College of Accounting Education

3/F F. Facundo Hall, B & E Bldg.

Matina, Davao City Philippines
Phone No.: (082) 305-0645

BRIDGING INSTRUCTION PROGRAM

ACC 221
Week 4-5
1. Which is incorrect concerning retained earnings?
a. Appropriated retained earnings shall be clearly distinguished from unappropriated retained
earnings.
b. A deficit is a debit balance in retained earnings.
c. A deficit in retained earnings shall be presented as an asset.
d. When the deficit exceeds the total of the other capital account balances, the excess is a
capital deficiency.
2. A restriction of retained earnings is most likely to be required by the
a. Exhaustion of potential benefits of the investment credit
b. Purchases of treasury shares
c. Payment of last maturing series of a serial bond issue
d. Amortization of past service cost
3. Which of the following would not affect the retained earnings balance?
a. Conversion of preference shares into ordinary shares.
b. Share split
c. Reissue of treasury shares
d. Stock dividend
4. Treasury shares may be issued as dividends, in which case what amount should be charged to
a. Cost of the treasury shares
b. Par value of the treasury shares
c. Fair value of the treasury shares on the date of declaration
d. Fair value of the treasury share on the date of issuance
5. When a dividend is declared and paid in stock
a. Total shareholder’s equity does not change.
b. Total shareholder’s equity decreases.
c. The current ratio increases.
d. The amount of working capital decreases.
6. If the stock dividend is less than 20%, how much 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
d. Fair value of the shares on the date of issuance
7. An entity declared a cash dividend on its share capital in December of the current year, payable in
January next year. Retained earnings would
a. Increase on the date of declaration
b. Not be affected on the date of declaration
c. Not be affected on the date of payment
d. Decrease on the date of payment
8. Nairobi Company issued 200,000 shares of P5 par value at P10 per share. The following transactions
are made during the year:
i. On January 1, 2021, Nairobi’s retained earnings amounted to P3,000,000.
ii. In March 2021, Nairobi reacquired 50,000 treasury shares at P20 per share.
 College of Accounting Education
3/F F. Facundo Hall, B & E Bldg.
Matina, Davao City Philippines
Phone No.: (082) 305-0645

iii. In June 2021, Nairobi sold 10,000 of these shares to its corporate officers for P25
per share.
Nairobi used the cost method to record treasury shares. Net income for the year ended December
31, 2021 was P600,000.
On December 31, 2021, what amount should Nairobi report as unappropriated retained earnings?
a. P3,600,000
b. P3,650,000
c. P3,750,000
d. P2,800,000
9. On May 1 of the current year, Tokyo Company’s Board of Directors declared a 10% stock dividend.
The market price of Tokyo’s 30,000 outstanding shares of P20 par value was P90 per share on the
date. The stock dividend was distributed on July 1, when the market price was P100 per share. What
amount should Tokyo credit to share premium for this stock dividend?
a. P210,000
b. P240,000
c. P270,000
d. P300,000
10. On September 30 of the current year, Grey Company issued 4,000 ordinary shares of P100 par value
in connection with a stock dividend. The market value per share on the date of declaration was
P150. Grey’s shareholder’s equity accounts immediately before issuance of the stock dividend share
were as follows:
Ordinary share capital P100 par, 50,000 shares
authorized, 20,000 shares outstanding P2,000,000
Share Premium P3,000,000
Retained Earnings P1,500,000

What should be the retained earnings balance immediately after the stock dividend?
a. P1,100,000
b. P1,500,000
c. P2,100,000
d. P900,000