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Answers To FAR 2 Final Examination
Answers To FAR 2 Final Examination
The acquisition of treasury shares will reduce the unrestricted earnings of the
corporation.
17. When a partnership is liquidated, all of the following may occur, except
a. a partner erases his deficiency by contributing cash
b. a partner erases his deficiency by contributing non cash asset
c. a partner erases his deficiency by declaring bankruptcy
d. the other partners absorb a partner’s deficiency
20. The retained earnings would be debited for the following transactions, except
a. a 2 for 1 split c. a 70% share capital dividend
b. a 5% share capital dividend d. an appropriation of retained earnings
contingencies
21. The ownership of share capital entitles ordinary shareholders to all of the following rights
except
a. voting right
b. right to receive a proportionate share of assets in corporate liquidation
c. right to receive guaranteed dividends
d. pre-emptive right
22. At the date of the financial statements, ordinary shares issued would exceed ordinary
shares
outstanding as a result of the
a. declaration of share split c. purchase of treasury shares
b. declaration of share capital dividend d. payment in full of subscribed shares
23. Select the statement that is correct concerning the appropriations of retained earnings
a. appropriations of retained earnings do not change the total shareholders’ equity
b. appropriations of retained earnings cannot reflect funds set aside for a designated
purpose, such as plant expansion
c. appropriations of retained earnings cannot be made as a result of contractual
requirements
d. appropriations of retained earnings can be made at the discretion of the board of
trustees
24. The total shareholders’ equity after the declaration of share capital dividend
a. is less than the total shareholders’ equity before the declaration
b. may be more than or less than the total shareholders’ equity before the declaration
depending
on whether the share capital dividend declared is small or large
c. is the same as the total shareholders’ equity before the declaration
d. is greater than the total shareholders’ equity before the declaration
25. When the total shareholders’ equity is smaller than the amount of contributed capital, then
there is
a. a net loss b. a deficit c. a liability d. a dividend
26. Assuming that the issuing corporation has only one class of share of capital, a transfer from
retained earnings equal to the market value of the shares issued is ordinarily a characteristic of
a. share split c. small share capital dividend
b. large share capital dividend d. donated shares
27. On June 1, authorized ordinary share capital was sold on a subscription basis at a price in
excess of par value, and 40% of the subscription price was collected. On October 1, the
remaining 60% of the subscription price was collected. Paid In Capital in excess of Par account
will credited on
June 1 October 1
a. Yes No
b. No No
c. Yes Yes
d. No Yes
28. When a corporation buys its own ordinary shares to hold as treasury shares
a. a gain or loss is recorded when the shares are reissued
b. the balance in Ordinary Share Capital account remains unchanged
c. there is a new asset account on the statement of financial position, Treasury Shares,
equal to the number of shares reacquired multiplied by the cost per share
d. all of the above statements are correct
31. Cute desires to invest P 200,000 for a ¼ capital and profit and loss interest in the
partnership of Beauty and Handsome, who at that time had capital balances of P
200,000 and P 300,000, respectively. Profit and loss ratio of the partners before the
admission was 6:4. If a positive asset revaluation is to be recorded, capital balances of
Cute, Beauty and handsome would be: Cute – P200,000; Beauty – P260,000; and
Handsome – P340,000
32. Jack and Poy are partners with capital balances, and profit and loss ratio as follows:
The partners decided to liquidate the partnership. The firm’s liabilities amount to P
36,000, including P 4,000 owing to Jack and P 3,500 owing to Poy on loans. After
realization of assets, the cash on hand amounts to P 37,500. How much is the total loss
on realization?
P38,500
33. Refer to data in no. 32, in the settlement to partners, how much did Jack receive?
P5,400
34. Clinton and Obama are partners who share profits equally and losses in a 2:1 ratio. If
they have beginning capiital balances of P 120,000 and P 118,000, respectively, made
no additional investments nor withdrawals, and suffered an unprofitable year with a loss
of P 48,000, their ending capital balances will be Clinton – P88,000 and Obama –
P102,000
35. Lakers, Celtics and Knicks are partners who share profits and losses in the ratio of 2:3:5.
The partners have decided to liquidate the partnership. Their capital accounts show the
following balances: Lakers – P 60,000 credit; Celtics – P 90,000 credit; Knicks – P
30,000 debit. What is the amount of cash available for distribution? P120,000
36. Partners John and George who have been dividing profits and losses in the ratio of 3:2,
respectively, decided to liquidate their partnership. Capital balances before liquidation
were: John – P 40,000; and George – P 30,000. After paying in full liabilities of P 30,000,
they have P 49,000 cash to divide. Loss on realization was: P21,000
37. Jag, Lee and Bench decided to dissolve and liquidate their partnership on August 31,
2020. They have been dividing profits and losses in the ratio of 40%; 30%; 30%,
respectively and their capital balances as of January 1, 2020 were as follows: Jag – P
75,000; Lee – P 90,000; and Bench – P 30,000. The operations of the partnership for the
period January 1, 2020 to August 31, 2020 resulted to a profit of P 66,000. As of August
31, 2020, cash balance is P 60,000 and the liabilities are P 135,000. For Jag to receive
P 60,000 in final settlement of his equity, the non-cash assets must be sold for P232,500
38. On June 1, 2020, Golden Warriors Corporation declared a share capital dividend
entitling its shareholders to one additional share for each share held. At the time the
dividend was declared, the market value was P 100 per share and the par value was P
50 per share. On this date, Golden had 65,000 shares issued and 5,000 shares in the
treasury. What entry should Golden make to record this June 1 transaction?
39. The accounts below appear in the December 31, 2020 trial balance of Spurs
Corporation:
In its December 31, 2020, Statement of Financial Position, Spurs should report total
Shareholders’ Equity at P4,900,000
40. Miami Heat Inc. began operations in January 2018, and reported the following results for
each of its three years of operations. 2018 net loss-P 300,000; 2019 net loss-P 30,000;
2020 Profit-P 3,950,000 At December 31, 2020, the company’s capital accounts were as
follows:
41. Refer to data in no. 40, What is the book value per share of the ordinary shares on
December 31, 2020? P13.40
42. Portland Blazers Corporation has 2,000 shares of P 200 par value, 8% cumulative, non-
participating preference share capital outstanding. Last year, the corporation paid a total
of P 8,000 in dividends and this year, it declared and paid a total of P 96,000 in
dividends. What are the amounts of dividends paid on both the preference shares and
ordinary shares, respectively? Preference Share – P56,000 and Ordinary Share –
P40,000
43. On December 1, 2020, Bobcat Corporation received a donation of 2,000 shares with P
50 par value from a shareholder. On that date, the share market value was P 350. The
shares were originally issued for P 250 per share. By what amount would this donation
cause shareholder’s equity to decrease? P0
44. If 350 shares of Preference Shares were retired at P 125/share, how much will be
credited to the Retained Earnings account? P5,250
45. If 500 shares of Preference Shares were converted into Ordinary Shares at a rate of four
shares for every share of Preference Share, the amount to be credited to Ordinary Share
Capital account will be P40,000
46. On December 31, 2020 and 2019, Bucks Corporation had 105,000 Ordinary Shares
issued, 5,000 shares in the treasury, 10,000 shares subscribed and 10,000 cumulative
Preference Shares of 5%, P 100 par value. No dividends were declared in 2020 and
2019. Profit for the current year was P 900,000. What amount should be reported as
basic earnings per share? P8.5
Atlanta uses the cost method of accounting for Treasury Shares and during 2020,
recorded the following transactions:
The Ordinary Shares were originally issued at P 22 per share. Assuming no other equity
transactions occurred during 2020, what should Atlanta Hawks Corporation report at
December 31, 2020 as Total Additional Paid In Capital: P244,400
48. Refer to data in number 47 and assuming that the profit for the year 2020 amounted to P
500,000, how much is the balance of the Retained Earnings Unappropriated account on
December 31, 2020? P2,037,200
49. Boston Celtics Corporation issued 100,000 Ordinary Shares. Of these, 5,000 shares
were held as Treasury at January 1, 2020. During 2020, transactions were as follows:
On December 31, 2020, how many shares were issued and outstanding?
Issued P220,000 Outstanding P212,000
The following accounts were found in the ledger of Chicago Bulls Corporation as of
December 31, 2020:
54. On January 22, 2020, Guess Corporation split its share capital 2-for-5 when the market
value was P 65 per share. Prior to the split, Guess had 200,000 shares of P 15 par
Ordinary Share Capital. What is the value of each share after the split? P37.50
55. On August 1, 2020, Kobe Corporation received subscription for 7,000 shares of Ordinary
Share Capital, P100 par value, at P 110 per share. Received 10% down payment and
the balance payable in 3 equal installments. The entry to record the subscription default
assuming 1,500 shares out of 7,000 were unable to pay the last installment will be
56. The following were taken from the accounts of Lebron Corporation at year end.
57. Cartier Corporation was organized on January 1, 2020 with authorized capital of P
500,000 Ordinary Shares, P 25 par value. Subsequently, incorporators subscribed for
the Securities and Exchange Commission’s required number of shares for incorporation
at P 30 per share. How much must be paid up upon subscription to comply with the
requirement of the Securities and Exchange Commission? P937,500
61. Wade and Curry who share profits and losses in the ration of 3:7 are partners with
capital balances of P 40,000 and P 60,000, respectively. Anthony is to be admitted into
the partnership for 20% interest in the capital of the firm. If assets are revalued and the
capital balances of Wade and Curry after recording the admission of Anthony are P
52,000 and P 88,000, respectively, the cash paid by Anthony is P35,000
62. Pierce, Allen and Rondo are partners with capital balances of P 80,000, P 120,000 and
P 160,000, respectively. They share profits and losses in the ration of 30:40:30. Allen
decides to withdraw from the partnership. Allen receives P 160,000 in settlement of his
interest. If the bonus method is used, what is the capital balance of Rondo immediately
after the retirement of Allen? P140,000
63. Hip and Hop entered into a partnership on July 1, 2020 by investing the following assets:
HIP HOP
Cash P 30,000 –
Merchandise Inventory - P 90,000
Equipment - 160,000
Fixtures 200,000 –
The agreement between Hip and Hop provides that profits and losses are to be divided
into 40% to Hip and 60% to Hop, and that the partnership is to assume a liability on the
Equipment of P 60,000. The partnership further agreed that Hop is to receive a capital
credit equal to her profit and loss ratio. How much cash is to be invested by Hop?
P155,000
64. Mickey, Goofy and Donald decided to liquidate their partnership. Non-cash assets were
sold and all the creditors were paid. Profit and loss sharing ratios were: 20%, 30% and
50% respectively. Balances in each capital account before and after the sale follow:
MICKEY GOOFY DONALD
Before the sale P 35,000 P 5,000 P 45,000
After the sale 25,000 (10,000) 20,000
How much is the share of Goofy in the total loss on realization? P15,000
65. Refer to data in number 64, if the non-cash assets were sold for P 225,000, how much is
the book value of the non-cash assets? P275,000
32. 40,000
36,000
76,000
(37,500)
38,500
36. 40,000
30,000
30,000
100,000
(49,000)
51,000
(30,000)
21,000
37. Jag (40) Lee (30) Bench (30) Total
75,000 90,000 30,000 195,000
26,400 19,800 19,800 66,000
101,400 109,800 49,800 261,000
(41,400) (31,050) (31,050) (103,500)
60,000 78,750 18,750 157,500
261,000
135,000
396,000
(60,000)
336,000
(103,500)
232,500
45.
500 Preference Shares x 4= 2,000
Par value of Ordinary Share (100,000 / 5,000 sh) P20
40,000
47. 240,000
6,000
(1,600)
244,400
48. 1,540,000
500,000
2,040,000
(2,800)
2,037,200
53. 85,000
56,000
5,000
146,000
54
. P15 x 5/2 = P37.5
56. 300,000
(90,000)
(25,000)
185,000
57. 500,000
x 25%
125,000
x P30
3,750,000
x 25%
937,500
60. 6,600,000
1,400,000
500,000
(700,000)
7,800,000
/ 1,200,000
P6.5
61. 52,000
88,000
140,000
/ 80%
175,000
x 20%
35,000
230,000
/ 40%
575,000
x 60%
345,000
(190,000)
155,000
65 15,000
/ 30%
50,000
225,000
275,000