UM Panabo College

6th Examination
Accounting 2a
March 1, 2016 marjorie c. librando, cpa
Test I - Multiple Choice Theory. No Erasures Allowed.
Direction: Select the best answer. Mark X the box of the letter of your answer.

1. With regard to dividends paid from one corporation to another, retained earnings of the corporation paying the
dividend is debited on which of the following dates?
a. Date of declaration and the date of record c. Date of declaration only
b. Date of declaration and the date of payment d. End of the fiscal year
2. With regard to dividends, which of the following result in a reduction of retained earnings at the date of
declaration?
I. Property Dividends II. Cash Dividends
a. I only b. II only c. both I and II d. neither I nor II
3. 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, the preference shares are said to be
a. Callable b. cumulative c. convertible d. participating
4. How much the declaration of a 15% share dividend by a corporation affect each of the following on the date of
declaration?
Retained Earnings Total Shareholder’s Equity
a. No effect No effect
b. No effect Decrease
c. Decrease No effect
d. Decrease Decrease
5. The income summary account of a sole proprietorship is closed to the owner’s capital account; for corporation,
Income summary is closed to
a. Retained Earnings b. Ordinary Shares c. Share Premium d. Donated Capital
6. Which of the following would result in an increase in the Retained Earnings account?
a. Positive prior period adjustment
b. Share dividends declared
c. Cash dividend declared
d. Loss for the period
7. 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 No
c. No No Yes
d. Yes No Yes
8. How would retained earnings be affected by the declaration of each of the following?
Share Dividend Share Split
a. Decrease Decrease
b. No effect Decrease
c. No effect No effect
d. Decrease No effect
9. A share dividend
a. Decreases shareholder’s equity
b. Decreases assets
c. Leaves total shareholder’s equity unchanged
d. None of the above
10. Dividends shall be declared and paid out of
a. Profits earned in selling no-par value shares c. Share capital
b. Retained earnings d. Net assets
Test II - Matching Type. No Erasures Allowed
Direction: Choose among the choices given below for your answer. Write only the letter of your answer right beside
the item number. (Example: 1. A)
A. Share dividend F. Declaration date
B. Prior period error G. Large share dividends
C. Small share dividend H. Share split
D. Appropriation of retained earnings I. Treasury stock
E. Date of record J. Deficits

1. A debit balance in retained earnings.

2. Restriction of retained earnings that is recorded by a formal journal entry.
3. The stock that a corporation issues and later reacquires.
4. A correction to retained earnings for an error of an earlier period
5. A share dividend of less than 20% of the corporation’s outstanding shares.
6. A share dividend of 20% or more of the corporation’s outstanding shares.
7. A proportional distribution by a corporation of its own shares that affects only the shareholder’s equity section of
the statement of financial position.
8. An increase in the number of outstanding shares of stock coupled with a proportionate reduction in the par value
of the stock.
9. Date on which the owners of stock to receive a dividend are identified.
10. Date on which the board of directors announces the intention to pay a dividend.

Test III – Multiple Choice Problem. 3 points each. No Solution, No POINT.

Direction: Read each problem carefully. Answer each requirement and provide the necessary solution.
1. On July 1, 2015, Honest Corp. split its ordinary shares 5-for-1 when the market value was ₱100 per share. Prior to
the split, Honest had 10,000 shares of ₱10 par value ordinary shares issued and outstanding. After the split, the
par value of the share
a. Remained at ₱10 c. was reduced to ₱5
b. Was reduced to ₱8 d. was reduced to ₱2
2. On May 1, 2015, Integrity Corp. declared and issued a 10% ordinary share dividend. Prior to this dividend, Integrity
had 100,000 shares of ₱1 par value ordinary shares issued and outstanding. The fair market value of Integrity’s
ordinary shares was ₱30 per share on May 1, 2015. As a result of the share dividend, Integrity’s total shareholder’s
equity
a. Increased by ₱300,000 c. Decreased by ₱10,000
b. Decreased by ₱300,000 d. did not change
3. Loyal Corp. had 160,000 ordinary shares outstanding in January 2016. The corporation distributed 15% share
dividend in March and a 10% share dividend in June. After acquiring 20,000 shares of treasury stock in July, the
corporation splits its share 4-for-1 in December. How many ordinary shares outstanding as at December 31, 2016?
a. 729,600 b. 903,000 c. 976,000 d. 996,000
Items 4 – 5
At December 31, 2014 and 2016, Patience Corp. had outstanding 2,000 shares of ₱1,000 par value, 6% cumulative
preference shares and 10,000 shares of ₱100 par value ordinary shares. At December 31, 2015, dividends in arrears
on the preference shares were ₱60,000. Cash dividends declared in 2016 totaled ₱220,000.
4. What amount was payable to the preference shares?
a. ₱120,000 b. ₱160,000 c. ₱180,000 d. ₱220,000
5. What amount was payable to the ordinary shares?
a. ₱100,000 b. ₱60,000 c. ₱40,000 d. ₱0
Test III – Problem Solving
Direction: Read carefully each problem. Answer what is required. Show your solution in a legible form.

Determination Company plans to declare and distribute a dividend of ₱300,000 in December 2016. There are 10,000
shares of 7% preference shares, par value ₱50, and 200,000 outstanding ordinary shares, ₱1 par value. No dividend
was paid for the past 3 years.
Required: Determine the amount of the dividends that should be paid to the preference and ordinary shareholders if
the preference shares are
1. Non-cumulative, non-participating 3. Cumulative, non-participating
2. Non-cumulative, participating 4. Cumulative, participating