FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance

ACCTG 2 CORPORATION

1. Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock?
a. The right to vote for the board of directors.
b. The right to maintain one's proportional interest in the corporation.
c. The right to receive a full cash dividend before dividends are paid to other classes of stock.
d. The right to vote on major corporate issues.

2. Characteristics of a corporation include

a. shareholders who are mutual agents c. its inability to own property
b. direct management by the shareholders d. shareholders who have limited liability
(owners)

3. A disadvantage of the corporate form of business entity is

a. mutual agency for stockholders
b. unlimited liability for stockholders
c. corporations are subject to more governmental regulations
d. the ease of transfer of ownership

4. Total shareholders’ equity represents

a. A claim against specific assets contributed by the owners.
b. The maximum amount that can be borrowed by the entity
c. A claim against a portion of the total assets of an entity
d. Only the amount of retained earnings.

5. The corporate charter allows a corporation to issue only a certain number of shares of each class of stock.
This amount of stock is called
a. treasury stock c. outstanding stock
b. issued stock d. authorized stock

6. The residual interest in a corporation belongs to the

a. Management
b. Creditors
c. Ordinary shareholders
d. Preference shareholders

7. When common stock is issued in exchange for a noncash asset, the transaction should be recorded at
a. the par value of the stock issued
b. the fair market value of the stock
c. the fair market value of the asset acquired
d. the fair market value of the asset acquired or the fair market value of the stock, whichever can be
determined more objectively.

8. When collectability is reasonably assured, the excess of the subscription price over the stated value of no
ordinary share subscribed shall be recorded as
a. No par ordinary share capital
b. Share premium when the subscription is recorded.
c. Share premium when the subscription is collected.
d. Share premium when the ordinary share is issued.

9. The par value per share of common stock represents

a. the minimum selling price of the stock established by the articles of incorporation.
b. the minimum amount the stockholder will receive when the corporation is liquidated
c. an arbitrary amount established in the articles of incorporation
d. the amount of dividends per share to be received each year

10. The excess of issue price over par of ordinary share capital is termed a(n)
a. discount b. income c. deficit d. premium

11. The entry to record the issuance of 150 shares of P5 par common stock at par to an attorney in payment of
legal fees for organizing the corporation includes a credit to
a. Organizational Expenses c. Common Stock
b. Goodwill d. Cash

12. During the current year, shares were subscribed for at price in excess of par value. A total of 20% of the
subscription price was collected as down payment with the remaining 80% due next year. At the current
year-end, the shareholders’ equity would report share premium for the excess of the subscription price
over the par value of shares and
a. Share capital issued for 20% of the par value of shares subscribed.
b. Share capital issued for the par value of the shares subscribed.
c. Subscribed share capital for 80% of the par value of the shares subscribed.
d. Subscribed share capital for the par value of the shares subscribed.
 13. Shares that have a fixed per-share amount printed on the share certificate are called
a. Stated value shares c. Uniform value shares
b. Fixed value shares d. Par value shares

14. Treasury shares are

a. Shares held as an investment by the treasurer of the corporation
b. Shares held as an investment of the corporation
c. Issued and outstanding shares.
d. Issued but not outstanding shares

15. The preemptive right of an ordinary shareholder is the right to

a. Share proportionately in corporate assets upon liquidation.
b. Share proportionately in any new issue of shares of the same class.
c. Receive cash dividends before they are distributed to preference shareholders.
d. Exclude preference shareholders from voting rights.

16. When treasury shares are purchased for more than par value, what account or accounts shall be debited?
a. Treasury shares for the par value and share premium for the excess of purchases price over the par value
b. Share premium for the purchase price.
c. Treasury shares for the purchase price.
d. Treasury shares for the par value and retained earnings for excess of the purchase price over the par
value.

17. Treasury shares were acquired for cash at a price in excess of par value. The treasury shares were
subsequently sold for cash at a price in excess of acquisition cost. What is the effect on total shareholders’
equity?
Purchase of treasury Sale of treasury
a. Increase Decrease
b. Decrease No effect
c. Decrease Increase
d. No effect No effect

18. The purchase of treasury ordinary shares

a. Decreases authorized ordinary share capital
b. Decreases issued ordinary shares
c. Decreases outstanding ordinary shares
d. Has no effect on ordinary share outstanding

19. Treasury shares were acquired for cash at more than par value and then subsequently sold for cash at more
than acquisition price. What is the effect on share premium from treasury shares?
Purchase of treasury shares Sale of treasury shares
a. Increase Decrease
b. Decrease No effect
c. No effect Increase
d. No effect No effect

20. Which of the following statements best describes the net effect on retained earnings of the purchase and
subsequent sale of treasury shares?
a. Retained earnings may never be increased but sometimes decreased
b. Retained earnings may never be increased or decreased
c. Retained earnings sometimes may be increased but never be decreased
d. Retained earnings account is always affected unless the reissue price is exactly equal to cost.

21. An ordinary shareholder does not possess which of the following?

a. The right to share in the earnings of the corporation when dividends are declared.
b. The right to vote in the election of the board of directors of the corporation.
c. The right to direct ownership of the corporate assets.
d. The right to share proportionately in corporate assets on case of liquidation if such assets exceed the
claims of creditors.

22. The issuance of preference shares

a. Increases preference share outstanding
b. Has no effect in preference shares outstanding
c. Increases authorized preference share capital
d. Decreases authorized preference share capital

23. Which of the following statements in relation to treasury shares is true?

a. No reference need to be made to donated treasury shares since the acquisition of such shares does not
restrict retained earnings.
b. Treasury shares and unissued shares can be reported as total shares not outstanding with no
distinguishing comments.
c. Treasury shares shall be reported as a deduction, at cost, from the total paid in capital.
d. Treasury shares shall be reported as a deduction, at cost, from the total shareholders’ equity, and the
restriction on retained earnings occasioned by their acquisition must also be stated.
24. 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 Sale of treasury
a. Increase No effect
b. No effect No effect
c. No effect Decrease
d. increase Decrease
25. How would a share split affect each of the following?
Asset Sale of treasury
a. Increase Increase
b. No effect No effect
c. No effect Increase
d. Increase No effect

26. In accounting for shareholders’ equity, the accounting is primarily concerned with which of the following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings

27. Contributed capital does not include

a. Share premium on ordinary and preference shares
b. Preference shared capital
c. Capital resulting from reissuance of treasury shares as a price in excess of acquisition price
d. Capital accumulated by retention of earnings

28. The pre-emptive right of a common stockholder is the right to

a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights.

29. Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock?
a. The right to vote for the board of directors.
b. The right to maintain one's proportional interest in the corporation.
c. The right to receive a full cash dividend before dividends are paid to other classes of stock.
d. The right to vote on major corporate issues.

30. The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?
a. Retained b. Treasury Stock c. Organizational d. Common Stock
Earnings Expenses

31. Stockholders' equity

a. is usually equal to cash on hand c. includes retained earnings and paid-in capital
b. includes paid-in capital and liabilities d. is shown on the income statement

32. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that
40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of
shares outstanding?
a. 5,000 b. 35,000 c. 45,000 d. 55,000

33. A corporation issues 2,000 shares of ordinary shares for P 32,000. The stock has a stated value of P10 per
share. The journal entry to record the stock issuance would include a credit to Share capital – Ordinary
shares for
a. P20,000 b. P32,000 c. P12,000 d. P2,000

34. What is the total stockholders' equity based on the following data?
Common Stock P800,000
Excess of Issue Price Over Par 375,000
Retained Earnings (deficit) 50,000

a. P1,100,000 c. P1,175,000
b. P1,125,000 d. P1,225,000

35. What is the total stockholders' equity based on the following account balances?
Common Stock P400,000
Paid-In Capital in Excess of Par 40,000
Retained Earnings 190,000
Treasury Stock 20,000

a. P640,000 b. P630,000 c. P610,000 d. P650,000

 36. Treasury stock which was purchased for P2,000 is sold for P2,500. As a result of these two transactions
combined
a. income will be increased by P500 c. stockholders' equity will be increased by P500
b.stockholders' equity will be increased by P2,500 d.stockholders' equity will not change

37. Treasury stock that had been purchased for P5,400 last month was reissued this month for P7,500. The
journal entry to record the reissuance would include a credit to
a. Treasury Stock for P7,500
b. Paid-In Capital from Treasury Stock for P7,500
c. Paid-In Capital in Excess of Par/Common for P2,100
d. Share premium from Treasury Stock for P2,100

38. A corporation purchased 1,000 shares of its P5 par common stock at P10 and subsequently sold 500 of the
shares at P20. What is the amount of revenue realized from the sale?
a. P0 b.P5,000 c. P2,500 d.P10,000

39. A corporation purchases 10,000 shares of its own P10 par common stock for P25 per share, recording it at
cost. What will be the effect on total stockholders' equity?
a. increase, P100,000 b.increase, P250,000 c. decrease, P100,000 d.decrease, P250,000

40. A corporation has 40,000 shares of P25 par value stock outstanding. If the corporation issues a 4-for-1
stock split, the number of shares outstanding after the split will be
a. 160,000 shares b.40,000 shares c. 120,000 shares d.10,000 shares

41. Helu Corporation was organized on January 1, 2017, with an authorization of 1,000,000 ordinary shares with
a par value of P5 per share.
During 2017, the corporation had the following equity transactions:
Jan. 4 - Issued 200,000 shares @ P5 per share.
April 8 - Issued 100,000 shares @ P7 per share.
June 9 - Issued 30,000 shares @ P10 per share
July 29 - Purchased 50,000 shares @ P4 per share.
Dec. 31 - Sold 50,000 shares held in treasury @ P8 per share.
What should be the total Share Premium as of December 31, 2017?
a. P400,000 b. P500,000 c. P450,000 d. P550,000

42. On December 1, 2018, Gates Corp. received a donation of 2,000 shares of its P5 par value ordinary shares
from a shareholder. On that date, the share’s fair value was P35 per share. The share was originally issued
for P25 per share. By what amount would this donation cause total shareholders’ equity to decrease?
a. P70,000 b. P20,000 c. P50,000 d. P 0

43. On March 1, 2018, Mall Company issued 60,000, P50 par value, ordinary shares and 20,000, P100 par value,
preference shares for a total consideration of P7,500,000. At this date, the ordinary share was selling for
P100 per share and the preference share was selling for P150 per share. What amount of the proceeds
should be allocated to the preference shares?
a. P2,000,000 b. P1,875,000 c. P2,500,000 d. P3,000,000

44. The equity section of Buffett Company revealed the following information on December 31, 2018:

Preference share capital, P100 par P5,000,000

Share premium-preference shares 2,000,000
Ordinary share capital, P50 3,200,000
Share premium-ordinary shares 500,000
Subscribed ordinary share capital 800,000
Retained earnings-appropriated 250,000
Unrealized loss on available for sale
securities 600,000
Subscription receivable-ordinary
shares 400,000
Retained earnings- unappropriated 3,500,000
Treasury shares-ordinary 1,000,000

How much is the contributed capital of Buffett Company as of December 31, 2018?
a. P10,100,000 b. P11,100,000 c. P11,500,000 d. P10,500,000

45. Glas Company revealed the following shareholders’ equity at year-end:

Preference share capital, P100 par 2,300,000

Share premium – P8 805,000
Ordinary share capital, P15 par 5,250,000
Share premium 2,750,000
Subscribed ordinary share capital 500,000
Retained earnings 1,900,000
Note payable 4,000,000
Subscription receivable – ordinary 400,000
How much is the legal capital?
a. 8,050,000 c. 9,950,000
b. 7,650,000 d. 11,605,000
 46. Bronze Company provided the following information at year-end:

Share capital 5,000,000

Subscribed share capital 3,000,000
Subscription receivable 2,000,000
Share premium 1,500,000
Cumulative translation adjustment – debit 500,000
Treasury shares, at cost 700,000
Retained earnings 1,000,000
Cumulative unrealized gain on futures contract
designated as cash flow hedge 600,000

What is the contributed capital at year-end?

a. 9,500,000 c. 8,500,000
b. 7,500,000 d. 6,800,000

47. Munn Company reported the following shareholders equity:

Preference share capital, par value P15 authorized

200,000 shares 2,550,000
Share premium – preference 150,000
Ordinary share capital, no par, P50 stated value,
100,000 shares authorized 3,000,000

In the statement of shareholders equity, what is the number of issued and outstanding shares for each share
capital?
Ordinary Preference
a. 60,000 170,000
b. 60,000 180,000
c. 63,000 170,000
d. 63,000 180,000

48. Ashe Company was organized on January 1, 2018 with authorized share capital of 100,000 shares of P20
par value. During the year, the entity had the following transactions affecting shareholders equity:

January 10 Issued 25,000 shares at P22 a share.

March 25 Issued 1,000 shares for legal services when
the fair value was P24 a share.
September 30 Issued 5,000 shares for a tract of land when
the fair value was P26 a share

What amount should be reported as share premium on December 31, 2018?

a. 84,000 c. 54,000
b. 80,000 d. 50,000

49. At the beginning of the current year, Derr Company approved a two-for-one split of the entity’s share
capital and an increase in authorized shares from 100,000, P20 par value shares to 200,000, P10 par value
shares. The shareholders equity accounts immediately before issuance of the share split shares were as
follows:

Share capital, par value P20, 50,000 shares outstanding 1,000,000

Share premium (P3 per share on issuance) 150,000
Retained earnings 1,350,000

What should be the balance in the share premium and retained earnings accounts immediately after the
share split is effected?
Share premium Retained earnings
a. 0 500,000
b. 150,000 350,000
c. 150,000 1,350,000
d. 1,150,000 350,000

50. At the beginning of current year, Alto Company declared a 1 for 5 reverse share split, when the market
value of share was P100. Prior to the split, the entity had 10,000 shares of P10 par value issued and
outstanding. What is the par value of share after the share split?
a. 10 b. 20 c. 50 d. 2

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 ACCTG 2 EXERCISES - CORPORATION

NAME: __________________________ Section: ________Date: ______ Score_________

1. 11. 21. 31. 41.

2. 12. 22. 32. 42.

3. 13. 23. 33. 43.

4. 14. 24. 34. 44.

5. 15. 25. 35. 45.

6. 16. 26. 36. 46.

7. 17. 27. 37. 47.

8. 18. 28. 38. 48

9. 19. 29 39 49.

10. 20. 30. 40. 50.