FINANCIAL ACCOUNTING AY 2023-2024 1ST SEM

ACTIVTY 12

Name: Date of Activity:

Year and Section:

CHAPTER 6
SHAREHOLDERS’ EQUITY

I. THEORETICAL PROBLEMS
Instructions: Analyze the following questions and encircle the letter of the correct answer.

1. When shares with par value are sold, the excess of the proceeds over the aggregate par value of the shares
issued is credited to---
A. Share Capital C. Retained earnings
B. Share premium D. Gain on issuance of share capital

2. When shares without par value are sold, the proceeds shall be credited to---
A. Share capital C. Share capital to the extent of the stated value and
any excess is credited to share premium
B. Shareholders’ equity D. Share premium

3. If shares are issued for noncash consideration, the proceeds shall be measured by the---
A. Fair value of the shares issued C. Par value of the shares issued
B. Fair value of the noncash consideration received D. Cost of the noncash consideration received

4. 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 C. Fair value of liability extinguished
B. Fair value of the shares issued D. Book value of the shares issued

5. When shares are issued for services rendered, the measure is equal to---
A. Fair value of such service C. Book value of the shares issued
B. Par value of the share issued D. Fair value of the shares issued

6. Transaction costs directly attributable to the issuance of new shares include all of the following, except---
A. Documentary stamp tax and other percentage tax C. SEC registration fee for new shares
B. Underwriting fee D. Road show presentation

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

8. Which of the following statements is incorrect in relation to treasury shares---

A. Treasury shares shall be recorded at cost C. Treasury shares may be recognized as financial
irrespective of whether acquired below or above par assets
value
B. The total cost of treasury shares shall be deducted D. Gains or losses of treasury shares shall not be
from equity credited or charged to income

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

10. The total cost of treasury shares shall be reported as---

A. Deduction from shareholders’ equity C. Deduction from retained earnings
B. Financial asset D. Deduction from share premium

11. Loss from sale of treasury shares shall be charged to--

A. Loss on sale of treasury shares to be shown as other C. Share premium from treasury shares and then
expense retained earnings

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SHAREHOLDERS’ EQUITY
FINANCIAL ACCOUNTING AY 2023-2024 1ST SEM
ACTIVTY 12

B. Retained earnings and then share premium from D. Share premium from original issuance, share
treasury shares premium from treasury shares and then retained
earnings

12. Loss on retirement of treasury shares shall be debited to---

A. Retained earnings C. Share premium from treasury shares, share
premium from original issuance and then retained
earnings
B. Share premium from treasury shares and then D. Share premium from original issuance, share
retained earnings premium from treasury shares and then retained
earnings
13. Gain and losses 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 C. Share capital
B. Retained earnings D. Income

14. It is defined as the issuance by an entity of its own ordinary shares to its ordinary shareholders without
consideration and under conditions indicating that such action is prompted mainly by a desire to increase the
number of shares outstanding for the purpose of effecting a reduction in their unit market price.
A. Share split C. Share option
B. Rights issue D. Share appreciation right

15. Subscriptions receivable and other receivables from sale of shares which are not collectible currently shall be
presented as---
A. Deduction from the related subscribed share capital C. Long-term investments
in the shareholders' equity section
B. Current asset D. Other assets

16. Deposits on subscription to a proposed increase in share capital may be classified as---
A. Current liability C. Note to financial statement
B. Noncurrent liability D. Part of shareholders’ equity

17. A redeemable preference share is a preference share---

I. That provides for mandatory redemption by the issuer for a fixed or determinable amount at a future date.
II. That gives the holder the right to require the issuer to redeem the instrument for a fixed or determinable
amount at a future date.

A. I only C. Both I and II

B. II only D. Neither I and II

18. A redeemable preference share must be redeemed at the option of----

A. Issuer C. Either the issuer or holder
B. Holder D. Neither the issuer nor the holder

19. A redeemable preference share shall be classified in the statement of financial position as---
A. Current liability C. Either current liability or noncurrent liability
depending on redemption date
B. Noncurrent liability D. Part of the shareholders’ equity

20. Dividend paid on redeemable preference share shall be accounted for as---
A. Direct deduction from retained earnings C. Component of other comprehensive income
B. Interest expense as component of finance cost D. Deduction form reserves

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