SOAL 1

Match each item/event pair below with the indicated change in the item. An individual
classification may be used more than once, or not at all. For each dividend, assume that both
declaration and payment or distribution has occurred.
Classifications
A. Item increases
B. Item decreases
C. Item is unchanged
D. Direction of change cannot be determined

Item Event
____ 1. Par value per share Share Split
____ 2. Total retained earnings Share Dividend
____ 3. Total equity Prior period adjustment increases last year’s
net income
____ 4. Earnings per share Restriction of retained earnings
____ 5. Total retained earnings Cash dividend
____ 6. Share premium Share dividend (small)

SOAL 2

Identify which of the following items would be reported as additions (A) or deductions (D) in a
Retained Earnings Statement.
1. Net Income (A)
2. Net Loss (A)
3. Cash Dividends (D)
4. Share Dividends (D)
5. Prior period adjustments to correct for overstatement of prior years’ net income (D)
6. Prior period adjustments to correct for understatement of prior years’ net income (A)
SOAL 3

The equity section of Happy Corporation at December 31 is as follows.

HAPPY CORPORATION
Statement of Financial Position (partial)
Equity
Share capital–preference, cumulative, 10,000 shares authorized,
5,000 shares issued and outstanding $ 250,000
Share capital–ordinary, no par, 750,000 shares authorized,
150,000 shares issued 1,500,000
Retained earnings 2,050,000
Less: Treasury shares (5,000 ordinary shares) (64,000)
Total equity $3,736,000

Instructions
From a review of the equity section, answer the following questions.
(a) How many ordinary shares are outstanding?
(b) Assuming there is a stated value, what is the stated value of the ordinary shares?
(c) What is the par value of the preference shares?
(d) If the annual dividend on preference shares is $10,000, what is the dividend rate on
preference shares?
(e) If dividends of $36,000 were in arrears on preference shares, what would be the balance in
Retained Earnings?

SOAL 4

Match the items below by entering the appropriate code letter in the space provided.

A. Limited liability J. Cumulative feature

B. Shares K. Deficit
C. Board of directors L. Liquidating dividend
D. Share premium M. Earnings per share
E. Retained earnings N. Return on ordinary shareholders’
equity
F. Preemptive right O. Cash dividend
G. Par value P. Declaration date
H. Legal capital Q. Share dividend
I. Treasury shares R. Share split

Retained Earning 1. Net income retained in the corporation.

Legal Capital 2. The amount that must be retained in the business for the
protection of creditors.

Cumulative Feature 3. Preference shareholders have a right to receive current and

unpaid prior-year dividends before ordinary shareholders receive any dividends.

Limited Liability 4. Creditors only have corporate assets to satisfy their claims.
Board of Director 5. Responsible to shareholders for corporate activity.

Par Value 6. The amount assigned to each share in the corporate charter.

Capital Stock 7. Unit of ownership in a corporation.

Preemptive Right 8. Enables shareholders to maintain their same percentage

ownership when new shares are issued.

Treasury Stock 9. Corporation's own shares that have been reacquired by the
corporation but not retired.

10. Portion of the proceeds above the share’s par value.

11. A dividend declared out of share capital or share premium.

Cash Dividend 12. A pro rata distribution of cash to shareholders.

Deficit 13. A debit balance in retained earnings.

Share Dividend 14. A pro rata distribution of the corporation's own shares to
shareholders.

Return on Ordinary Stockholders Equity 15. Shows how many currency units of net
income were earned for each dollar invested by the owners.

Declaration Date 16. The date the board of directors formally declares the dividend and
announces it to shareholders.

Stock Split 17. The issuance of additional shares to shareholders accompanied

by a reduction in the par or stated value per share.

Earning per Share 18. Widely used by shareholders and potential investors in evaluating
the profitability of a company.