Answer Key
Bookkeeping
Basic Accounting - Theories
1. Accounting is a service activity and the
function is to provide quantitative information,
primarily financial in nature, about economic
entities, that is intended to be useful in making
economic decision. This definition is given by
a. Accounting Standards Council
b. AICPA Committee on Accounting
Technology
c. American Accounting Association
d. Board of Accountancy
*Accounting is a service activity… -ASC;
Accounting is the art of recording, classifying
and summarizing in a significant manner and in
terms of money, transaction and events which
are in part at least of a financial character and
interpreting the results thereof -AICPA;
Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgment and
decision by users of the information - AAA
2. The overall objective of accounting is
a. To provide the information that the managers
of an entity need to control the operations.
b. To provide information that the creditors can
use in deciding whether to make additional
loans.
c. To measure the periodic income of the entity.
d. To provide quantitative financial information
about an entity that is useful in making
economic decision.
3. RA 9298 is officially known as
a. The Revised Accountancy Act
b. The Revised Accountancy Law
c. The Philippine Accountancy Act of 2004
d. The Accountancy Law of the Philippines,
2007
4. A profession whose members collect and
summarize financial data, and present
information so users may take effective
decisions
a.
b. Accountancy
c. Auditing
d. Taxation
5. The checking of prepared accounts and the
reporting on them
a. Bookkeeping
b. Accountancy
c. Auditing
d. Taxation
6. A mechanical task involving the collection of
basic financial data
a. Bookkeeping
b. Accountancy
c. Auditing
d. Taxation
7. It is the body authorized by law to promulgate
rules and regulations affecting the practice of
accountancy profession in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public
Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
*PICPA is the accredited national professional
organization of CPA; SEC regulates
corporations; DTI regulates partnerships and
sole proprietors
8. It is the accounting standard setting body in
the Philippines at the present time
a. Accounting Standard Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council
9. The singularly unique function performed by
Certified Public Accountants is the attest
function which means that CPAs are primarily
responsible for
a. Preparing financial statements in conformity
with GAAP
b. Certifying the accuracy of financial
statements
c. Expressing an opinion as to the fairness of
financial statements
d. Filing financial statements with the regulatory
authority
10. The preparation and subsequent publication
of highly summarized information
a. Financial Management
b. Financial Accounting
c. Management Accounting
d. Auditing
11. Setting financial objectives, making plans,
obtaining finance, and safeguarding the financial
resources of the entity
a. Financial Management
b. Financial Accounting
c. Management Accounting
d. Auditing
12. Incorporates cost accounting data and adapts
them for management decisions
a. Cost Accounting
b. Financial Accounting
c. Management Accounting
d. Taxation
13. Which of the following terms best describes
financial statements whose basis of accounting
recognizes transactions and other events when
they occur?
a. Accrual basis of accounting
b. Cash basis of accounting
c. Going concern basis of accounting
d. Invoice basis of accounting
*Accrual accounting means income is
recognized when earned regardless of when
received and expense is recognized when
incurred regardless of when paid. Cash basis is
for tax purposes and small businesses. Going
concern is viewing operations as continuing
indefinitely, Invoice basis is where businesses
collect VAT on behalf of revenue on goods or
services they sell and expenses bought.
14. Which of the following basic accounting
assumptions is threatened by severe inflation in
the economy?
a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Periodicity assumption
*Economic entity = separate personality from
owner. Monetary unit = quantifiability and
stability of peso.
15. During the lifetime of an entity, accountants
produce financial statements at arbitrary points
in time in accordance with which basic
accounting concept?
a. Cost and benefit constraint
b. Expense recognition principle
c. Materiality constraint
d. Periodicity assumption
*Periodicity = arbitrary points. Calendar year =
ends on Dec. 31; Business year = not ends on
Dec. 31
16. The adjusting entry for depreciation has the
same effect as the adjusting entry for
a. A prepaid expense
b. An accrued expense
c. An accrued revenue
d. An unearned revenue
17. Which of the following statements is false
regarding adjusting entries?
a. Adjusting entries involve accruals or deferrals
b. Cash is neither debited nor credited as a result
of adjusting entries.
c. Each adjusting entry affects one revenue
account and one expense account.
d. Each adjusting entry affects one statement of
financial position and one income statement
account.
18. The failure to properly record an adjusting
entry to accrue an expense results in
a. Overstatement of expense and an
understatement of asset.
b. Understatement of expense and an
overstatement of asset.
c. Understatement of expense and an
overstatement of liability.
d. Understatement of expense and an
understatement of liability.
*Debit Expense account and Credit Liability
account.
19. The failure to properly record an adjusting
entry to accrue a revenue results in
a. Overstatement of revenue and an
overstatement of asset.
b. Overstatement of revenue and an
overstatement of liability.
c. Understatement of revenue and an
understatement of asset.
d. Understatement of revenue and an
understatement of liability.
*Debit Asset account and Credit Revenue
account
20. A supporting document prepared by a seller
that is used as an evidence of a downward
adjustment in the amount that is due from a
customer is known as:
a. Receiving report
b. Purchase order
c. Credit memorandum
d. Debit memorandum
21. A supporting prepared by a buyer that is
used as an evidence of a downward adjustment
in the amount that is due to the seller is known
as:
a. Receiving report
b. Purchase order
c. Credit memorandum
d. Debit memorandum
22. Which of the following equations best
exemplifies the PROPRIETARY theory of
accounting?
a. Assets = Liabilities + Capital
b. Assets – Liabilities = Capital
c. Assets + Liabilities = Capital
d. Assets – Liabilities – Preferred Equity =
Common Equity
*Choice B is proprietary theory, emphasis is on
proper asset valuation/balance sheet. Choice A is
entity theory, emphasis is on proper income
determination/income statement. Choice C is not
an accounting equation. Choice D is residual
theory.
23. It is a memorandum of agreement made
between IASB and FASB (US) and signed in
Norwalk Connecticut, USA with the goal of
achieving comparability in financial reporting
standards by eliminating or minimizing
differences between IFRS and US GAAP.
a. The Convergence Covenant
b. The IASB-FASB Pact
c. The Norwalk Agreement
d. The Reporting Standard Treaty
*Current events: Update, 5 current events in
CPALE
24. The fundamental qualitative characteristics
are
a. Relevance and faithful representation
b. Relevance, faithful representation and
materiality
c. Relevance and reliability
d. Faithful representation and materiality
*Relevance = influence a decision; Faithful
representation = descriptions and figures match
what really existed and happened.
25. The ingredients of faithful representation are
a. Completeness and neutrality
b. Completeness and free from error
c. Completeness, neutrality and free from error
d. Completeness, neutrality, free from error, and
conservatism
*Completeness = full disclosure; neutrality =
free from bias; free from error = no
errors/omissions
26. The enhancing qualitative characteristics of
financial information are
a. Comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability and
verifiability
d. Comparability, understandability,
verifiability, and timeliness
* VCUT. Verifiability = consensus;
Comparability = comparisons (within –
intracomparability; across entities –
intercomparability); Understandability –
comprehensible; Timeliness – information to be
relevant
27. What is the underlying concept governing
the generally accepted principles pertaining to
recording gain contingencies?
a. Consistency
b. Conservatism
c. Substance over form
d. Materiality
*Consistency = uniform application;
Conservatism/Prudence = in case of doubt,
record loss and don’t record gain; substance over
form = economic substance shall prevail over
legal form; materiality = relative of size and
nature.
28. It is the amount of cash or cash equivalent
that could currently be obtained by selling the
asset in an orderly disposal.
a. Historical cost
b. Current cost
c. Realizable value
d. Present value
*Historical cost = time of acquisition; Current
cost = if same asset was acquired currently;
Realizable value = cash currently obtained if
asset is sold; Present value = discounted value of
future net cash inflows
29. Depreciation, amortization, and allocation of
prepayments are examples of which of the
following principles?
a. Cause and effect association
b. Systematic and rational allocation
c. Immediate recognition
d. Objectivity
*Cause and effect = expense is recognize if the
revenue is already recognized (doubtful
accounts, warranty expense, sales commissions);
systematic and rational allocation = allocating
over period benefited; immediate recognition =
expensed outright (salaries, administrative
expenses. distribution costs, losses)
30. Which of the following is not part of the
inventory of the business?
a. Goods in transit to the customer. Term: F.O.B
Destination
b. Goods in transit from the supplier. Term:
F.O.B Shipping Point
c. Goods that are ready for shipment to the
customer
d. Goods held for sale in behalf of Monte
Company, a consignor
31. Which of the following is not a characteristic
of the periodic inventory system?
a. The trial balance shows the balance of the
inventory at the beginning of the period.
b. Sales are recorded both at cost and at selling
price.
c. A count of the inventory on hand is made
before financial statements are prepared.
d. Ending inventory is adjusted at the end of the
period
32. Which of the following is not a nominal
account?
a. Purchases
b. Sales
c. Inventory
d. Bad debts
33. It is an account device for accumulating
increases and decreases relating to a particular
accounting value such as an asset or a liability.
a. Account
b. Journal
c. Trial balance
d. Worksheet
34. The double-entry concept in accounting
means which of the following?
a. The debit-credit convention must be used.
b. Only two accounts are affected by each
transaction recording.
c. At least two accounts are affected by each
transaction recorded.
d. For every asset increased, a revenue or
liability must also be increased.
*Single-entry only affects one account. Double-
entry concept = simple journal entry (one debit
and one credit) or compound journal entry (two
or more debits and two or more credits)
35. FOB shipping point and freight prepaid
means
a. The seller actually paid the freight charges but
is not responsible for the same.
b. The buyer actually paid the freight charges
but is not responsible for the same.
c. The seller actually paid for the freight charges
and is responsible for the same.
d. The buyer actually paid for the freight charges
and is responsible for the same.
FOB destination or FOB shipping point = who
owns the goods and who is supposed to pay
freight. (FOB destination = seller; FOB shipping
point = buyer) Freight collect or freight prepaid
= freight terms/who actually paid (freight collect
= paid by buyer; freight prepaid = paid by seller)
36. The excess of net sales over cost of goods
sold is called
a. Gross Income
b. Operating Income
c. Net Income
d. Merchandising Income
*Excess of gross income over operating
expenses is operating income. Excess of
operating income over other expenses is net
income.
37. If the term is 2/10; n/60, the length of the
credit period is:
a. 10 days
b. 60 days
c. 2 days
d. 70 days
38. Which of the following is not subject to
reversal?
a. Accrued expenses
b. Accrued revenues
c. Prepaid expenses recorded as assets upon
payments
d. Deferred revenues recorded as revenue upon
receipts
*Prepaid expense recorded under asset method
is not subject to reversing entries but prepaid
expense recorded under expense method may be
reversed.
39. Which of the following statements regarding
reversing entries is incorrect?
a. All accruals should be reversed.
b. Adjusting entries for depreciation and bad
debts are never reversed.
c. Deferrals entered in statement of financial
position accounts make reversing entries
unnecessary.
d. Reversing entries change amounts reported in
the statement of financial position for the
previous period.
40. It is defined as increase in economic
benefits during the accounting period in the form
of inflows or enhancements of assets or
decreases in liabilities that result in increases in
equity, other than those relating to contributions
from equity participants.
a. Gain
b. Income
c. Profit
d. Revenue
*Income = (above); Revenue = arises in the
course of ordinary regular activities such as
sales, fees, interest, dividends, royalites, rent;
Gain = don’t arise in the course of ordinary
regular activities such as gain from disposals,
unrealized gain on trading securities
41. Which of the following is not a characteristic
of the periodic system?
a. Merchandise inventory, beginning is a
nominal account
b. Inventory records are always up-to-date
c. Purchases are recorded by debiting purchases
at cost
d. Cost of goods sold is computed at the end of
the period
42. When the seller advances the transportation
cost and the term of sale are FOB Shipping
Point, the seller records the payment of the
transportation cost by debiting
a. Accounts Receivable
b. Sales
c. Transportation-in
d. Accounts Payable
43. The document used to indicate to the
customer the amount of a sale and due date of
payment is the
a. Sales order
b. Bill of lading
c. Shipping document
d. Sales invoice
*Sales order = confirmation document; Bill of
lading = type of shipping document that contains
shipment list of goods; shipping document =
contains shipping list, shipping date, methods,
specification et al.
44. A business pays bi-weekly salaries of
P20,000 every other Friday for a ten-day period
ending on that day. The adjusting entry
necessary at the end of the fiscal period ending
on the second Wednesday of the pay period
includes a:
a. Debit to Salary Expenses of P8,000
b. Debit to Salary Payable of P8,000
c. Credit to Salary Expense of P16,000
d. Credit to Salary Payable of P16,000
*Debit Salary Expense 16,000 and credit Salary
Payable 16,000 (P20,000/10days=P2,000 per
day; 8days times P2,000= P16,000)
45. It is an error that involves interchanging, or
switching around, digits during the recording of
a number.
a. Slide
b. Transposition
c. Transplacement
d. Arithmetic error
*Slide or transplacement error is error in placing
decimal point in a number; mathematical error is
error in addition or subtraction.
46. If the storekeeper making count of inventory
at the end of the year failed to include P10,000
worth of goods, cost of sales will be:
a. Over by P10,000
b. Under by P10,000
c. Over by P5,000
d. Not Affected
* Beg, Inv + Purchases – End, Inv = COGS
47. The accountant erroneously recorded a credit
sale as a cash sale. Which of the statements is
wrong, assuming that the business uses a
periodic inventory system?
a. The cash balance is overstated.
b. The total of the current assets is understated.
c. Net working capital is not affected
d. The net income is not affected
48. It is a discount given to the buyer for paying
within a specified period of time which is
usually earlier than the credit period.
a. Sales discount
b. Trade discount
c. Purchase discount
d. Discount Period
49. In determining the cost of goods sold,
a. Freight-in is deducted from net purchases
b. Freight-out is added to net purchases
c. Purchase returns and allowances is added to
purchases f. Managing partner
d. Freight-in is added to purchases g. Liquidating partner
*Purchases + Freight-in – Purchase discount – *Nominal partner/ partner by estoppel; secret
Purchase allowances = Net Purchases + Beg, Inv partner = kept from public; ostensible partner =
– End, Inv = COGS active and known to the public whose name is
included in firm name; dormant partner =
50. The present worth of an asset or the amount
inactive and unknown to the public; silent
that would be received if the asset were sold to
partner = no voice in mgt; managing partner =
an outsider on the open market.
manages partnership; liquidating partner = in
a. Realizable value charge of winding up)
b. Carrying value
54. A and B formed a partnership, each
c. Fair market value
contributing non-cash assets into the partnership.
d. Net proceeds
Partner A contributed inventory with a current
market value in excess of its carrying amount.
Partner B contributed fixed asset with a carrying
Partnership & Corporation - Theories amount in excess of its current market value. At
what amount should the partnership record each
51. Which of the following is not a characteristic
of the assets contributed?
of most partnership?
Inventory Fixed Asset
a. Limited liability
b. Limited life a. Carrying amount Market value
c. Mutual agency
d. Ease of formation b. Market value Carrying amount

* In a partnership, each partner is personally and c. Carrying amount Carrying amount

individually liable for all partnership liabilities. d. Market value Market value
In other words, the liability of the partners in a
partnership is unlimited. * Non-cash assets contributed into the
partnership should be recorded at its current fair
52. It is a contract whereby two or more persons value. Hierarchy = agreed value – fair
bind themselves to contribute money, property value/market value/appraised value/sound value
or industry to a common fund with the intention - cost
of dividing the profits among themselves.
55. It is a kind of partnership that operates but
a. Voluntary association fails to fully comply with the legal requirements
b. Corporation for its existence.
c. Sole proprietorship
d. Partnership a. Partnership at Will
b. Partnership for a Fixed Term
53. It is a kind of partner who is actually not a c. Particular Partnership
partner but who may become liable as such to d. Universal Partnership of all Present Property
third persons. e. Universal Partnership of Profits
a. Secret partner f. De Facto Partnership
b. Ostensible partner g. De Jure Partnership
c. Nominal partner/ Partner by estoppel h. Partnership by estoppel
d. Dormant partner * Partnership at will = can be terminated
e. Silent partner anytime; partnership for a fixed term =
completion at specified time; particular
partnership = specific undertaking; universal
partnership of all present property = property
belonging to each partner; universal partnership
of profits = all partners may acquire by their
work or industry; de jure partnership = fully
complying; partnership by estoppel = not in
reality a partnership.
56. A 1:3:2 ratio is the same as
a. 1/6 ½ 1/3
b. 10% 30% 20%
c. 1/10 3/10 2/10
d. 20% 50% 30%
57. The following are the characteristics of
admitting a new partner by purchase of interest
from one or old partners, except:
a. The cash paid by the buyer is not recorded in
the books of the partnership.
b. The gain or loss arising from the sale of
interest is not recorded in the partnership books.
c. There is no increases in total assets and no
increase in total partners’ equity.
d. It is a transaction between the partnership and
the incoming partner.
58. If the partnership agreement does not specify
how profit is to be allocated, profits or losses
should be allocated
a. Equally
b. In accordance with their capital contributions
c. In proportion to the average of capital
invested during the period
d. Equitably so that partners are well
compensated for their time and effort.
* Hierarchy = arbitrary ratio
(fraction/percentage/ratio) – given equally – not
given (US GAAP – equally ; PH GAAP – upon
formation = capital contribution ; subsequent to
formation = beg cap/end cap/ave.. cap
<simple/weighted> )
59. Which of the following is true?
a. Profit ratio may be different from loss ratio.
b. If profit ratio is the only given, loss ratio is
based on profit ratio.
c. If loss ratio is the only given, profit ratio is
based on capital contribution.
d. All of the above.
60. A partnership agreement calls for allocation
of profits and losses by salary allocations, a
bonus allocation, interest on capital, with any
remainder to be allocated by preset ratios. If a
partnership has a loss to allocate, generally
which of the following procedures would be
applied?
a. Any loss would be allocated equally to all
partners.
b. Any salary allocation criteria would not be
used.
c. The loss would be allocated using the profit
and loss ratios, only.
d. The bonus criteria would not be used.
61. Which of the following statements is true
concerning the treatment of salaries in
partnership accounting?
a. The salary of a partner is treated in the same
manner as salaries of corporate employees.
b. Partner salaries are equal to the annual partner
draw.
c. Partner salaries may be used to allocate profits
and losses; they are not considered expenses of
the partnership.
d. Partner salaries are directly closed to the
capital account.
62. In a partnership, interest on capital
investment is accounted for as a(n)
a. return on investment
b. expense
c. reduction of capital
d. allocation of net income
63. Under the Revised Uniform Partnership Act
and in the absence of any partnership agreement
to the contrary, which of the following
statements is correct regarding sharing of losses?
a. The partners will share equally in any
partnership losses.
b. The partners will share in losses on a pro rata
basis according to the capital contributions and
loans made to the partnership.
c. The partners will share in losses according to
the allocation of profits specified in the
partnership agreement.
d. The partners will share in losses on a pro rate
basis according to the capital contributions.
64. Partnership drawings are
a. Equal to partners’ salaries
b. Usually maintained in a separate draw
account with any excess draws being debited
directly to the capital account
c. Not discussed in the specific contract
provisions of the partnership
d. Always maintained in a separate account from
the partner’s capital account.
65. Which of the following is not considered a
legitimate expense of a partnership?
a. Interest paid to partners based on the amount
of invested capital.
b. Depreciation on assets contributed to the
partnership by partners.
c. Salaries for management hired to run the
business.
d. Supplies used in the partners' offices.
* Again, the division of partnership income
should be based on an analysis of the correlation
between capital and labor committed to the firm
by individual partners and the income that
subsequently is generated and therefore includes
interest paid to partners based on the amount of
their invested capital.
66. Which of the following results in dissolution
of a partnership?
a. The contribution of additional assets to the
partnership by an existing partner.
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the
distribution of remaining assets to the partners.
d. The withdrawal of a partner from a
partnership
* Dissolution is the change in the relation od the
partners caused by any partner ceasing to be
associated in the carrying on as distinguished
from the winding up of the business. Generally,
a partnership is dissolved upon the death,
withdrawal, admission, or bankruptcy of an
individual partner (owner).
67. In the Adel-Brick Partnership, Adel and
Brick had a capital ratio of 3:1 and a profit and
loss ratio of 2:1, respectively. The bonus method
was used to record Colter’s admittance as a
partner. What ratio would be used to allocate, to
Adel and Brick, the excess of Colter’s
contribution over the amount credited to Colter’s
capital account?
a. Adel and Brick’s new relative capital ratio.
b. Adel and Brick’s new relative profit and loss
ratio.
c. Adel and Brick’s old profit and loss ratio.
d. Adel and Brick’s old capital ratio.
68. When Mil retired from the partnership of
Mill, Yale, and Lear, the final settlement of
Mill’s interest exceeded Mill’s capital balance.
Under the bonus method, the excess
a. Was recorded as goodwill
b. Was recorded as an expense
c. Had no effect on the capital balances of Yale
and Lear.
d. Reduced the capital balances of Yale and
Lear.
69. The dissolution of partnership occurs
a. Only when a partner leaves the partnership
b. At the end of each year, when income is
allocated to the partners.
c. Only when the partnership sells its assets and
permanently closes its books.
d. Only when a new partner is admitted to the
partnership.
e. When there is any change in the individuals
who make up the partnership.
70. Which partner is considered the most
vulnerable as a result of a computation of
vulnerability rankings?
a. The partner who has the lowest loss
absorption potential.
b. The partner who has the highest loss
absorption potential.
c. The partner with the highest capital balance
d. The partner with the lowest capital balance
71. In a partnership liquidation, the final cash
distribution to the partners should be made in
accordance with the
a. Partners’ profit and loss sharing ratio
b. Balances of the partners’ capital accounts
c. Ratio of capital contributions made by the
partners.
d. Ratio of capital contributions less withdrawals
made by the partners.
72. A schedule prepared each time cash is to be
distributed is called a(n)
a. Advance cash distribution schedule
b. Safe payment schedule
c. Loss absorption potential schedule
d. Marshaling of assets schedule
73. In an advance plan for installment
distributions of cash to partners of a liquidating
partnership, each partner’s loss absorption
potential is computed by
a. Dividing each partner’s capital account
balance by the percentage of that partner’s
capital account balance to total partner’s capital.
b. Multiplying each partner’s capital account
balance by the percentage of that partner’s
capital account balance to total partner’s capital.
c. Dividing the total of each partner’s capital
account less receivables from the partner plus
payables to the partner by the partner’s profit
and loss percentage.
d. Some other method.
74. The following is the priority sequence in
which liquidation proceeds will be distributed
for a partnership:
a. Partnership drawings, partnership liabilities,
partnership loans, partnership capital balances.
b. Partnership liabilities, partnership loans,
partnership capital balances.
c. Partnership liabilities, partnership loans,
partnership drawings, partnership capital
balances.
d. Partnership liabilities, partnership capital
balances, partnership loans.
75. If all partners are included in the first
installment of an installment liquidation, then in
the future installments
a. Cash will be distributed according to the
residual profit and loss sharing ratios
b. Cash should not be distributed until all non-
cash assets are converted into cash
c. Vulnerability rankings for each partner should
be prepared.
d. A cash distribution plan must be prepared so
that partners will know when they will be
included in cash distributions.
76. An arbitrary amount assigned by the board
of directors to each share of a given class of no-
par stock is
a. Par Value
b. Stated Value
c. Redemption Value
d. Liquidation Value
77. An individual shareholder is entitled to
receive any dividends declared on shares owned,
provided the share is held on the
a. Date of Declaration
b. Date of Record
c. Date of Payment
d. Last day of fiscal year
78. Treasury stocks may result in
a. Increase in balance of retained earnings
b. Decrease in balance of retained earnings
c. Decrease in balance of retained earnings
authorized to be issued
d. Decrease in the amount of shares
79. Reissuing treasury stock at a price above
cost results in
a. A gain to be reported as a separate item in the
statement of recognized income and expenses
b. A restriction of retained earnings
c. An increase in Contributed capital
d. A prior period adjustment to be reported in
the statement of retained earnings
80. If share capital is issued for outstanding
liability, the share capital is recorded at
a. Fair value of share capital
b. Fair Value of liability set off
c. Par value of shares
d. Book Value of liability set off
81. 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
82. The entry to record declaration of share
dividends includes
a. Debit to Retained Earnings for the market
value of the shares to be distributed
b. Credit to Shares Distributable to the fair value
of the shares to be distributed
c. A credit to Share Premium for the difference
between fair market value and par value of the
shares to be distributed
d. Debit to retained earnings for the par value of
the shares to be distributed
83. When a par value common stock is
exchanged for an asset such as a building, the
common stock should be credited at the
a. Par Value
b. Fair Value of the asset received
c. Book value of the asset
d. Original cost of the asset
84. The credit balance of income and expense
summary of a corporation is closed to
a. Owner’s Capital
b. Share Capital
c. Paid in Capital
d. Retained Earnings
85. A CPA received shares of stock for services
rendered during incorporation. This should be
a. Debited to accounting fees
b. Debited to Organization cost
c. Debited to Share capital
d. Debited to Treasury Shares
86. Subscription receivable callable within one
year should be presented as
a. Current Asset
b. Non-Current Assets
c. Part of Paid in Capital
d. Deduction from paid in capital
87. Unissued Share Capital is credited to record
a. Authorization
b. Issuance
c. Collection
d. Subscription
88. Discount on share capital
a. May be recorded as either an asset or an
expense
b. Shall be closed to income summary account
c. May be offset against share premium on the
same class.
d. None of the above may be done
89. The par value of an ordinary share represents
a. The liquidation value of the share
b. The book value of the share
c. The legal nominal value assigned to the share
d. The amount received by the entity when the
share was originally issued
90. If the stock dividend is less than 20%, what
amount of the retained earnings should be
capitalized?
a. Par value of the shares
b. Fair value of the shares on the date of
declaration
c. Fair value of the shares on the date of record 96. Loss from sale of treasury shares hall be
d. Fair value of the shares on the date of charged to
issuance
a. Loss on sale of treasury shares to be reported
91. An entity issued what is called a “20% stock as other expense
dividend”. At what amount per share should b. Retained earnings and then share premium
retained earnings be reduced for the transaction? from treasury shares
c. Share premium from treasury shares and then
a. Zero
retained earnings
b. Par value
d. Share premium from original issuance, share
c. Fair value at the declaration
premium from treasury shares and then retained
d. Fair value at the date of issuance
earnings.
92. Which of the following is false?
97. At the date of financial statements, shares
a. The subscription must be at least 25% of the issued would exceed shares outstanding as a
authorized capital stock. result of
b. The amount paid-in must be at least 25% of
a. Declaration of share split
the subscription.
b. Declaration of a stock dividend
c. In no cases the paid-in must be lower than
c. Purchase of treasury shares
P5,000
d. Payment in full of subscribed shares
d. If the shares are without par value, more than
25% of the authorized shares must be subscribed 98. Total shareholders’ equity represents
93. Which of the following would not affect a. A claim against specific assets contributed by
retained earnings? the owners
b. The maximum amount that can be borrowed
a. Conversion of preference shares into ordinary
by the entity
shares
c. A claim against a portion of the total assets of
b. Share split
an entity
c. Reissue of treasury shares
d. Only the amount of retained earnings
d. Stock dividend
99. The preemptive right of an ordinary
94. When shares with par value are sold, the
shareholder is the right to
proceeds shall be credited to
a. Share proportionately in corporate assets upon
a. Share capital account
liquidation
b. Share premium
b. Share proportionately in any new issue of
c. Retained earnings
shares of the same class
d. Share capital account to the extent of the par
c. Receive cash dividends before distribution to
value of the shares issued with any excess being
preference shareholders
reflected in share premium
d. Exclude preference shareholders from voting
95. When shares without par value are sold, the rights
excess proceeds over stated value shall be
100. When the total shareholders’ equity is
credited to
smaller than the amount of contributed capital,
a. Income the deficiency is called
b. Retained earnings
a. A net loss b. A dividend
c. Share premium
c. A liability d. A deficit
d. Share capital