Professional Documents
Culture Documents
Accounting For Corporation: Shareholder's Equity and Retained Earnings I. Write T Is The Statement Is Correct, Otherwise Write F
Accounting For Corporation: Shareholder's Equity and Retained Earnings I. Write T Is The Statement Is Correct, Otherwise Write F
Accounting For Corporation: Shareholder's Equity and Retained Earnings I. Write T Is The Statement Is Correct, Otherwise Write F
1. For most companies, the amount and timing of dividend declarations are determined by the
shareholders at their annual meeting.
2. Retained Earnings consist of pool of funds to be distributed to shareholders.
3. Share Dividends increase the proportionate interests of the shareholders because of the increase in
their shareholdings.
4. Liquidating dividend is usually paid when a company is going out of business or reducing its
operation.
5. Retained earnings represent cash readily available for dividends.
6. Dividends in arrears refer to passed preference dividends which must be satisfied before any
dividends may be paid on ordinary shares.
7. The date on a statement of changes in shareholder’s equity is for a period of time rather than for a
specific point of time.
8. Cash dividends are declared by the board of directors with the concurrence of the shareholders of
the corporation.
9. Dividends are expenses since they decrease shareholder’s equity.
10. A person owning stock on the date of record will receive share dividends that have been declared.
11. Retained Earnings represent cash generated from profitable operations that have been retained in
the business.
12. A restriction on retained earnings leaves total retained earnings unchanged.
13. After the declaration of share dividends, the shareholders have a greater proportional interest in
the asset of the corporation than before.
14. A possible reason to restrict retained earnings would be to reserve a certain amount for dividends
on ordinary shares.
15. Dividends on cumulative preference shares do not become a liability of the corporation until they
are declared by the board of directors.
16. The purchase of treasury stocks does not affect shareholder’s equity.
17. A dividend that represents a return to the stockholders of a part of their share capital rather than
distribution out of retained earnings is called a liquidating dividend.
18. A debit balance in he retained earnings account is referred to as a deficit.
19. A share dividend will cause an increase in the total number of shares issued and outstanding.
20. A share dividend will cause a decrease in the total number of shares issued and outstanding.
21. Correction of errors and prior period adjustments both result in either a debit or a credit to
retained earnings.
22. Dividends in arrears are liabilities of the corporation.
23. A share dividend does not affect the total amount of shareholder’s equity.
24. No entry is required on the date of record for a cash dividend.
25. Property dividends are charged to retained earnings at cost or book value of the non-cash assets
distributed.
26. A share dividend is a pro rata distribution of cash to a corporation’s shareholders.
27. Dividends usually cannot be paid on ordinary shares unless the regular dividend has been paid to
preference shareholders.
28. A share split normally increases total shareholder’s equity.
29. Cash dividends payable is closed to retained earnings at the end of the period.
30. The declaration of a cash dividend causes an increase in a corporation’s liabilities at the date of
record.
II. Multiple Choice. Circle the letter of the best answer.
1. If the stock dividend is less than 20%, how much of the retained earnings shall 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
d. Fair Value of the shares on the date of issuance
3. How would retained earnings be affected by the declaration of each of the following?
4. Which of the following company accounts are not affected by the payment of cash dividends?
I. Shareholder’s Equity
II. Total Assets
III. Long Term Liabilities
IV. Retained Earnings
a. I, III and IV
b. I, II and III
c. II, III and IV
d. I, II, III and IV
5. The journal entry to record the declaration of a large share dividend includes
a. A debit to Retained Earnings for the market value of the shares to be distributed
b. A credit to shares distributable for the fair value of the shares to be distributed
c. A credit to share premium for the difference between the fair market value and the part value of
the shares to be distributed
d. A debit to retained earnings for the par value to be distributed
12. Lee Corp. has 700.000 ordinary shares authorized and 300,000 shares outstanding at Dec 31 2016. The
following events occurred during 2016
Jan 31 Declared 10% share dividend
June 30 Purchase 100,000 shares
Aug 1 Reissued 50,000 shares
Nov 30 Declared 2-for-1 split
13. Villar Company had 80,000 ordinary shares outstanding in Jan 2016. The company distributed 15%
share dividend in March and a 10% share dividend in June. After acquiring 10,000 shares of treasury
stock in July, the company split its share 4-for-1 in December. How many ordinary shares are
outstanding as at Dec 31 2016?
a. 451,500 c. 498,000
b. 488,000 d. 364,800
14. On September 30 2016, Grey Company issued 4,000 shares with P100 par value in connection with a
share dividend. The market value per share on the date of declaration was 150. The shareholder’s
equity before issuance of the share dividend was as follows
Share Capital P100 par, 20,000 shares outstanding 2,000,000
Share Premium 3,000,000
Retained Earnings 1,500,000
What is the retained earnings balance immediately after the share dividend?
a. 1,100,000 c. 2,100,000
b. 1,500,000 d. 900,000
15. Sydney Company reported the following capital accounts at year end
Share Capital, par P25 authorized 150,000 shares
55,000 shares issued of which 5000 shares
are in treasury P 1,375,000
Retained Earnings 2,000,000
Treasury shares, at cost 150,000
The share was selling at P 40 at this time. If a 100% stock dividend were declared and that all treasury
shares were issued as stock dividends and the balance form the unissued shares, how much retained
earnings should be capitalized?
a. 1,250,0000 c. 1,275,000
b. 1,800,000 d. 1,125,000
16. The directors of Ontario Company whose P50 par value share capital is currently selling at 60 per share
have decided to issue a stock dividend. The selling price is not expected to be affected by the stock
dividend. The entity which has an authorization for 1,000,000 shares had issued 500,000 shares of
which 100,000 shares are now held as treasury.
In order to capitalize P 2,400,000 of the retained earnings balance, what percentage should be
declared as stock dividends by the directors?
a. 10% c. 6%
b. 8% d. 4%
17. Elvis Company reported the following shareholder’s equity on January 1 2016
Share Capital P5 par, 600,000 shares authorized, 1,000,000
200,000 shares issued & outstanding
Share Premium 6,000,000
Retained Earnings 2,800,000
On January 31 2016 the entity reacquired 10,000 shares at P30 per share to be held as treasury. On
July 1 2016, the entity declared and issued a 30% stock dividend. On Dec. 31 2016, the entity declared
and paid cash dividend of P10 per share. The net income for the current year was 3,000,000. What is
the unappropriated balance of retained earnings on Dec. 31 2016?
a. 2,475,000 c. 2,700,000
b. 3,045,000 d. 2,600,000
18. Bangladesh Co’s financial position reported retained earnings of 150,000. Net income for 2016 was
P85,000 and dividends of P60,000 were declared and paid in 2016. Bangladesh’ accountant discovered
that net income for 2015 had been understated by 25000 due to an error in recording depreciation
expense for 2016. The amount of retained earnings per books as of Dec 31 2016 was..
a. 150,000 c. 125,000
b. 200,000 d. 100,000
20. Solace Co. declared and distributed 10% stock dividend with a fair value of 1,500,000 and par value of
P 1,000,000 and 25% stock dividend with fair value of 4,000,000 and par value of 3,500,000. What is
the aggregate amount should be debited to retained earnings for the stock dividends?
a. 4,500,000 c. 5,000,000
b. 3,500,000 d. 5,500,000
21. The adjusted trial balance of Kalinga Co. on Dec 31 2016 included the following accounts
Share Capital 15,000,000
Share Premium 5,000,000
Treasury Shares at Cost 2,000,000
Actuarial Loss recognized through OCI 1,000,000
RE Unappropriated 6,000,000
RE Appropriated 3,000,000
Revaluation Surplus 4,000,000
Cumulative Translation Adj – Credit 1,500,000
22. Malit Corp. has a total SHE of P 1,000,000 including retained earnings of 190,000. The cash balance is
350,000. The maximum cash dividend the company can declare and pay is.
a. P 1,000,000 c. P350,000
b. P 650,000 d. P 190,000
24. Cox Company was organized on January 1 2013 at which date it issued 100,000 ordinary shares of P10
par value at P15 per share. During the period January 1 2013 through December 31 2014, Cox reported
net income of 450,000 and paid cash dividend of 230,000. On January 10, 2014 Cox purchased 6,000
treasury shares. Cox uses the cost method of accounting for treasury shares.
What is the total shareholder’s equity on December 31 2014?
a. 1,720,000 c. 1,688,000
b. 1,704,000 d. 1,680,000
25. In 2013, Hyatt Company issued P110 per share, 15,000 convertible preference shares of P100 par
value. One preference share may be converted into three ordinary shares of Hyatt’s 25 par value at the
option of the shareholder. On December 31 2014, all the preference shares were converted into
ordinary shares. The market value of the ordinary share at the conversion date was P40
What amount should be credited to ordinary share capital on December 31 2014?
a. 1,125,000 c. 1,650,000
b. 1,500,000 d. 1,800,000
26. Kandong Company began operations o January 1 2015, by issuing at 15 per share one half of the
475000 ordinary shared(P1 par value) that had been authorized for issue. In addition, Kandong has
250,000 6% preference shares (P 5 par value) authorized. During 2015, Kandong reported net income
of P512,500 and declared dividends of P118,750
27. Continuing the illustration from #26, what is the unappropriated retained earnings balance on Dec 31
2016?
a. 638,750 c. 835,750
b. 536,250 d. 566,250
The board of directors resolved to pay a 100% stock dividend on all shares outstanding capitalizing
amounts of retained earnings equal to the par value and the issue price of the preference and ordinary
shares outstanding, respectively, and thereafter to pay a cash dividend of 10% on preference share and
a cash dividend of P10 per ordinary share. What is the shareholder’s equity after effecting the dividend
transactions?
a. 4,090,000 c. 3,820,000
b. 3,810,000 d. 3,955,000
32. On January 1 2015, Coleen Company had 220,000, P5 par value shares outstanding. On June 1 , the
entity acquired 20,000 shares to be held in the treasury. On December 1 when the market price of the
share was P20, the entity declared a 10% share dividend to be issued to shareholders of record on
December 16,2015. What was the impact of the share dividend on retained earnings?
a. 100,000 decrease c. 440,000 decrease
b. 400,000 decrease d. No effect
Dividends on preference share have not been paid since 2012. The preference share has a liquidating
value of P55 and a call price of P58
34. Nova Company has an authorized capital of 10,000 8% cumulative preference shares with P100 par
value and 20,000 ordinary shares with P100 par value. The entity reported the following shareholder’s
equity on December 31,2015:
Cumulative preference share capital 500,000
Ordinary share capital 1,100,000
Share Premium 200,000
Retained Earnings 260,000
Treasury Ordinary shares – 1000 at cost (150,000)
Total SHE 1,910,000
Dividends on preference shares are in arrears for 2014 and 2015
35. Baker Company had 5,000 ordinary shares of P500 par value and 500 preference shares of P 1,000 par
value outstanding. The current market price of the ordinary share is P1,200 and total shareholder’s
equity amounts to P3,600,000. The preference shareholders have a liquidation preference of P1,400
per share and no dividends are in arrears. What is the book value per ordinary share?
a. 510 c. 580
b. 520 d. 818