Mastery Test in Chapter 5,6 & 7

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Statement 1 Directors are those who compose the governing
board of a stock corporation while trustees are
those who compose the governing board of a non-stock corpora-
tion. Both statements are true.
Statement 2 A promoter is a person who invites investors and
subscribers before the formation and
organization of a corporation.
Statement 1 Under the Revised Corporation Code, the maximum
term of corporate existence has been removed
as the Philippines now adopts the doctrine of perpetual corporate
existence. Both statements are true.
Statement 2 By-laws become effective and binding only upon
approval of the Securities and Exchange
Commission (SEC).
Dividends are reported on the: Retained Earnings Statement
Statement 1 Unrestricted retained earnings are accumulated
profits which have not been allocated for any
managerial, contractual or legal purpose and which are free for
Only Statement 1 is true.
distribution to shareholders as dividends.
Statement 2 Dividends can be distributed from the corporation's
share capital.
the cumulative earnings less dividends since the inception of the
The Retained Earnings account comprises:
corporation.
Among the following options, which one is false with regard to
They require setting aside a reserve of cash for the appropriations.
appropriations of Retained Earnings?
All of the following are true of stock splits or share splits except:

the assigned value per share is reduced after the split.

Retained Earnings are changed.
Retained Earnings are changed.
proportional ownership is unchanged.
the number of outstanding shares is increased.
Major factors contributing to the growth of the corporate form of
business includes all of the following except:

The lack of government regulation The lack of government regulation

the facility to accumulate large amounts of resources
limited liability of the shareholders
easy transferability of ownership
Total equities of a corporation usually include: Total shareholders' equity less treasury stock at cost
Technically, which element of shareholders' equity is a "reserve"
Appropriated Retained Earnings
account?
A legally binding contract between the purchaser of the stock and
subscription
the issuer of the stock.
Which of the following is likely to be an incorrect closing entry? Debit Dividend, credit Income Summary
The record of the names of shareholders, installments paid and
unpaid by shareholders and dates of payment, any
stock and transfer book
transfer of stocks and dates thereof, by whom and to whom made
is the:
A shareholder's right to maintain a prorata ownership share in the
pre-emptive right
event of a new issue is called:
How would a share split in which the par value per share decreas-
Share premium- no effect
es in proportion to the number of additional shares issued affect
Retained earnings- no effect
each of the following? Share Premium Retained Earnings
In the shareholders' equity section, Ordinary Share Dividend Dis-
added to Ordinary Share Capital account
tributable is:

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 Mastery Test in Chapter 5,6 & 7
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Treasury Shares were acquired for cash at a price in excess of its
par value. The treasury share was subsequently reissued for cash
at a price in excess of its acquisition cost. Assuming that the cost
method of accounting for
Acquisition of Treasury Shares- no effect
treasury share transaction is used, what is the effect on Retained
Reissuance of Treasury Shares- no effect
Earnings?

Acquisition of Treasury Shares and Reissuance of Treasury

Shares
Statement 1 Appropriations of Retained Earnings do not reduce
Total Retained Earnings.
Statement 2 A Retained Earnings appropriation does not reduce Both statements are true.
stockholders' equity but merely earmarks (restricts) a portion of
retained earnings for a specific reason.
For a corporation, Income Summary account is closed to: Retained Earnings
Which of the following would not affect the balance of Retained
Earnings account?

conversion of preference shares into ordinary shares share split

share dividend or stock dividend
share split
reissue of treasury shares
Which of the following does not have juridical personality as a
corporation?

de facto corporation ostensible corporation or corporation by estoppel

ostensible corporation or corporation by estoppel
de jure corporation
closed corporation
Statement 1 Membership in a non-stock corporation and all rights
arising therefrom are transferable.
Only Statement 2 is true.
Statement 2 The maximum number of shareholders in a closed
corporation is 20.
What is the mandatory period for a newly formed corporation to
formally organize and to commence business transaction from the
5 years
date of its incorporation to prevent automatic dissolution of the
corporation?
Which shares may be issued with or without par value? Ordinary shares
Which of the following is not a characteristic of a corporation?

Unlimited liability on the part of the shareholders

Unlimited liability on the part of the shareholders
Ability to attract large amount of capital.
Perpetual life.
Transferability of ownership interest.
It is a corporation established for business or profit. civil corporation
It is a corporation where no part of its income is distributable as
dividends to its members and the capital of the corporation is not non-stock corporation
divided into shares of stocks.
Which of the following does not have juridical personality as a
corporation?
de jure corporation
ostensible corporation or corporation by estoppel
corporation by prescription
ostensible corporation or corporation by estoppel
de facto corporation
They refer to the persons mentioned in the articles of incorpora-
tion as originally forming and composing the corporation, having
incorporators
signed the articles and acknowledged the same before notary
public.
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 Mastery Test in Chapter 5,6 & 7
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The reacquisition of this type of shares must be supported by
restriction of unappropriated retained earnings and have no voting treasury shares
rights of whatsoever.
Under the Revised Corporation Code of the Philippines, for prima-
ry registration with the Securities and Exchange Commission, the
following are the documents to be submitted by the proponents
for the creation of domestic stock corporation except:
treasurer's affidavit including the certificate of deposit and letter of
by-laws authority to examine bank deposit
treasurer's affidavit including the certificate of deposit and letter of
authority to examine bank deposit
articles of incorporation
cover sheet for registration
When does a private corporation formed under the Revised Cor-
From the date of issuance by the SEC of the certificate of incor-
poration Code obtain its corporate existence or juridical
poration under SEC's official seal.
personality?
What is the mandatory period for a newly formed corporation to
formally organize and to commence business transaction
5 years
from the date of its incorporation to prevent automatic dissolution
of the corporation?
Under the Revised Corporation Code, what is the period allowed
by law to a delinquent corporation to resume its
within 2 years
operation from the notice given by SEC in order for SEC to lift the
delinquency status of such delinquent corporation?
Retained Earnings is accurately described by all except which of
the following statements?

Net losses are accumulated in the Retained Earnings account.

Dividends declared are added to Retained Earnings.
Net profit is added to Retained Earnings.
Retained Earnings is the primary component of a company's
earned capital.
Dividends declared are added to Retained Earnings.
Statement 1 The existence of a cumulative dividend in arrears on
preference shares is an information that must
be disclosed in the notes to financial statements.
Both statements are true.
Statement 2 Only dividends that have been formally declared by
the BOD are recorded in the corporate books
as liabilities of the corporation.

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