Chapter 8- Retained Earnings Mcq

1. The book value of ordinary shares is the same as

a. liquidation value.
b. par value.
c. net worth.
d. net tangible asset value per share.

2. NMB Corporation has 5,000,000 ordinary shares and 1,000,000 shares of 6% P100 par value cumulative preference
shares. During the recession of the past two years, NMB suspended all dividend payments. This year NMB returned to
profitability, and the board of directors declared a P1 per share ordinary shares dividend to be paid at the end of the
year. How much would NMB have to pay in dividends this year?
a. P23,000,000
b. P11,000,000
c. P5,000,000
d. P17,000,000

3. APL Corporation has a 6% participating preference shares issue, along with a ordinary shares issue. Which of the
following statements is true?
a. Participating preference shareholders receive a minimum dividend payment of 6%.
b. Participating preference shareholders receive an average dividend payment of 6%.
c. Participating preference shareholders receive only 6% in dividends.
d. Participating preference shareholders receive a maximum dividend payment of 6%.

4. An investor owns 1,000 shares of GDM Corporation when the corporation announces a 1-for-4 reverse share split.
Before the share split, GDM’s stock was trading at P1.50 per share. After the share split, what ownership position will
the investor have?
a. 250 shares at P1.50 per share
b. 1,000 shares at P6.00 per share
c. 4,000 shares at P0.37 per share
d. 250 shares at P6.00 per share

5. A corporation has 6% participating preference shares. What does the 6% mean?

a. Maximum dividend payment
b. None of the choices
c. Actual dividend payment
d. Minimum dividend payment

6. A share split by a corporation affects which account on the statement of financial position?
a. Retained earnings
b. Share premium
c. Par value
d. Shareholder’s equity

7. A corporation has 800,000 ordinary shares outstanding. Recently, the corporation bought 100,000 shares of its own
stock. At the end of the year, the corporation has P320,000 available to distribute to ordinary shareholders. What are
the dividends paid per share?
a. P0.40
b. P2.50
c. P0.46
d. P2.19
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 8. When preference shareholders have the right to receive a specified dividend and to receive more after a matching
dividend percentage is given to ordinary shareholders, preference shares are said to be
a. participating.
b. cumulative.
c. callable.
d. convertible.

9. A corporation declared cash dividends on its ordinary shares in Dec. 2018, payable in Jan. 2019. Retained earnings
will
a. decrease on the date of payment.
b. not be affected on the date of declaration.
c. not be affected on the date of payment.
d. increase on the date of declaration.

10. Dividends shall be declared and paid out of

a. share premium
b. retained earnings.
c. profits earned in selling no-par value shares.
d. share capital.

11. How would the declaration of a 15% share dividend by a corporation affect each of the following?
Retained Earnings Total Shareholders’ Equity
a. Decrease Decrease
b. No effect Decrease
c. Decrease No effect
d. No effect No effect

12. A deficit appears on the statement of financial position

a. among the assets.
b. among the liabilities.
c. as a deduction from total share capital.
d. as a deduction from Income Taxes Payable.

13. What is the purpose of a share split?

a. both given choices are false
b. To adjust the market price of the corporation’s shares to a level where more individuals can afford to invest in the
stock.
c. To spread shareholder base by increasing the number of outstanding shares.
d. both given choices are correct

14. The Income Summary account of a proprietorship is closed to the owner’s Capital account for a corporation,
Income Summary is closed to
a. Retained Earnings.
b. Ordinary Shares.
c. Donated Capital.
d. Share Premium.

15. The journal entry to record the declaration of a large share dividend includes
a. a debit to Retained Earnings for the market value of the shares to be distributed.
b. a credit to Share Premium for the difference between the fair market value and the par value of the shares to be
distributed.
c. a debit to Retained Earnings for the par value of the shares to be distributed.
d. astudy
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 16. Which of the following would result in an increase in the Retained Earnings account?
a. share dividends declared
b. cash dividends declared
c. positive prior period adjustments
d. loss for the period

17. Which of the following combination of dates accurately describes when journal entries are required to record
dividends?
Declaration Date Record Date Payment date
a. Yes Yes Yes
b. Yes No Yes
c. Yes No No
d. No No Yes

18. A restriction on retained earnings

a. all of the given choices.
b. reduces retained earnings available for the declaration of dividends.
c. has no effect on total retained earnings.
d. can be reported by an entry appropriating retained earnings.

19. The number of ordinary shares outstanding would be decreased by the

Declaration of a Purchase of
Share Dividend Treasury Stock
a. No Yes
b. No No
c. Yes Yes
d. Yes No

20. A share dividend

a. none of the given choices
b. decreases shareholders’ equity.
c. decreases assets.
d. leaves total shareholders’ equity unchanged.

21. Ramirez Corp. owned shares in Tayabas Corp. On Dec. 1, 2019, Ramirez declared and distributed a property
dividend of Tayabas shares when their fair market value exceeded the cost. As a consequence of the dividend
declaration and distribution, the accounting effects would be
Retained Earnings Property Dividends at
a. Increased Fair market value
b. Decreased Fair market value
c. Increased Cost
d. Decreased Cost

22. How would retained earnings be affected by the declaration of each of the following?
Share Dividend Share Split
a. Decrease Decrease
b. Decrease No effect
c. No effect Decrease
d. No effect No effect

23. When a small share dividend is declared, Retained Earnings is debited for
a. the
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 b. the liquidation value of the shares to be distributed.
c. the fair market value of the shares to be distributed.
d. zero; it is not affected by the declaration of a small share dividend.

24. Cebedo Corp. issued 100,000 ordinary shares. Of these, 5,000 were held as treasury stock at Dec. 31, 2018. During
2019, transactions involving Cebedo’s ordinary shares were as follows:
May 3 1,000 shares of treasury stock were sold.
Aug. 6 10,000 shares of previously unissued share were sold.
Nov. 18 A 2-for-1 share split took effect.
At Dec. 31, 2019, how many ordinary shares are issued and outstanding:
Shares Issued Shares Outstanding
a. 222,000 218,000
b. 220,000 216,000
c. 222,000 214,000
d. 220,000 212,000

25. How would total shareholders’ equity be affected by the declaration of each of the following?
Share Dividends Share Split
a. No effect No effect
b. Decrease No effect
c. No effect Increase
d. Decrease Decrease

26. The following information pertained to T. Lianza Coporation: Dividends on its 1,000 shares of 6%, P10 par value
cumulative preference shares have not been declared for three years. Treasury stock that cost P15,000 was reissued for
P8,000. What amount of retained earnings should be appropriated as a result of these items?
a. P1,800
b. P8,800
c. P7,000
d. P0

27. Villanueva Corp.’s statement of financial position reported the following shareholders’ equity:
5% Cumulative Preference Shares, P100 par, 2,500
shares issued and outstanding P250,000
Ordinary Shares, P3.50 par, 100,000 shares issued
and outstanding 350,000
Share Premium-Ordinary 125,000
Retained Earnings 300,000
Dividends in arrears on the preference shares amounted to P25,000. If Villanueva were to be liquidated, the preference
shareholders would receive par value plus a premium of P50,000. The book value per share of ordinary shares is
a. P7.00.
b. P7.25.
c. P7.50.
d. P7.75.

28. Coronado Corp. has 700,000 ordinary shares authorized and 300,000 shares outstanding at Dec. 31, 2018. The
following events occurred during 2019:
Jan. 31 Declared 10% share dividend.
June 30 Purchased 100,000 shares.
Aug. 1 Reissued 50,000 shares.
Nov. 30 Declared 2-for-1 share split.
At Dec. 31, 2019, how many outstanding shares did Coronado have?
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 a. 600,000
b. 660,000
c. 560,000
d. 630,000

29. Briones Corp.’s outstanding shares at Dec. 31, 2019, consisted of the following: 30,000 shares of 5% Cumulative
Preference Shares, P10 par value, fully participating as to dividends. No dividends were in arrears. 200,000 Ordinary
Shares, P1 par value. On Dec. 15, 2019, Briones declared dividends of P100,000. What was the amount of dividends
payable to Briones’ ordinary shareholders?
a. P34,000
b. P10,000
c. P47,500
d. P40,000

30. How would a share split in which the par value per share decreases in proportion to the number of additional
shares issued affect each of the following?
Share Premium Retained Earnings
a. Increase Decrease
b. Increase No effect
c. No effect No effect
d. No effect Decrease

31. E. Panopio Corp. declared a 5% share dividend on its 10,000 issued and outstanding shares of P2 par value
ordinary shares, which had a fair market value of P5 per share before the share dividend was declared. This share
dividend was distributed 60 days after the declaration date. By what amount did E. Panopio’s current liabilities
increase as a result of the share dividend declaration?
a. P2,500
b. P-0-
c. P1,000
d. P500

32. A corporation declared a cash dividend on its ordinary shares on Dec. 15, 2018, payable on Jan. 12, 2019. How
would this dividend affect shareholders’ equity on the following dates?
Dec. 15, 2018 Dec. 31, 2018 Jan. 12, 2019
a. Decrease No effect No effect
b. Decrease No effect Decrease
c. No effect No effect Decrease
d. No effect Decrease No effect

33. On July 1, 2019, Aguila Corp. has 200,000 shares of P10 par ordinary shares outstanding and the market price of
the stock is P12 per share. On the same date, Aguila declared a 1-for-2 reverse share split. The par value of the share
was increased from P10 to P20 and one new P20 par share was issued for each two P10 par shares outstanding.
Immediately before the 1-for-2 reverse share split, Aguila’s share premium was P450,000. What should be the balance
in Aguila’s share premium account immediately after the reverse share split is effected?
a. P850,000
b. P650,000
c. P0
d. P450,000

34. Perdio Corp. had 100,000 ordinary shares issued and outstanding on Jan. 1, 2019. During 2019, Perdio took the
following actions:
Mar. 15 Declared a 2-for-1 share split, when the fair market value of the share was P80 per share.
Dec.
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 In Perdio’s statement of changes in shareholders’ equity for 2019, what amount should Perdio report as dividends?
a. P100,000
b. P950,000
c. P50,000
d. P850,000

35. On Dec. 1, 2019, M. Penaflor Corp. declared a property dividend of trading investments to be distributed on Dec.
31, 2019, to shareholders of record on Dec. 15, 2019. On Dec. 1, 2019, the trading investments had a cost of P60,000
and a fair market value of P78,000. What is the effect of this property dividend on M. Penaflor’s 2019 retained
earnings, after all nominal accounts are closed?
a. P78,000 decrease
b. P18,000 increase
c. P60,000 decrease
d. P0

36. Manansala Corp. declared and paid a liquidating dividend of P100,000. This distribution resulted in a decrease in
Manansala’s
Share Capital Retained Earnings
a. No No
b. No Yes
c. Yes No
d. Yes Yes

37. Manaloto Trade, Inc. has 10,000 shares of 7% P50 par preference shares, and 100,000 shares of P4 par ordinary
shares outstanding. Two years’ preference dividends are in arrears. Manaloto Trade declared a cash dividend large
enough to pay the preference dividends in arrears, the preference dividends for the current period, and a P1.50
dividend to ordinary. What is the total amount of the dividend?
a. P220,000
b. P105,000
c. P255,000
d. P150,000

38. Estrada Corporation has 5,000 shares of 6% cumulative, P100 par value, preference shares outstanding and
175,000 ordinary shares outstanding. The corporation has paid no dividends since May 31, 2018. For the year ended
May 31, 2020, Estrada had profit of P1,450,000 and wishes to pay ordinary shareholders a dividend equivalent to 25%
of profit. The total amount of dividends to be paid by Estrada Corporation at May 31, 2020 is
a. P407,500
b. P422,500
c. P392,500
d. P362,500

39. Pangan Corp. acquired 4,000 shares of Agustin, Inc. ordinary shares on Oct. 20, 2018 for P660,000. On Nov. 30,
2020, Agustin distributed a 10% ordinary shares dividend when the market price of the stock was P250 per share. On
Dec. 20, 2020, Pangan sold 400 shares of its Agustin stock for P106,000. For the year ended Dec. 31, 2020, how much
should Pangan report as dividend revenues?
a. P46,000
b. P-0-
c. P106,000
d. P100,000

40. Malit Corporation has a total shareholders’ equity of P1,000,000, including retained earnings of P190,000. The
cash balance Is P350,000. The maximum cash dividend the corporation can declare and pay is
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 a. P350,000
b. P650,000
c. P190,000
d. P1,000,000

41. At Dec. 31, 2018 and 2019, L. Pestano Corp. had outstanding 2,000 shares of P1,000 par value, 6% cumulative
preference shares and 10,000 shares of P100 par value ordinary shares. At Dec. 31, 2018, dividends in arrears on the
preference shares were P60,000. Cash dividends declared in 2019 totaled P220,000. What amounts were payable on
each class of stock?
Preference Shares Ordinary Shares
a. P180,000 P 40,000
b. P220,000 P-0-
c. P160,000 P 60,000
d. P120,000 P100,000

42. On Dec. 31, 2018, the shareholders’ equity section of A. Pacis, Inc. was as follows:
Ordinary Shares, par value P100, authorized
30,000 shares, issued and outstanding
9,000 shares P 900,000
Share Premium 1,160,000
Retained Earnings 1,460,000
Total Shareholders’ Equity P3,520,000
On March 31, 2019, A. Pacis declared a 10% share dividend. Accordingly, 900 shares were issued when the fiar
market value was P160 per share. For the three months ended March 31, 2019, A. Pacis sustained a loss of P320,000.
The balance of A. Pacis’s retained earnings as of March 31, 2019 should be
a. P1,140,000
b. P1,086,000
c. P996,000
d. P1,050,000

43. Effective April 27, 2019, the shareholders of Fernando Corp. approved a 2-for-1 split of the corporation’s ordinary
shares, and an increase in authorized ordinary shares from 100,000 shares to 200,000 shares. Fernando’s shareholders’
equity accounts immediately before issuance of the share split shares were as follows:
Ordinary Shares, P20 par value, 100,000 shares authorized,
50,000 shares outstanding P1,000,000
Share Premium 150,000
Retained Earnings 1,350,000
The share split shares were issued on June 30, 2019. In Fernando’s June 30, 2019 statement of changes in
shareholders’ equity, the balances of share premium and retained earnings are
Share Premium Retained Earnings
a. P1,150,000 P350,000
b. P-0- P500,000
c. P150,000 P350,000
d. P150,000 P1,350,000

44. Ranga Corporation declared a cash dividend of P10,000 on Jan. 17. This dividend was payable to shareholders of
record on Feb. 10 and payment was made on March 2. As a result of this cash dividend, liabilities will increase
(decrease) on Jan. 17 Feb. 10
a. P10,000 P(10,000)
b. P(10,000) P-0-
c. P-0- P-0-
d. P10,000 P-0-
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 45. On July 1, 2019, Samoza Corp. split its ordinary shares for 5-for-1 when the market value was P100 per share.
Prior to the split, Samoza had 10,000 shares of P10 par value ordinary shares issued and outstanding. After the split,
the par value of the share
a. was reduced to P8.
b. was reduced to P2.
c. remained at P10.
d. was reduced to P5.

46. Pascual Corp. owned 20,000 ordinary shares of Alegrado Corp., purchased in 2018 for P1,800,000. On Dec. 15,
2020, Pascual declared a property dividend of all its Alegrado Corp. shares on the basis of one share of Alegrado for
every 10 shares of Pascual ordinary shares held by its shareholders. The property dividend was distributed on Jan. 15,
2021. On the declaration date, the aggregate market price of the Alegrado shares held by Pascual was P3,000,000. The
entry to record the declaration of the dividend should include a debit to retained earnings of
a. P1,200,000
b. P-0-
c. P1,800,000
d. P3,000,000

47. The following data are extracted from the shareholders’ equity section of the statement of financial position of
Dela Cruz Corporation:
12/31/2018 12/31/2019
Ordinary Shares, P2 par value P1,000,000 P1,020,000
Share Premium 500,000 580,000
Retained Earnings 1,000,000 1,046,000
During 2019, the corporation declared and paid cash dividends of P150,000 and also declared and issued a share
dividend. There were no other changes in shares issued and outstanding during 2019. Profit for 2019 was
a. P46,000
b. P296,000
c. P216,000
d. P196,000

48. On May 1, 2019, Chavez Corp. declared and issued a 10% ordinary share dividend. Prior to this dividend, Chaves
had 100,000 shares of P1 par value ordinary shares issued and outstanding. The fiar market value of Chavez’s
ordinary shares was P30 per share on May 1, 2019. As a result of the share dividend, Chavez’s total shareholders’
equity
a. increased by P300,000.
b. decreased by P300,000.
c. decreased by P10,000.
d. did not change.

49. The following information was abstracted from the accounts of David Corporation at year-end:
Total income since incorporation P840,000
Total cash dividends paid 260,000
Proceeds from sale of donated shares 90,000
Total value of share dividends distributed 60,000
Excess of proceeds over cost of treasury stock sold 140,000
What should be the current balance of retained earnings?
a. P670,000
b. P610,000
c. P580,000
d. P520,000

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