QUIZ 1

1. Shares that have a fixed per-share amount printed on the share certificate are called
a. Stated value shares
b. Fixed value shares
c. Uniform value shares
d. Par value shares
2. Treasury shares are
a. Shares held as an investment by the treasurer of the corporation.
b. Shares held as an investment of the corporation.
c. Issued and outstanding shares.
d. Issued but not outstanding shares.
3. Share warrants outstanding account shall be reported as
a. Liability
b. Reduction of share premium
c. Share capital
d. Share premium
4. In accounting for shareholders’ equity, the accountant is primarily concerned with which of the
following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders equity
d. Making sure that the directors do not declare dividends in excess of retained earnings.
5. Contributed capital does not include
a. Share premium on ordinary and preference shares
b. Preference share capital
c. Capital resulting from reissuance of treasury shares
d. Capital accumulated by retention of earnings
6. Discount on share capital
a. May be recorded as either an asset or an expense
b. Should be closed to income summary account
c. May be offset against share premium on the same class of share capital
d. None of the above may be done
7. When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency
is called
a. A net loss
b. A dividend
c. A liability
d. A deficit
8. Earnings per shares should be calculated before accounting by which of the following?
a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest
9. If the bonus issue occurs between the year-end and the date that the financial statements are
authorized for issue
a. The EPS for both the current and the previous year are adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made at the EPS
d. Diluted EPS only is adjusted
10. If a new issue of share for cash is made between the year-end and the date that the financial
statements are authorized for issue
a. The EPS for both the current and the previous year are adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made at the EPS
 d. Diluted EPS only is adjusted

Negros Company was incorporated on January 1, 2017 with the following authorized capitalization:
Ordinary share capital, 200,000 shares, no par,
P100 stated value 20,000,000
Preference share capital, 200,000 shares, 10% fixed
rate, P50 par value 10,000,000

During 2017, the entity issued 150,000 ordinary shares for a total of P18,000,000 and 50,000 preference
shares at P60 per share. In addition, on December 15, 2017, subscriptions for 20,000 preference shares
were taken at a purchase price of P100, These subscribed shares were paid for January 15, 2018. Net
income for 2017 was P5,000,000.
11. What amount should be reported as a total contributed capital on December 31, 2017?
a. 28,000,000
b. 21,000,000
c. 23,000,000
d. 26,000,000

Solution 2 Answer c

Ordinary share capital – 150,000 shares 18,000,000

Preference share capital -50,000 shares x 60 3,000,000
Subscribed preference share capital – 20,000 x 100 2,000,000
Total contributed capital 23,000,000

Observer that the subscribed preference share capital is already included in contributed capital because
the subscription receivable is collected within one year.

Otherwise, the subscription receivable is deducted from subscribed share capital.

Contributed capital includes the aggregate per value and any share premium but does not include
retained earnings.
The cost of treasury shares is not deducted in computing contributed capital or paid in capital.

Marinduque Company reported the following postclosing trial balance at year-end:

Accounts payable 3,000,000
Accounts receivable 6,000,000
Accumulated depreciation 2,500,000
Allowance for doubtful accounts 800,000
Bonds payable 5,000,000
Property, plant and equipment 11,000,000
Cash 2,500,000
Ordinary share capital, P50 par value 6,000,000
Dividends payable 200,000
Inventory 8,000,000
Equity investments at FVOCI 3,500,000
Investment in equity securities at cost 2,000,000
Unrealized loss on derivative contract 500,000
Share premium- ordinary
In excess of par 5,000,000
From sale of treasury 1,000,000
Preference share capital, P25 par value 5,000,000
Retained earnings 6,500,000
Treasury ordinary shares – 20,000
at cost 1,500,000
 35,000,000 35,000,000

The dividend on cumulative preference share is 10%. The preference share has a preference in
liquidation of P50.
12. What is the total shareholders’ equity at year-end?
a. 22,000,000
b. 21,500,000
c. 21,700,000
d. 23,500,000

Solution 3 Answer b

Ordinary share capital 6,000,000

Preference share capital 5,000,000
Share premium 6,000,000
Retained earnings 6,500,000
Treasury shares ( 1,500,000)
Unrealized loss on derivative contract ( 500,000)
Total Shareholders’ equity 21,500,000

At the beginning of the current year, Hanna Company reported the following share
holders’ equity:
Share capital, P10 par, outstanding 220,000 shares 2,250,000
Share premium 900,000
Retained earnings 2,190,000
During the current year, the entity had the following share transactions:
• Acquired 6,000 treasury shares for P270,000
• Sold 3,600 treasury shares at P50 a share.
• Sold the remaining treasury shares at P41 per share.
13. What is the total amount of share premium at year-end?
a. 891,600
b. 870,000
c. 908,400
d. 927,600

Solution 4 Answer c

Treasury Shares (P45 per share) 270,000

Cash 270,000
Cash (3,600 x 50) 180,000
Treasury shares (3,600 x 45) 162,000
Share premium – treasury 18,000
Cash (2,400 x 41) 98,400
Share premium – treasury 9,600
Treasury shares (2,400 x 45) 108,000

Share premium – issuance January 1 900,000

Share premium – treasury ( 18,000 – 9,600) 8,400
Total share premium 908,400

QUIZ 2

Global Company, a real estate developer, is owned by five founding shareholders.

On December 1, 2017, the entity declared a property dividend of a "one-bedroom flat" for each
shareholder. The property dividend is payable on January 31, 2018.

On December 1, 2017, the carrying amount of one-bedroom flat is P1,000,000 and the fair value is
P1,500,000.

However, the fair value is P1,800,000 on December 31, 2017 and P1,900,000 on January 31, 2018.

1. What is the dividend payable on December 1, 2017?

a. 5,000,000
b. 7,500,000
c. 9,000,000
d. 0
2. What is the dividend payable on December 31, 2017?
a. 5,000,000
b. 7,500,000
c. 9,000,000
d. 0
3. What amount of gain is included in profit or loss as a result of the settlement of the property dividend
on January 31, 2018?
a. 2,500,000
b. 4,000,000
c. 2,000,000
d. 4,500,000

Solution 6

Question 1 Answer b

Fair value of property (5 x 1,500,000) 7,500,000

To recognize the dividend payable on December 1, 2017:

Retained earnings 7,500,000

Dividend payable 7,500,000

Question 2 Answer c

Fair value - December 31, 2017 (5 x 1,800,000) 9,000,000

Fair value - December 1, 2017 (7,500,000)

Increase in dividend payable 1,500,000

Retained earnings 1,500,000

Dividend payable 1,500,000

Questions 3 Answer d

Fair value - January 31, 2018 (5 x P1,900,000) 9,500,000

Fair value - December 31, 2017 (9,000,000)

Increase in dividend payable 500,000

 Retained earnings 500,000

Dividends payable 500,000

Dividend payable - January 31, 2018 9,500,000

Carrying amount of property 500,000

Gain on distribution of property dividend 4,500,000

Dividend payable 9,500,000

Inventory 5,000,000

Gain on distribution of property dividend 4,500,000

Marie Company had outstanding 50,000 8% preference shares with P100 par value and 125,000 par
value ordinary shares. Dividend have been paid every year except last year and the current year.

The preference share are cumulative and nonparticipating. The entity distributed P2,500,000 as dividend
in the current year.

What is the dividend payable to the ordinary shareholders?

a. 2,100,000
b. 1,700,000
c. 2,500,000
d. 0

Solution 18 Answer b

Total dividend distributed in the current year 2,500,000

Preference dividend ( 8% x 5,000,000 x 2 ) ( 800,000)
Dividend payable to ordinary shareholders 1,700,000

Problem 19 IFRS
Smart Company reported profit before tax of P5,800,000 and income tax expense of P1,500,000 for the
current year. In addition the entity paid during the year an ordinary dividend of P400,000 and a preference
dividend of P500,000 on the preference shares. The entity had P1,000,000 of P5 par value ordinary share
in issue.

1. What amount should be reported as basic earnings per share if the preference shares are
redeemable?
a. 21.50
b. 19.00
c. 8.60
d. 7.60
2. What amount should be reported as basic earnings per share if the preference shares are
nonredeemable?
a. 29.00
b. 19.00
c. 21.50
d. 16.50

Solution 19
Question 1 Answer a

Ordinary shares outstanding (1,000,000/5) 200,000

Basic earnings per share (4,300,000/200,000) 21.50

The preference dividend is ignored because preference shares are redeemable and considered financial
liability.

The preference dividend of P500,000 is already deducted from the net income as a finance cost.

Question 2 Answer b

Net income 4,300,000

Preference dividend ( 500,000)
Net income- ordinary 3,800,000

Basic earnings per share (3,800,000 / 200,000) 19.00

In the absence of any contrary statement, the preference shares are nonredeemable.

Problem 20 IFRS
On January 1, 2017, Sabina Company had ordinary share capital outstanding of P100 par value, 200,000
shares or a total par value of P20,000,000.

On July 1, 2017, a bonus issue was made in the ratio of one additional ordinary share for each original
share. The net income for the current year was P12,000,000

What amount should be reported as basic earnings per share?

a. 30
b. 40
c. 20
d. 60

Solution 20 Answer a

January 1 Ordinary shares 200,000

July 1 Bonus issue 200,000
Total ordinary shares 400,000

Basic earnings per share (12,000,000/400,000) 30

1-5 D D D C D
6-10 D D B A C