FundamentalsofAccounting,Part2

MultipleChoice:

1.

Whichofthefollowingcomesfirstintheaccountingprocess?

1.
2.
3.
4.
2.

TheclosingentryforRentExpense,withabalanceofP180,000is
a.
b.
c.
d.

3.

P180,000
P180,000
P180,000

P180,000
P180,000
P180,000
P180,000

LimitedPartnership
UnlimitedPartnership
GeneralPartnership
Partnershipatwill

Theallocationofincomebetweenthepartners
Therightsanddutiesofthepartners
Therightsanddutiesofthepartnersintheeventofpartnershipdissolution
Alimitationonapartnersliabilitytocreditors.

PartnerXinvestedintoapartnershipabuildingwithabookvalueofP500,000andafairmarketvalueofP650,000.The
propertywasmortgagedinabankforP200,000whichthepartnershipassumed.PartnerXcapitalinthepartnershipasa
resultofthisinvestmentis:

1.
2.
3.
4.
6.

P180,000

Thepartnershipagreementiscontainedinthearticlesofpartnership,anexpresscontractamongthepartners.Suchan
agreementordinarilydoesnotinclude

1.
2.
3.
4.
5.

RentExpense
IncomeSummary
RentExpense
RentPayable
IncomeSummary
RentExpense
RentPayable
RentExpense

Aformofpartnershipwhereinallthepartnersarepersonallyliableforthepartnershipdebtsis:

1.
2.
3.
4.
4.

Preparationofanunadjustedtrialbalance
Worksheetpreparation
Journalizingexternaltransactionsfromsourcedocuments
Preparationofanadjustedtrialbalance

P300,000
P650,000
P500,000
P450,000

Refertoassumptionsinquestion#5,thejournalentriesinthebooksofthepartnershiptorecordtheinvestmentofPartnerXis:
a.

b.

Building
MortgagePayable
X,Capital

P650,000

Building

P500,000

P200,000
450,000

MortgagePayable
X,Capital
c.

Building

P200,000
300,000
P450,000

X.Capital
d.Building
X.Capital

7.

P450,000
P650,000

P650,000

Partnersmayinvestcashandnoncashassetsinthepartnership.Intheabsenceofanyagreement,thecontributionsofnon
cashassetsarevaluedat:

1.
2.
3.
4.

8.

originalcost
carryingvalue
fairmarketvalue
bookvalue
MarkandJessdecidedtoformapartnershipbyinvestingthefollowingassetsinJuly1,2010:
Cash
Equipment
Building

Mark

75,000
100,000
300,000

Jess
200,000
80,000

ThepartnershipagreedtoassumethemortgageonthebuildingamountingtoP250,000.Whatare
thecapitalbalancesofMarkandJessonJuly1,2010?

1.
2.
3.
4.
9.

P475,000forMarkandP280,000forJess
P400,000forMarkandP80,000forJess
P75,000forMarkandP200,000forJess
P225,000forMarkandP280,000forJess

Theprofitsandlossesshallbedistributedtopartnersinconformitywithagreement.Whichofthefollowingisnota
componentoftheformulatodistributeprofitandlosses:

1.
2.
3.
4.

Interestoncapitalinvestments
Salarytopartnersmanagingthebusiness
Bonustopartnersforachievingthetargetprofit
Interestonloanstopartners.

10. Thepartnershipmustexistforthecommonbenefitorinterestofthepartners.Intheeventthepartnershipincurslosses,
theselossesshallbe:

1.
2.
3.
4.

dividedaccordingtopartnersagreementpreparedpriordistributionoflosses.
distributedtopartnersaccordingtoprofitandlosssharingratio.
sharedevenbypurelyindustrialpartners
dividedtoallpartnersexceptcapitalistpartners

11. Eli,KarlandPaularepartnersinrealestatebusiness.Netprofitfortheyear2010wasP88,000.Paulisanindustrialpartner
whileEliandKarlarecapitalistpartnerswithanaveragecapitalofP30,000andP20,000respectively.Thepartnersagreedto
shareprofitsandlossesasfollows:

1.
2.
3.
4.

Interestof10%onaveragecapitalbalances.
SalariesofP2,000toEli,P1,000toKarlandP3,000toPaul.
Bonusof10%ofnetincomeafterbonustoPaul,themanagingpartner
Balanceistobedividedequally.

Paulbeingapurelyindustrialpartner:

1.
2.

isentitledtosalariesonlydespitepartnershipagreement.
willreceivesalaries,bonusof10%ofnetincomeafterbonusandwillshareinthebalanceinaccordancewithagreement.

3.
4.

willneedtoshareinthelossintheeventthereisaloss,asheisallowedtoshareintheprofitwhenthereisprofit.
willshareinprofitequallywithotherpartnersregardlessofpartnershipagreement.

12. Referringtoproblem#11,thepartnershipprofitofP88,000isdividedasfollows:
1.
2.
3.
4.

Eli,P28,000;Karl,P20,000;andPaul,P30,000
Eli,P28,000;Karl,P26,000;andPaul,P34,000
Eli,P25,000;Karl,P23,000;andPaul,P40,000
Eli,P30,000,Karl,P30,000;andPaul,P28,000

13. Whichofthefollowingisnotthepurposeoffinancialstatements:
1.
2.
3.
4.

Toshowtheresultsofmanagementsstewardshipoftheresourcesentrustedtoit.
Toprovideinformationaboutanentitysassets,liabilitiesandequityandchangesinfinancialposition.
Toprovideinvestorsaboutresultsofoperationscoveringaperiod.
Toreportthebusinessabilitytouseitsresourcesregardlessoftheoutcomeandwithoutconsiderationtotheeffectson
ownerscapital.

14. DongandKongenteredintoapartnershipasatJuly1,2010byinvestingP125,000andP75,000,respectively.Theyagreedto
shareintheprofitsandlossesintheratio40:60.OnDecember31,2010,normalbalanceswereasfollows:
Cash
AccountsReceivable
Equipment
SalesReturns
Purchases
OperatingExpenses

P70,000
67,000
45,000
5,000
196,000
60,000

AccountsPayable
Dong,Capital
Kong,Capital
Dong,Drawing
Kong,Drawing
Sales

P60,000
125,000
75,000
20,000
30,000
233,000

InventoriesonDecember31,2010wereasfollows:Supplies,P2,500;merchandise,P30,000.
PrepaidinsurancewasP950whileaccruedexpenseswereP1,550.Depreciationratewas20%per
year.ThepartnerscapitalbalancesonDecember31,2010,afterclosingtheprofitanddrawing
accounts,were:

1.
2.
3.
4.

Dong,P120,000andKong,P70,000
Dong,P104,760andKong,P44,640
Dong,P100,760andKong,P40,640
Dong,P140,760andKong,P98,600

15. Thepartnershipfinancialstatementthatservesasabasisforevaluatingthepartnershipabilitytogeneratecashtobeutilizedin
operating,investingandfinancingactivitiesofthebusinessis:

1.
2.
3.
4.

StatementofCashFlows
StatementofComprehensiveIncome
StatementofFinancialPosition
StatementofChangesinPartnersEquity

16. Assumethatin2009,thereportednetincomeforLoraandNorawas500,000andthepartnerssharedintheprofitsand
lossesequally.Duringtheyear,thefollowingerrorsincomputingthenetincomewerediscovered:

1.
2.
3.

Depreciationwasunderstatedby50,000
Prepaidexpenseof30,000wasomitted
Accruedexpenseof10,000wasomitted

WhatshouldhavebeenthecorrectednetincomeofthepartnershipLoraandNora?

1.
2.

P410,000
P470,000

3.
4.

P490,000
P450,000

17. Financialstatementsarepreparedusingtheaccrualbasisofaccountingexcept:
1.
2.
3.
4.

BalanceSheet
IncomeStatement
CashFlowStatement
StatementofChangesinPartnersEquity

18. Thestatementofcomprehensiveincomeshallincludethefollowinglineitemsexcept:
1.
2.
3.
4.

Revenue
FinanceCosts
PartnersCapitalandDrawingaccounts
OperatingExpenses

19. Asaminimum,thefaceofthestatementoffinancialpositionshallincludethefollowinglineitemsexcept:
1.
2.
3.
4.

Inventories
Provisions
FinancialLiabilities
ProfitorLoss

20. Whichofthefollowingisanexampleofcashflowsfrominvestingactivities:
1.
2.
3.
4.

Receiptfrominvestmentsbyowners
Receiptfromsaleofpropertyandequipment
Paymenttoownersintheformofwithdrawals
Receiptfromsaleofgoodsandperformanceofservices

21. TheadjustedtrialbalanceofSimonandRichardonDecember31,2010follows:

Cash
AccountsReceivable
MerchandiseInventory
AccruedIncome
PrepaidRent
AccountsPayable
NotesPayable
AccruedExpense
UnearnedRevenue
Simon,Capital
Richard,Capital
Sales
CostofSales
SalariesExpense
RentExpense
InsuranceExpense

Debits
Credits

P37,000
80,000
800,000
75,000
20,000
P50,000
250,000
12,000
25,000
125,000
200.000
2,500,000
1,450,000
450,000
200,000
30,000

UtilitiesExpense
Totals

20,000

P3,162,000
P3,162,000
====================

IfyouprepareastatementofcomprehensiveincomeforSimonandRichardfor2010,whatisthenet
profitasofDecember31?

1.
2.
3.
4.

P1,050,000
P300,000
P350,000
P1,062,000

22. IfpartnersSimonandRichardshareprofitsintheratioof30:70,whatistheshareofSimonintheprofitofthebusinessfor
2010?

1.
2.
3.
4.

P105,000
P245,000
P90,000
P210,000

23. ThepartnershiptotalassetsandtotalliabilitiesatDecember31,2010areasfollow:
a.

2.
3.
4.

Totalassets,P937,000andtotalLiabilities,P300,000
Totalassets,P1,012,000andTotalLiabilities,P337,000
Totalassets,P930,000andTotalLiabilities,P300,000
TotalAssets,P1,010,000andtotalLiabilities,P330,000

24. AssumepartnersSimonandRichardshareintheprofitattherateof30:70andeachonewithdrewP50,000duringtheyear,
whatarethepartnerscapitalbalancesasatDecember31,2010?

1.
2.
3.
4.

Simon,P180,000andRichard,P395,000
Simon,P230,000andRichard,P445,000
Simon,P170,000andRichard,P380.000
Simon,P225,000andRichard,P440,000

25. Thechangeintherelationofthepartnerscausedbyanypartnerceasingtobeassociatedinthecarryingonofthebusinessof
thepartnershipiscalleddissolution.Whichofthefollowingsituationwillresulttothedissolutionofthepartnership?

1.
2.
3.
4.

Thedistributionofthelosstotheexistingpartners.
Thewithdrawalofapartnerfromapartnership.
Thewindingupofthepartnershipaffairsanddistributionofassetstoremainingpartners.
Theinvestmentofadditionalassetstothepartnershipbyexistingpartner.

26. JoannSimpasplanstoinvestP500,000fora20%interestinapartnershipthathascapitalofP2,000,000afteradmitting
Joanasanewpartner.Whichofthefollowingiscorrect?

1.
2.
3.
4.

JoannSimpaswillreceiveabonusofP100,000.
JoannSimpascapitalinthepartnershipisP500,000.
TheoldpartnerswillreceiveabonusofP100,000.
TheoldpartnerscapitalinthebusinesswasP1,600,000beforeadmittingJoannSimpas.

27. Theeffectofthewithdrawalofthepartnertakingassetsmorethanhiscapitalbalanceinthepartnershipis:
1.

Thewithdrawingpartnerwillreceiveabonus.

2.
3.
4.

Theremainingpartner/swillreceiveabonus.
Thepartnershipassetswillremainthesameafterwithdrawal.
Nobonuswillbegiveneithertothewithdrawingorremainingpartner/s.

28. Thedeathofapartnerisoneofthecausesofdissolutionofthepartnership.Whichofthefollowingstatementiscorrectif
thissituationhappens:

1.
2.
3.
4.

Thedeathofthepartnerautomaticallyresultstoliquidationoftheassetsofthepartnership.
Thedeceasedpartnerisconsideredtohaveretiredfromthepartnershipandhisheirsorestatecanexpecttoreceivethe
amountofhisinterestinthebusiness.
Theaccountingproceduretobefollowedisabsolutelydifferentfromthecaseofthewithdrawingpartner.
Ifpaymenttotheestatecannotbemadeimmediately,thebalanceinthecapitalaccountofthedeceasedpartnerwillbe
transferredtotherevenueaccountofthepartnership.

29. PedroSantosowns25%interestinapartnershipthathastotalassetsofP1,000,000andliabilitiesofP200,000duringhis
death.Hisestatedemandsreleaseofhisinterestasnobodyfromhisheirswouldwanttobeassociatedinthepartnership.
Howmuchwouldhisestategetifthepartnershipliquidatestheassetsofthebusiness?

1.
2.
3.
4.

P200,000
P250,000
P200,000plusbonus
P250,000lessbonustootherpartner/s.

30. Incorporationofapartnershipisanothercauseofdissolutionofthepartnership.Whatisnottrueabouttheincorporationofthe
partnership?

1.

Onereasonforincorporationistosecuretheadvantagesfoundinacorporateformoforganizationincludingthe
accumulationofgreateramountofcapital.

2.

Iftherearelessthanfivepartners,thepartnerswillinviteotherpersonstobecomecoincorporatorsfortherehastobe
fivebutnotmorethanten(10)requiredincorporatorsinacorporation.

3.

Whenacharterisgrantedrecognizingacorporation,theassetsandliabilitiesofthepartnershipshallbetransferredtothe
corporationinexchangeforthestocksofthecorporation.

4.

Itisimportantthatthebooksofthepartnershipbeclosedtodeterminethenetincomeorlosstobeallocatedtopartners
beforethetransferofassetstothecorporation.

31. Assume TotalAssets

On
TotalLiabilities
decided
books PartnersEquity
A,Capital
date.
B,Capital

P20,000
20,000

C,Capital
D,Capital
E.Capital

20,000
20,000
20,000

TotalLiabilities&PartnersEquity

A,B,C,DandEarepartnerssharingprofitsandlossesequally.
January1,2011,they
toincorporatethepartnership.The
havealreadybeenclosedonthis
Belowisthebalancesheetof
ABCDEMerchandisingasof
December31,2010:
P130,000
========
P30,000

100,000

P130,000
=========
TheABCDECorporationhasbeenauthorizedtoissue10,000ordinaryshareswithaparvalueofP100each.Thepartners
areissuedatotalof1,000sharesforthenetassets.Theentry toincorporatethepartnershipis:

a.

b.

Liabilities
ReceivablefromABCDECorporation
Assets

P30,000
100,000

Assets

P130,000

P130,000

Liabilities
OrdinaryShares

P30,000
100,000

c.Assets
ABCDECorporation

P130,000

d.ReceivablefromABCDECorporation
Assets

P130,000

P130,000
P130,000

32. Theprocessofwindingupabusinesswhichnormallyconsistsofconversionofnoncashassetsintocash,paymentof
liabilitiesanddistributionofremainingcashtopartnersis:

1.
2.
3.
4.

PartnershipDissolution
TerminationandRealization
Incorporation
PartnershipLiquidation

33. Partnershiplawsprovidethatinthedistributionofcashtocreditorsandpartners,thefirstpriorityinthepaymentis:
1.
2.
3.
4.

Partnersinrespectofcapital
Partnersinrespectofloans
Outsidecreditors
Insidecreditors

34. StanleyandMikearepartnerssharingprofitsandlossesintheratioof60:40.Recentlytheymadesubstantiallossesinthe
businessandasaresulttheydecidedtoliquidate.AssetsweresoldandonlyP324,000wasrealizedtopayforliabilitiesthat
amountedtoP594,000.TheircapitalbalancebeforeliquidationareP414,000forStanleyandP243,000forMike
StanleyispersonallyinsolventafterinvestingcashtopaytheunpaidcreditorsbutMikeissolventandwillingtomake
additionalinvestmentstocoverhisdeficiency.Insettlementtopartners,howmuchcashshouldStanleyreceive?

1.
2.
3.
4.

P127,800
P19,800
P30,600
P126,000

35. Inlumpsumliquidationmethod,allnoncashassetsarerealizedandallliabilitiesaresettledbeforeasinglefinaldistributionis
madetopartners.Whichisnotincludedintheproceduresinlumpsumliquidation?

1.
2.
3.
4.

Realizationofnoncashassetsanddistributionofgainorlossonrealizationtopartnersbasedontheirprofitandloss
ratio.
Paymentofliabilities
Eliminationofpartnerscapitaldeficiencies
Noneoftheabove.

36. AtDecember31,2010,thecapitalbalancesofthepartnersSera,HeraandJoraareP80,000,P50,000andP10,000respectively,
sharingprofitsandlossesintheratioof3:2:1.Thepartnersdecidedtoliquidate,andsoldallnoncashassetsforP74,000cash.

AfterpayingalltheliabilitiesamountingtoP24,000,theystillhaveP50,000cashleftfordistribution.Theshareofthepartners
inthefinalsettlement,assumingJorawillinvestadditionalamounttocoverhisdeficiency,areasfollows:

a.
b.

3.
4.

Sera,P42,000; Hera, P28,000; Jora, P14,000

Sera,P38,000; Hera, P22,000; Jora, P0
Sera,P35,000;Hera,P20,000;Jora,P0
Noneoftheabove

37. Undertheinstallmentmethodofliquidation,realizationofnoncashassetsisaccomplishedoveranextendedperiodoftime.
Whichisincludedintheproceduresfollowedintheinstallmentliquidation:

1.
2.
3.
4.
38.

Realizationofnoncashassetsanddistributionofgainorlossonrealizationbasedonpartnersprofitandlossratio.
Paymentofliquidationexpensesandadjustmentofunrecordedliabilities
Paymentofliabilitiestooutsiders
Alloftheabove

TheassetsandequitiesofMona,TeresaandLinaPartnershipattheendofyearendedDecember31,2010areasfollows:
Assets:
Cash
Noncashassets
LoanstoTeresa

P15,000
130,000
5,000

Equities:
Liabilities
LoanfromLina
Mona,Capital
Teresa,Capital
Lina,Capital

30%
50%
20%

P150,000
=======

P50,000
10,000
45,000
30,000
15,000

P150,000
=======

Thepartnermostvulnerabletopartnershiplossesintheeventofliquidationis:
1. Mona
2. Teresa
3. Lina
4. MonaandLinaequally

39. Whichofthefollowingisnotanattributeofacorporationasaformofbusinessorganization:
1.
2.
3.
4.

Itisanartificialbeingwithpersonalityseparateanddistinctfromitsindividualshareholdersormembers.
Itiscreatedbymereagreementofitsshareholdersandthereforeithaslimitedexistence.
Itiscreatedbyoperationofthelaw.
Ithasthepowers,attributesandpropertiesexpresslyauthorizedbylaworincidenttoitsexistence.

40. Acorporationasabusinessorganizationhasadvantagesanddisadvantages.Whichofthefollowingisanadvantageofa
corporation:

1.
2.
3.
4.

Shareofstockscanbetransferredwithconsentoftheothershareholders.
Thereisgreaterdegreeofgovernmentcontrolandsupervisioninitsoperations.
Itrequiresarelativelyhighcostofformationandoperation.
Shareholdershavelimitedliability.

41. Section3oftheCorporationCodeclassifiedprivatecorporationintostockandnonstockcorporation.Otherclassifications
include:

1.
2.
3.

DomesticandForeignCorporation
CorporationAggregateandCorporationSole
PublicandPrivateCorporation

4.

Alloftheabove

42. Section14oftheCorporationCodeprovidesthatallcorporationsorganizedunderthisCodeshallfilewiththeSecuritiesand
ExchangeCommissionarticlesofincorporationdulysignedandacknowledgedbyallincorporators,containingsubstantially

thefollowingmattersexceptasotherwiseprescribedbythisCodeorbyspeciallaw,exceptthefollowing:

1.
2.
3.
4.

Thenameofthecorporation
Thespecificpurposeorpurposesforwhichthecorporationisformed.
Themannerbywhichprofitsandlossesaresharedamongshareholders.
Theprincipalplaceofbusinessandthetermofexistence.

43. Sharesthatentitletheholdertocertainadvantagesorbenefitsovertheholdersofordinaryshares:
1.
2.
3.
4.

Ordinaryshares
Promotionshares
Preferenceshares
Treasuryshares

44. SimpleCorporationwasorganizedonJanuary1,2011withauthorizedcapitalofP2,000,000dividedinto200,000sharesof
P10parcommonstock.Howmanysharemuchbesubscribedandhowmuchistheminimumamounttobepaid?

1.
2.
3.
4.

50,000shares,P500,000
20,000shares,P200,000
200,000shares,P2,000,000
60,000shares,P600,000

45. Fivepartnersdecidedtoincorporatetheirpartnership.Whichofthefollowingsituationillustratesbesttheminimum
requirementofthelawtocapitalformation?

a.
b.
c.
d.

AuthorizedCapital

SubscribedCapital

PaidinCapital

P100,000
P100,000
P 50,000
P 60,000

P20,000
P25,000
P12,500
P15,000

P5,000
P6,250
P2,125
P5,000

46. Inthebasiccorporateorganizationstructure,whichofthefollowingistheproperofficerentrustedwiththeauthorityto
receiveandkeepthemoneyofthecorporationandtodisbursethemashemaybeauthorized.

1.
2.
3.
4.

ThePresidentoftheCorporation
TheCorporateSecretary
TheChairmanoftheBoard
TheCorporateTreasurer

47. Everyprivatecorporation,stockornonstock,isrequiredtokeepbooksandrecordsatitsprincipaloffice.Whichrecord
containstheminutesofthecorporatemeetingsoftheboardofdirectorsandstockholders:

1.
2.
3.

MinuteBook
SubscriptionBook
StockCertificateBook

4.

Stockandtransferbook

48. Itisthatportionofsharecapitalorpaidincapitalrepresentingamountspaidbyshareholdersinexcessofpar.Itmayresult
fromtransactionsinvolvingtreasurystocks,retirementofshares,donatedcapital,sharedividendsandanyothergainonthe

corporationsownstocktransactions.

1.
2.
3.
4.

Legalcapital
Sharepremiumoradditionalpaidincapital
RetainedEarnings
Authorizedcapital

49. Sharecapitalincludesalltypesofownershipsharesinacorporation.Whenonlyoneclassofshareissued,itmustbe:
1.
2.
3.
4.

TreasuryShare
OrdinaryShare
PromotionShare
PreferenceShare

50. BrightStarCorporationwasincorporatedonJanuary1,2011with100,000preferenceshareswithparvalueofP20and
200,000ordinaryshareswithparvalueof25.00.Whatistheentrytorecordtheissuanceforcashof30%ofordinarysharesat
parand35%ofpreferencesharesatpar?
Debit
P2,200,000.

a.

Cash
Ordinaryshares
Preferenceshares

b.

Ordinaryshares
Preferenceshares
AccountsPayable

P1,500,000
700,000

Ordinaryshares
Preferenceshares
Cash

P1,500,000
700,000

AccountsReceivable
Ordinaryshares
Preferenceshares

P2,100,000

c.

d.

Credit
P1,500,000
700,000

P2,200,000

P2,200,000
P1,500,000
600,000

51. Pleaserefertodataitem#50,suppose,50,000sharesofpreferenceshareswereissuedatP22pershare,whatistheentryto
recordtheissuanceofthepreferencesharesonJanuary2,2011?
a.

Cash

b.

Cash

c.

Preferenceshares
AccountsPayable

P1,100,000

Preferenceshares
SharePremium
Cash

P1,000,000
100,000

d.

Preferenceshares
SharePremium
Preferenceshares

P1,100,000

P1,100,000

P1,000,000
100,000
P1,100,000
P1,100,000

P1,100,000

52. Whichofthefollowingisnotaconsiderationfortheissuanceofshares:a.

Actualcashpaidtothecorporation.

2.
3.
4.

Previouslyincurredindebtednessbythecorporation
Tangibleorintangiblepropertieswithtitlesretainedbytheshareholders
Labororservicesperformedoractuallyrenderedtothecorporation.

53. Therearetwomethodsofaccountingforsharecapitalauthorizationandissuance,namely:thejournalentrymethodandthe
memorandummethod.Thedifferencebetweenthetwomethodslies:

1.
2.
c.

4.

Inthecomputationofthesharepremiumwhenthesharesaresoldatapricehigherthantheparvalue.
Intheentriespertainingtotheauthorizationandissuanceofsharecapital.
Inthecomputationofasharediscountwhenthesharesaresoldatapricelowerthattheparvalue.
Noneoftheabove.

54. AssumeBlueWaterCorporationwasauthorizedtoissue4,000sharesofordinaryshareswithaparvalueofP100persharefor
atotalpriceofP400,000.Inthejournalentrymethodofaccountingforsharecapital,theentrytorecordtheauthorizationfor
theissuanceofsharecapitalis:
a.

UnissuedOrdinaryShares
AuthorizedOrdinaryShares

P400,000

b.

SubscriptionReceivable
SubscribedOrdinaryShares

P400,000

c.

Cash

d.

SubscribedOrdinaryShares
UnissuedOrdinaryShares

SubscriptionReceivable

P400,000

P400,000
P400,000
P400,000

P400,000f
P400,000

55. Treasurystocksaresharesofstockswhichhavebeenissuedandfullypaidfor,butsubsequentlyreacquiredbytheissuing
corporationforthefollowingreasons.Whichisnotthereasonforthetreasurystocktransactions:

1.
2.
3.
4.

Tosupporttheemployeestockcompensationplans
Toimprovethestockmarketpricebydecreasingthesupplyofshares
ToincreasetheparvalueofthesharescoveredbytheTreasurystock
Toavoidtakeoverbyanoutsideparty

56. Treasurystockshouldbeshownonthestatementoffinancialpositionas:
1.
2.
3.
4.

Acurrentasset
Acurrentliability
Aninvestmentasset
Areductionofthecorporationsshareholdersequity

57. TheIncomeSummaryaccountofapartnershipisclosedtopartnersdrawingaccountorpartnerscapitalaccount,whilefora
corporation,IncomeSummaryaccountisclosedto

1.
2.
3.
4.

Capitalstock
AdditionalPaidIncapital
RetainedEarnings
TreasuryStock

58. TreasuryStocksaresharesofstockswhichhavebeenissuedandfullypaidbutsubsequentlyreacquiredbytheissuing
corporationeitherbypurchase,redemption,donationorthroughotherlawfulmeans.Whichisnotthereasonforthe
purchaseoftreasurystocks:

1.
2.
3.
4.

Tosupportemployeestockcompensationplans.
Toincreasetheparvalueoftheordinarysharesaswellasthepreferenceshares.
Toavoidtakeoverbyanoutsideparty.
Toimprovethestockmarketpricebydecreasingthesupplyofshares.

59. Acorporationmayissuesharesinexchangeforlegal,accountingorotherservicessrelatedtotheformationofthe
corporation.Whichofthesecostisnotrelatedtotheformationofthecorporation?

1.
2.
3.
4.

Incorporationfeesandshareissuancefees
Legalfeesforthepreparationofthearticlesofincorporation
Underwritingfeesandcommissionsandcostofunderwritingtheissue
Professionalfeesofaccountanttohandlebooksofaccountswhenthecorporationisalreadyoperational.

60. JetsonCompanyissued50,000sharesofP20parvalueordinarysharesatP24pershare.Ayearafter,JetsonCompany
reacquired10,000sharesofitsownstockatP30pershareinordertoavoidpossiblecorporatetakeoverbyoutsiders.Usingcost
methodofaccountingfortreasurystock,theentrytorecordtheacquisitionis
a.

Cash

b.

TreasuryStock
Cash

P300,000

TreasuryStock
SharePremiumTreasury
Cash

P200,000
100,000

TreasuryStock
SharePremiumTreasury
Cash

P300,000

c.

d.

TreasuryStock

P300,000

P300,000
P300,000

P300,000
P100,000
200,000

61. Contributionsfromshareholdersarerecordedatthefairmarketvalueoftheitemsreceived.Ifthedonationisintheformofthe
sharesofthecorporation,whatparticularaccountiscreditedoncethesharesarereissued?

1.
2.
3.
4.

Ordinaryshareaccount
Treasurystockaccount
Donatedcapitalorsharepremiumaccount
Preferenceshareaccount

62. Thedonatedsharesareessentiallytreasurystockwhichcanbeissuedatanyprice.Thesaleofthesedonatedsharesincreases
assetsandshareholdersequity.Assumethatthe1,000donatedshareswithparvalueofP100werereissuedatP80pershare,the
entrytorecordthereissuanceofthesharesis:
a.

Cash

b.

Cash

DonatedCapital
DonatedCapital

P80,000
P100,000

P80,000
P100,000

c.

Cash

TreasuryStock

P80,000

P80,000

d.TreasuryStock
DonatedCapital

P100,000

P100,000

63. Thedonatedassetincreasesthetotalassetsandshareholdersequityofthecompanybythefairmarketvalueoftheasset
received.Ifthedonatedassetisintheformthecompanysownsharesofstock,thereceiptofthedonated500ordinary
shares,P100parvalue,isrecordedby:

1.
2.
3.
4.

Ajournalentrydebitingassetaccountandcreditingtheshareholdersequityaccount.
AjournalentrydebitingordinaryshareaccountofP50,000andcreditingdonatedcapital,P50,000.
Ajournalentrydebitingtreasurystockaccountandcreditingdonatedcapitalaccount.
AmemorandumentryReceived500ordinarysharesasdonation.

64. Retainedearningsrepresentthecomponentoftheshareholdersequityarisingfromretentionofassetsgeneratedfromthe
profitdirectedactivitiesofthecorporation.Thedistributionofearningstoshareholdersfromtheunrestrictedretained
earningsarecalleddividendswhichcanbeintheformof:

1.
2.
3.
4.

Cash
Properties
Sharesofstock
Alloftheabove

65. Adistributionofincometoshareholdersthatispayableintheformofnoncashassetsiscalledpropertydividends.Property
dividendsarechargedtoretainedearningsat:

1.
2.
3.
4.

Fairmarketvalueoftheassetsdeclaredaspropertydividends.
Costorbookvalueofnoncashassetsdistributed.
Alloftheabove.
Noneoftheabove.

66. Corporationreducestheparorstatedvalueofitssharecapitalandissueadditionalsharestoitsshareholdersthroughthe
practicereferredtoassharesplit.Theparorstatedvaluepersharewilldecreasewiththecorrespondingincreaseinthe
numberofauthorized,issuedandoutstandingshares.Whichisnotthereasonbehindsharesplit:

1.

Toadjustthemarketpriceofthecompanyssharestoalevelwheremoreindividualscanaffordtoinvestinthe
stock.

2.

Toearnthepatronageofshareholdersbyincreasingthenumberofsharesheldwithoutnecessarilyincreasingthe
valueofthestocks.
Tospreadtheshareholderbasebyincreasingthenumberofoutstandingshares.
Tobenefitexistingshareholdersbyallowingthemtotakeadvantageofanimperfectadjustmentfollowingthesplit.

3.
4.

67. Acorporationmayissuebothpreferenceandordinaryshares.Preferencesharesenjoypreferenceastodividendswhichmeans
thatwhentheboardofdirectorsdeclarescashdividends,preferencesharesareentitledtodividendsbeforeordinaryshares
receiveanydistribution.Whichfeatureofthepreferencesharesentitlestheholdersonlytothepaymentofcurrentdividends
only,ifandwhendividendsaredeclared,totheextentofthepreferencerate,beforetheordinaryshareholdersarepaid:

1.
2.
3.
4.

Cumulativeandnonparticipating
Cumulativeandparticipating
Noncumulativeandparticipating
Noncumulativeandnonparticipating

68. UI,apremiereducationalinstitutioninIloiloCity,hasthefollowingselectedaccountsinitsshareholdersequity:
10%PreferenceShares,P500par,authorized5,000shares,
3,000sharesissuedandoutstandingP1,500,000Ordinaryshares,P1,000par,
authorized10,000shares,

5,000sharesissuedandoutstanding
RetainedEarnings

5,000,000
1,000,000

Theboardfailedtodeclaredividendsduringthefirsttwoyearsofoperationsandthecurrent
yearsperformancegavereasontotheboardtodeclaredividendsofP500,000.Whatshouldbe
thedividendspershareifpreferencesharesarenoncumulativeandnonparticipating?

1.
2.
3.
4.

P83forPreferenceShares;P50forOrdinaryShares
P50forPreferenceShares;P83forOrdinaryShares
P50forPreferenceShares;P70forOrdinaryShares
P70forPreferenceShares;P50forOrdinaryShares

69. AcorporationmayberequiredbylawtosetasideaportionoftheretainedearningsforspecifiedpurposesortheBoardof
Directorsmayvoluntarilydesignateaportionofretainedearningsforfuturecontingenciesorotherpurposes.Thisportionofthe
retainedearningssetasideforfuturecontingenciesandnotavailablefordividenddeclarationisrecordedby:

1.
2.
3.
4.

DebittoAppropriatedRetainedEarningsandCredittoRetainedEarnings
DebitRetainedEarningsandCredittoAppropriatedRetainedEarnings
DebitRetainedEarningsandCreditUnappropriatedRetainedEarnings
DebitUnappropriatedRetainedEarningsandCreditAppropriatedRetainedEarnings

70. Aretainedearningsstatementisnormallydividedintotwosections:theAppropriatedsectionandUnappropriatedsection.
WhichofthefollowingitemsisnotincludedintheappropriatedsectionoftheStatementoftheRetainedEarnings:

1.
2.
3.
4.

Beginningbalance
Anyadditionsordeductionsduringtheperiod
Correctionofpriorperioderror
Endingbalance

71. RetainedearningsbalanceofABCCorporationatthebeginningoftheyearisP5,000,000.Duringtheyear,ABDearned
revenuesofP10,000,000andincurredoperatingexpensesofP6,500,000.Alsoduringtheyear,adividendsofP1,000,000
weredeclaredandpaid,leavingthecashbalanceofP800,000forthefollowingyearsoperations.Whatistheyearend
balanceinretainedearningsafterpaymentofdividends?

1.
2.
3.
4.

P800,000
P7,500,000
P6,700,000
P5,000,000

72. Astatementthatshowsthesignificantchangesinshareholdersequityandshouldbereportedintheperiodinwhichthey
occur:

1.
2.
3.
4.

StatementofComprehensiveIncome
StatementofFinancialPosition
StatementofChangesinShareholdersEquity
StatementofChangesinPartnersEquity

73. PerfectLoveCorporationhad500,000ordinarysharesissuedandoutstandingonJanuary1,2010.Duringtheyear,Perfect

Lovetookthefollowingactions:
June30

Declareda3for1sharesplit,whentheirfairmarket
ValueofthesharewasP50pershare

November30 DeclaredaP1persharecashdividend
IfPerfectLovepreparesstatementofchangesinshareholdersequityfor2010,whatamount
shouldPerfectLovereportasdividends?

1.
2.
3.
4.

P500,000
P1,500,000
P300,000
P450,000

74. Bookvaluepershareistheamountthatwouldbepaidoneachshareifthecorporationisliquidated.Whichofthefollowing
statementsisnottrueaboutthebookvaluepershare?

1.

Whenonlyasingleclassofshareisoutstanding,thebookvalueiscomputedbydividingthetotalshareholders
equitybythenumberofshareoutstanding.

2.

Whenbothpreferenceandordinarysharesareoutstanding,ordinaryshareshavethefirstpriorityinthedistributionof
assetsuponcorporateliquidationthanpreferenceshares.
Thepreferencesharehavetherighttoreceiveassetsequaltotheparvalueoralargerstatedliquidationvalueper
share.

3.
4.

Thebookvaluepershareofthepreferenceshareisthesumofitsliquidationvalue,ifapplicable,plusanycurrent
anddividendsinarrearsdividedbythenumberofordinaryshareoutstanding.

75. TheshareholdersequitysectionoftheHolyFamilyCorporationsstatementoffinancialpositionshowsthefollowing:
10%CumulativeNonparticipatingPreferenceshares,P100par,
20,000sharesauthorized,10,000sharesoutstanding
Ordinaryshares,P1,000par,10,000sharesauthorized,
5,000sharesoutstanding
SharePremiumPreference
SharePremiumOrdinary
RetainedEarnings
TotalShareholdersEquity

P1,000,000
5,000,000
50,000
200,000
600,000

P6,850,000
==========

AssumethatpreferencesharehasaliquidationvalueofP120anddividendsareinarrearsfortwoyears.ThePreferencebook
valuepershareis:

1.
2.
3.
4.

P150
P1,500
P100
P1,000

76. Usingthesameinformationin#75,theordinarybookvaluepershareis:
1.
2.
3.
4.

P1,000
P2,000
P1,070
P170

77. Merchandisingandmanufacturingcompaniesearnsrevenuesbysellinggoods.Merchandisingbusinessbuysaproductthatis
readyforresalewhilemanufacturingbusinessbuysrawmaterialsandprocessthemintofinishedgoodsandsellstocustomers.

Themaindifferencebetweenthetwois:

1.
2.

Thewayinventoryisacquiredforresale.
Themannergoodsaredeliveredtocustomersinthemarket.

3.
4.

Themethodofpricingthemerchandise.
Noneoftheabove.

78. Oneoftheessentialelementsofmanufacturingcostsisthemanufacturingoverhead.Thisincludesallmanufacturingcoststhat
cannotbeclassifiedasdirectmaterialsordirectlabor.Whichofthefollowingisnotamajorclassificationsofthiscost:

1.
2.
3.
4.

Indirectmaterialsandsupplies.
Indirectlaborcosts.
Otherindirectmanufacturingcosts.
Noneofabove.

79. Thismanufacturinginventoryaccountgivesthecostofgoodsthatareinthemanufacturingprocessbutarenotyetcompleteat
theendoftheaccountingperiod.Itconsistsofpartlyfinishedproductsattheendofaccountingperiod.

1.
2.
3.
4.

Rawmaterialsinventory
FactorySuppliesinventory
Finishedgoodsinventory
WorkinProcessinventory

80. Thedirectlaboraccountisdebited
1.
2.
3.
4.

WhenrelatedlaborcostsaretransferredintotheWorkinProcessInventoryaccount.
Attheendofthepayrollperiodwhenemployeesarepaid.
Whenanewfactoryemployeebeginswork.
Whenthegoodsmanufacturedarecompleted.

81. InnovationManufacturinghasworkinprocessinventoryof50,000unitsattheendofitsaccountingperiod.Directmaterial
costrelatedtothe50,000unitsisP465,000whiledirectlaborcostisP38,900.Italsohas20,000unitsoffinishedgoods
inventory.Directmaterialappliedtothe20,000unitsisP247,900whiledirectlaborcostisP22,850.
Totalmanufacturingcostsincurredduringtheyearis:
DirectMaterials
DirectLabor
Manufacturingoverhead

P2,540,000
228,600
685,800

Assumemanufacturingoverheadisappliedtotheinventoriesbasedonpercentageofdirectmaterialcosts,howmuchisthe
totalcostofworkinprocessandfinishedgoodsinventory?

1.
2.
3.
4.

P617,900forworkinprocessinventoryandP339,300forfinishedgoodsinventory
P465,000forworkinprocessinventoryandP247,900forfinishedgoodsinventory
P629,450forworkinprocessinventoryandP337,683forfinishedgoodsinventory
P125,550forworkinprocessinventoryandP66,933forfinishedgoodsinventory

82. Usingthesamedataasaboveandassumemanufacturingoverheadisappliedtotheinventoriesbasedonpercentageofdirect
laborcosts,howmuchisthecostofworkinprocessandfinishedgoodsinventory?
a.
b.
c.
d.

WorkinProcessInventory
P629,450
P620,600
P630,000
P120,000

FinishedGoodsInventory
P337,683
P339,300
P340,000
P70,000

83. Thisisoneofmostimportantfinancialstatementsinmanufacturingconcernwhichshowstotalmanufacturingcostsrelatedto
theproductscompletedduringtheperiod.Thisstatementisalsocalledthemanufacturingstatement.

1.

StatementofComprehensiveIncome

2.
3.
4.

StatementofCostofGoodsSold
StatementChangesinFinancialPosition
StatementofCostofGoodsManufactured

84. Inadditiontotheyearendstatementoffinancialpositionandstatementofcomprehensiveincome,themanagementofJaro
IloiloCorporationrequiredtheaccountanttopreparethestatementofcostofgoodsmanufactured.In2010,P361,920ofraw
materialswerepurchased.Operatingcostdataandinventoryaccountbalancesfor2010follow:
DirectLabor(10,430hoursatP9.50perhour
PlantSupervision
IndirectLabor(20,280hoursatP6.25perhour
FactoryInsurance
FactoryUtilities
DepreciationFactoryBuildingandEquipment
Manufacturingsupplies
RepairsandMaintenanceFactory
SellingandAdministrativeExpenses
RawMaterialsInventory,Jan.2010
WorkinProcessInventory,Jan.1,2010
FinishedGoodsInventory,Jan.1,2010
RawMaterialsInventory,Dec.31,2010
WorkinProcessInventory,Dec.31,2010
FinishedGoodsInventory,Dec.31,2010

P99,085
42,500
126,750
8,100
29,220
109,000
9,460
14,980
76,480
26,490
101,640
148,290
24,910
100,400
141,100

Howmuchisthetotalcostofdirectmaterialsusedduringtheyear?

1.
2.
3.
4.

P360,000
P340,000
P388,400
P363,500

85. Howmuchistotalmanufacturingcostfortheyear2010?
1. P802,595
2. P800,000
3. P904,235
4. P803,835
86. Howmuchisthecostofgoodsmanufacturedduringtheyear?
1.
2.
3.
4.

P803,300
P803,835
P811,025
P810,000

87. Howmuchisthetotalcostofgoodssold?
1.
2.
3.
4.

P800,000
P805,000
P811,025
P810,000

88. Theworksheetformanufacturingcompanyisbasicallythesameasthatforamerchandisingcompanyexcept:

1.
2.
3.

Beginningfinishedgoodsinventorybeingacomponentofcostofgoodssoldisextendedtothedebitsideofthe
incomestatementcolumnswhiletheendingfinishedgoodsinventorytothecreditcolumn.
Thattheworksheetformanufacturingcompanyincludesapairofcolumnsforcostofgoodsmanufactured.
Allnominalaccountsareextendedtotheincomestatementcolumnsoftheworksheet.

4.

Allrealaccountsareextendedtothebalancesheetcolumnsoftheworksheet.

89. Oneofthemostsignificantitemsinthebalancesheetiscash.Tomeasureliquidityofthebusiness,thereisaneedto
comparetheamountofcashwithotherfinancialstatementdata.
Thistypeofanalysiscomparesanitemorfinancialrelationshipwithinacompanyinthecurrentyearwiththesameitemor
relationshipinoneormoreprioryears:

1.
2.
3.
4.

Industryaverages
Intercompanybasis
Intracompanybasis
Noneoftheabove

90. Varioustoolsareusedtoevaluatethesignificanceoffinancialstatementdata.Whichtechniqueevaluatesfinancialstatement
datathatexpresseseachiteminafinancialstatementintermsofapercentofthebaseamount?

1.
2.
3.
4.

Horizontalanalysis
Ratioanalysis
Verticalanalysis
Noneoftheabove

91. Thistypeofratioanalysismeasuresthecompanysabilitytocollectfromcreditsales.Itindicatesthenumberoftimesthat
theaveragebalanceofaccountsreceivableiscollectedduringtheperiod.

1.
2.
3.
4.

Averageageofreceivable
AccountReceivableTurnover
Quickratio
Acidtestratio

92. Thistoolmeasurestherelationshipbetweenprofitandordinaryshareholdersinvestmentinthecompany.Thisratemaybe
higherorlowerthanthereturnontotalassets,dependingonhowjudiciouslymanagementhascombineddebtandpreference
sharewithordinaryshareinfinancingthecompanysresources.

1.
2.
3.
4.

PriceEarningsRatio
Returnontotalassets
ReturnonOrdinaryEquity
DebttoTotalAssetsRatio

93. ThefollowinginformationwastakenfromthebooksofCrestMerchandisingfortheyearendingDecember31,2010:
Cash
MarketableSecurities
AccountsReceivable:
January1
December31
MerchandiseInventory:
January1
December31
CurrentLiabilities

P130,000
60,000
156,000
214,000
252,000
186,000
240,000

CostofGoodsSold
CreditSales

3,000,000
5,000,000

Thefirmscreditorsareconstantlymonitoringtheliquiditypositionofthebusinesstoensurethat

obligationsarepaidastheymature.Usingtheaboveinformation,whatisthefirmsworking
capitalthatisnecessarytofinancethefirmscashconversioncycle?

1.
2.
3.
4.

P250,000
P358,000
P360,000
P350,000

94. Anotherimportanttoolthattellswhetherthefirmcouldpayallitscurrentobligationsevenifnoneoftheinventoriesissoldis
thequickratio.Usingaboveinformation,whatisthefirmsquickratioin2010?

1.
2.
3.
4.

70%
1.68
0.60:1
Noneoftheabove

95. Thisisameasureofthenumberoftimesthefirmholdsitaveragelevelofinventoryduringtheperiodandahighrateof

turnoverindicatesrelativeeaseinsellinginventory.Usingtheaboveinformationinproblem#93,whatistheInventory
turnoverfortheyear2010?

1.
2.
3.
4.

13.70times
10times
14.2times
10.5times

96. Anothertoolthatprovidesaroughapproximationoftheaveragetimesittakesthefirmtocollectreceivablesistheaverage
ageofreceivables.Stillusingthesameinformationasabove,howlongdoesittakeforthefirmtocollectitreceivables?

1.
2.
3.
4.

Approximately10days
Averageof16days
Averageof13to14days
Notlessthan20days

97. JuandelaCruz,theaccountant,isanalyzingtheearningsperformanceoftheMeganTransportCorporation.Hehasgatheredthe
followingdatafromMeganfinancialstatementsandfromareportoftheclosingmarketpricesofshares:
Profitfor2010
Preferencedividendsdeclaredin2010
OrdinarydividendsdeclaredDecember31,2010
NumberofMeganordinarysharesoutstanding:
January1,2010
December31,2010
MarketpriceperordinaryshareonDecember31,2010

P743,000
60,000
620,000
1,100,000shares
1,300,000shares
P15

Becauseofthereportedprofitin2010,theOrdinaryshareholdersbelievedtheyshouldbewellcompensatedfortheir
investmentinthetransportbusiness,thus,promptingtheAccountanttocomputeforthebasicearningsperordinaryshare.
Consideringthedatagatheredabove,whatshouldbetheBEPSasdemandedbytheordinaryshareholders?

1.
2.
3.

P0.46
P0.57
P1.00

d.P0

98. Anotherinvestorwantstomeasurehowvaluablehisinvestmentinthetransportbusiness.Hebelievesthatmaintaininghis
investmentinthetransportfirmwouldeventuallyprovidehimbetteryieldinthefuturethusheisevenwillingtopayhigh
priceforagivencorporateearnings.WhatisthePriceEarningsRatioinDecember31,2010incaseaninvestorwouldaskfor
it?

1.
2.
3.
4.

P25.00
P20.00
P26.31
P28.32

99. Dividendyieldistheratioofdividendspersharetothesharesmarketprice.Thisratiomeasuresthepercentageofamarket
valuethatisreturnedannuallyasdividends.Thisindicationofthecashpayoutrateonaninvestmentallowsashareholdersand
potentialshareholderstocompareinterestratesoncertificatesofdeposit,corporatebonds,andothersecuritieswiththis
measureofreturnonordinaryshare.Usingaboveinformation,whatisthedividendyieldonMeganTransportfor2010?

1.
2.
3.
4.

3.18%
3.00%
2.50%
3.50%

100.

Anotherratioofprofitabilitymeasuresthepercentageofthefirmsassetsfinancedbyshareholders.Thehigherthis
ratio,thesmallertheriskthatthecompanywillbeunabletomeetitsobligationswhendue.Thisratioisknownas:

1.
2.
3.
4.

Priceearningsratio
EquityRatio
Debttototalassetsratio
Returnontotalassets

ANSWERSKEY
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.

C
C
C
C
D
A
C
D
D
B
B
B
D
B
A
B
C
C
D
B
C
A
B
A
B

26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

C
A
B
A
B
B
D
C
B
D
C
D
B
B
D
D
C
C
A
B
D
A
B
B
D

51. A
52. C
53. D
54. A
55. C
56. D
57. C
58. B
59. D
60. B
61. C
62. A
63. D
64. D
65. B
66. B
67. D
68. C
69. B
70. C
71. B
72. C
73. B
74. B
75. A

76. C
77. A
78. D
79. D
80. A
81. C
82. B
83. D
84. D
85. A
86. B
87. C
88. B
89. C
90. C
91. A
92. C
93. D
94. B
95. A
96. C
97. B
98. C
99. A
100.B