Multiple Choice SCORE:

PROFESSOR: —

1. A corporation has ordinary shares with a P10 par value. A new share of this stock
issued for P13 to an investor. Which of the following is correct? is
I. The entity will debit ordinary shares for the par value of P10.
II. The entity will debit cash for P13 and credit gain on sale of stock for p3 if
purchaser of the stock was already a shareholder and is simply buying the
shares. guitiohal

a. I only
b . II only
c . both I and II
d . neither I nor II

2. An entity has ordinary shares with a P10 par value and fair market value of P15, Th
entity exchanges 1,000 shares of this ordinary shares for a real estate property. e

I. The land will be debited for P10,000.

II. The ordinary shares account will be credited for P10,000 and no share premium
will be recorded.

a. I only
b. II only
c . both I and II
d . neither I nor II

3. An entity was organized in Jan. 2019 with authorized capital of P10 par value
ordinary shares. On Feb. 1, 2019, 2 shares were issued at par for cash. On March 1,
2019, The entity's attorney accepted 5,000 shares of the ordinary shares in
settlement for legal services with a fair value of P60,000. Share premium would
increase on

I. Feb: 1, 2019
II. March 1, 2019

a. I only
b . II only
c. both I and II
d . neit her I nor II

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6-30 I WIN Ballada's Partnership and Corporation Accounting
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 poliran Corp,ti issues ) rl
4. cornPensa on for 500 hours of trusotfseitrvsicPeSs
-'"°° shares
on a public exchange at P100
°n the date of issuance the bilsPK1I8e0inpaedsr
hour for similar services.
I credit to ordinary shares for P

share. The journal entry

he Poliran
a. I only Corp. stock was trade to
b. dl only record the stock issued
c. both I and II to Klein would include a Per
II. credit to share 10,000
d, neither I nor II pre
mium for P190,000

5. Mr. A subscribes to buy 1,000 shares of the ordinary shares of entity Z for P22 per
share,
although the par value is only P10 per share. He pays P4 per share
immediately and will pay the remaining P18 per share later. Which of the following
is correct?

Share premium is increased at the time of the subscription by P4,000.

II, On the day of the subscription, a ordinary shares subscribed
account is
increased for the P10 par value of the stock.
a. I only
b, IIonly
c, both I and II
d. neither I nor II

Use the following facts to answer questions 67: -

On Feb. 1, 2019, Patag Corp. issued 5,000 shares of P100 par convertible preference
shares for P110 per share. One share of preference shares can be converted into 2
shares of Patag Corp's P10 par value ordinary shares at the option of the preference
shareholder. On Dec. 31, 2020, when the market value was P40 per share, all of the
preference shares was converted.

6. What amount should be credited to share premium-preference on Feb. 1, 2019?

a. P500,000
b. P125,000
c. P50,000
d. -0-

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Chapter 6: Share Capital 6 31
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 How much should be credited to share premium -ordinary as a res ul t of

conversion on Dec. 31, 2020?

a. -0-
b. P100,000
c. P350,000
d. P450,000

Use the following facts to answer questions 8-10:

Estrada Inc. was organized on Jan. 2, 2019, with P50,000 authorized shares of ps par
ordinary shares: During 2019, The entity had the following capital transactions:
Jan. 14 issued 20,000 shares at P11 per share
July 28 repurchased 5,000 shares at P16 per share
Dec. 5 reissued the 5,000 shares held in treasury for P19 per share

8. Under generally accepted accounting principles (GAAP), how much share premi um
is recorded by Estrada Inc. on Jan. 14?

a. P550,000
b. P220,000
c. P100,000
d. P120,000

9. Assuming Estrada Inc. uses the cost method to account for its treasury stock
transactions, under GAAP, how much is recorded for treasury stock on July 28,
2019?

a. P 8 0 , 0 0 0 c r ed i t
b. P80,000 debit
c. P 2 5 , 0 0 0 c r ed i t
d. P25,000 debit

10. Assume Estrada Inc. uses the cost method to account for its treasury stock
transactions. Under GAAP, the entry to record the reissuance of the 5,000 treasury
shares on Dec. 5, 2019, would include a credit to

a. gain on sale in the amount of P15,000

b. retained earnings in the amount of P15,000
c. Share premium in the amount of 15,000
d. treasury stock in the amount of P95,000

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632
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 3. When a corporation issues new ordinary shares, which of the
increase?
following will
1.
I. Total Liabilities
II. Total Assets
III. Quick Assets
IV. Net Worth

a. I a nd I I
b. III and IV
c . II, Ill, and IV
d. I, II, Ill, and IV

4. An advantage of a partnership is

a. Ilmited liability.
b. ability to raise capital.
c. ease of formation.
d. transfer of ownership.

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Chapter 6: Share Capital 6-33

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 5. If a partner in a partnership dies,
a. each remaining partner receives an equal share of the deceased p ar,
ownership of the business. ,ner,s
b. the partnership is dissolved.
c. the partner's spouse takes the deceased partner's place.
d. a new partner is added to the partnership.

6. An advantage of a corporation is

a. ease of formation.
b. limited liability.
c. regulation.
d. double taxation.

7. If a significant amount of capital is needed to start a business, how should the

business be organized?

a. Corporation
b. General partnership
c. Limited liability partnership
d. Sole proprietorship

8. On the balance sheet, a corporation must disclose all of the following except the
number of shares

a. authorized.
b. issued.
c. unissued.
d. outstanding.

9. Authorized shares are the

a. number of shares that have been distributed to shareholders.

b. total number of shares that can be issued by the corporation at any time.
c. number of shares that are owned by shareholders at the balance sheet date.
d. number of shares the corporation has repurchased.

10. Issued shares are the

a. number of shares that have been distributed to shareholders.

b. total number of shares that can be issued by the corporation at any time.
c. number of shares that are owned by shareholders at the balance sheet date.
d. number of shares the corporation has repurchased.

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6 34 I WIN Ballada's Partnership and Corporation Accounting

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