% Preference Share Capital ₱100 par, cumulative and
2,000,000
non-participating

Dividends on preference shares have been in arrears for 2018 and 2019. On December 31, 2020, total cash dividends
of ₱6,000,000 was declared.

25. What is the amount of dividends payable to ordinary shares?

A. ₱2,640,000
B. ₱2,906,667
C. ₱2,960,000
D. ₱3,960,000

P. The shareholders’ equity of F Company on December 31, 2021 consists of the following accounts:

Preference Share Capital, 10%, cumulative, ₱100 par (50,000 shares) ₱ 5,000,000
Ordinary Share Capital, ₱100 par (200,000 shares) 20,000,000
Subscribed Ordinary Shares, net of Subscription Receivable of ₱4,000,000
6,000,000
(100,000 shares)
Treasury Ordinary Shares, at cost (50,000 shares) 4,000,000
Share premium 10,000,000
Retained Earnings 8,000,000

Preference dividends have not been paid for three years and have a liquidation value of ₱110.

26. The book value per ordinary share is

A. ₱210
B. ₱168
C. ₱166
D. ₱152

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Q. Louis Company provided the following information on December 31, 2021:

Share Premium 9,000,000 Preference Share (at par) 1,750,000

Accounts Payable 1,100,000 Ordinary Share (at par) 400,000
10,000,00
Sales Total costs and expenses 7,800,000
0
Treasury Share (Ordinary) 250,000 Retained Earnings, Jan. 1 1,000,000

The credit balance in income summary account has not yet been closed to retained earnings.

27. How much is the total shareholders’ equity at December 31, 2021?
A. ₱14,100,000
B. ₱13,400,000
C. ₱11,900,000
D. ₱11,200,000

R. Bee Company has incurred heavy losses since its inception. At the recommendation of its president, the board of
directors voted to implement quasi-reorganization, through reduction of par value subject to shareholders’ approval.
Immediately prior to the restatement on December 31, 2020, the Bee Company’s shareholders’ equity was as follows:

Ordinary Share Capital, ₱100 par (500,000 shares) ₱ 50,000,000

Share Premium 25,000,000
Accumulated Losses (30,000,000)

The shareholders approved the quasi-reorganization on January 1, 2021 to be accompanied by a reduction in

inventory of ₱4,000,000, a reduction in property, plant and equipment of ₱5,500,000 and write off of goodwill at
₱3,000,000. The company also recognized unrecorded liabilities of ₱2,500,000.

28. To eliminate the deficit, Bee should reduce the ordinary share capital by
A. ₱0
B. ₱5,000,000
C. ₱17,000,000
D. ₱20,000,000

S. Thornton Company provided the following information for the year ended December 31, 2021:

14,950,00
Profit 2,000,000 Total assets
0
Share Capital 5,600,000 Share Premium 2,400,000
Prior period adjustment
Dividends declared 1,200,000 500,000
for 2020 over depreciation

The debt-to-equity ratio is 30% at December 31, 2021.

29. What was the retained earnings balance on January 1, 2021?

A. ₱3,200,000
B. ₱2,200,000
C. ₱2,165,000
D. ₱1,165,000

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T. The following partial information is taken from the comparative statement of financial position of Exodus Corporation:

Shareholder’s Equity Dec. 31, 2022 Dec. 31, 2021

Ordinary share capital, ₱5 par;
20 M shares authorized; 15 M shares issued and 9 M
₱75 M ₱45 M
shares outstanding as of Dec. 31, 2022, and ___M shares
issued and ___M shares outstanding as of Dec. 31, 2021.
Additional issued capital on ordinary shares 520 M 392 M
Retained earnings 197 M 157 M
Treasury shares, at cost, 6 million shares as of
December 31, 2022 and 4 million shares as of December (72 M) (50 M)
31, 2021
Total shareholders’ equity ₱720 M ₱544 M

30. What was the average price (rounded to the nearest peso) of the additional shares issued by exodus and 2022?
A. ₱5 per share
B. ₱26 per share
C. ₱ 39 per share
D. cannot be determined from the given information

U. Mirage & Co., a well-established law firm, provided 500 hours of its time to Vision Corporation in exchange for 1,000
shares of Vision’s ₱5 par ordinary shares. Mirage’s usual billing rate is ₱700 per hour, and Vision’s shares have a book
value of ₱250 per share.

31. By what amount will Vision’s share premium increase for this transaction?
A. ₱345,000
B. ₱100,000
C. ₱400,000
D. ₱500,000

V. On June 1, 2022, Stronghold Co. distributed to its ordinary shareholders 200,000 outstanding ordinary shares of its
investment in Saga Ltd, an unrelated party. The book value on Stronghold’s book of Saga’s ₱1 par ordinary shares was
₱2 per share. Immediately after the declaration, the market price of Saga’s shares was ₱2.50 per share.

32. In its statement of profit or loss for the year ended June 30, 2022, what amount should Stronghold report as gain
before income taxes on disposal of the shares?
A. ₱0
B. ₱100,000
C. ₱400,000
D. ₱500,00

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