FAR- RETAINED EARNINGS a.

Zero because no entry is made

1. The following transaction affect retained earnings b. Par value
except c. Market value at the declaration
a. Profit or loss for the period. d. Market value at the date of issuance
b. Dividends
c. Prior period errors 8. Which of the following statements is true concerning
d. Share split stock dividends?
I. A stock dividend does not give rise to any
2. Which of the following may increase retained change in either the entity’s assets or the
earnings? shareholders proportionate interest therein.
a. Re-issuance of treasury shares at more than II. Stock dividends should be recorded on the
cost date declared.
b. Retirement of preference shares at less than a. I only
the issue price b. II only
c. Revaluation decrease c. Both I and II
d. Change in accounting policy d. Neither I nor II

3. Nonstock dividends shall be recognized as liabilities 9. In closely held entities, if the stock dividends are
on the declared, retained earnings shall be capitalized at
a. Date of declaration a. Par or stated value
b. Date of record b. Book value
c. Date of payment c. Fair value on date of declaration
d. Date of issuing check d. Fair value on date of issue

4. When shareholders may elect receive cash in lieu of 10. Which of the following statements is incorrect in
stock dividend, the amount to charged to retained relation to retained earnings?
earnings is equal to the a. Appropriated retained earnings shall be clearly
a. Optional cash dividend distinguished from unappropriated retained
b. Fair value of the shares earnings
c. Par value of the shares b. A deficit is a debit balance in retained earnings
d. Book value of the shares c. A deficit in retained earnings is presented as an
asset
5. Treasury shares may be reissued as dividends, in d. When the deficit exceeds the total of the other
which case what amount shall be charged to capital account balances, the excess is capital
retained earnings? deficiency.
a. Cost of the treasury shares
b. Par value of the treasury shares 11. In certain cases, stock dividends are declared on the
c. Fair value of the treasury shares on the date of basis of a proposed increase in authorized share
declaration capital, the application for which has been filed but not
d. Fair value of the treasury shares on the date of yet approved by the SEC at the reporting date. Under
issuance these circumstances, which may not be done?
a. The proposed increase and such dividend
6. If the stock dividend is less than 20%, how much of declaration generally shall not be reflected in
the retained earnings shall be capitalized? the statement of financial position prior to SEC
a. Par value of the shares approval.
b. Fair value of the shares on the date of b. These matters shall be disclosed in the notes to
declaration financial statements.
c. Fair value of the shares on the date of record c. If the proposed increase is approved by SEC
d. Fair value of the shares on the date of issuance after reporting date but before the release of
the statements, the new authorized share
7. An entity issued what is called a 20% stock dividend capital may be presented and the stock
on its shares capital. At what amount per share, if dividend may be shown as part of issued share
any, should retained earnings be reduced for this capital.
transaction? d. A note to the financial statements is
unnecessary to disclose the fact that the
 proposed increase and dividend declaration d. Higher of carrying amount and fair value less
have been reflected in the financial statements. cost to distribute

12. An entity shall measure a liability to distribute non 17.Cerritos Corp began operations on Jan 1, 2016. During its
cash asset as dividend to its owners at the first three years of operations, Cerritos reported net
a. Carrying amount of the asset distributed income and declared dividends as follows:
b. Fair value of the asset distributed
c. Either the carrying amount or fair value of the Net income Dividends declared
asset distributed 2016 P 80,000 P 0
d. Neither the carrying amount nor fair value of 2017 250,000 100,000
the asset distributed 2018 300,000 100,000
The following information related to 2019:
13. The liability to pay a dividend shall be recognized Prior period adjustment:
when the dividend is appropriately authorized and Understatement of 2017 depreciation
is no longer at the discretion at the entity, which is Expense (before tax) P 40,000
the date Cumulative decrease in income from change in
I. When declaration of the dividend by inventory methods (before tax) 70,000
management or the board of directors is Income before income tax 480,000
approved by the relevant authority, for Dividends declared (of this amount
example, the shareholder, if the jurisdiction P50,000 will be paid on Jan 15, 2020) 200,000
requires such approval. Effective tax rate 35%
II. When the dividend is declared by As at December 31, 2019, the retained earnings of
management or the board of directors if Cerritos Corp is
the jurisdiction does not require further
approval a. P638,500 c. P 430,000
a. I only b. P484,000 d. P 470,500
b. II only
c. Either I or II 18.On December 31, 2019, the balance sheet of Legend
d. Neither I nor II Corporation shows a total equity of P1,260,000. During
2019, the shareholders equity was affected by:
14. An entity shall review and adjust the carrying Adjustment to retained earnings for the
amount of the dividend payable at the end of each overstatement of 2018 net income P17,500
reporting period and at the date of settlement with Cash dividend declared and paid in 2019 10%
any change in the carrying amount of the dividend Net income of 2019 P65,000
payable recognized. The share capital of P1,000,000 remained unchanged
during the year.
a. In equity as adjustment to the amount of What is the balance of retained earnings on January 1,
distribution 2019?
b. In profit or loss a. P 360,000 c. P 295,000
c. As adjustment of equity reserve b. P 312,500 d. P 260,000
d. As component of other comprehensive income
19.East Corp., a calendar-year company, had sufficient retained
15. When an entity settles the dividend payable, it shall earnings in 2019 as a basis for dividends, but was temporary
recognize the difference between the carrying short of cash. East declared a dividend of P100,000 on April
amount of the asset distributed and the carrying 1, 2019, and issued promissory note to its shareholder in lieu
amount of the dividend payable in of cash. The notes, which were dated April 1, 2019, had a
a. Profit or loss maturity date of March 31, 2020 and a 10% interest rate.
b. Other comprehensive income How should East account for the scrip dividend and related
c. Equity interest?
d. Retained earnings a. Debit retained earnings for P110,000 on april 1, 2019
b. Debit retained earnings for P110,000 on March 31,
16. An entity shall measure a noncurrent asset 2019
classified as held for distribution to owners at c. Debit retained earnings for P100,000 on April 1, 2019
a. Carrying amount and Debit interest expense for P10,000 on March 31,
b. Fair value less cost to distribute 2020
c. Lower of carrying amount and fair value less d. Debit retained earnings for P100,000 on April 1, 2019
cost to distribute and Debit interest expense for P7,500 on Dec 31
 , 2019 P24,000,000 net of accumulated
depreciation.
 Unrecorded accounts payable amount to
20. An entity declared property dividend to ordinary P3,000,000.
shareholders. The property had a carrying amount of  Individual shareholders contribute
P910,000. Fair value on relevant dates: P5,000,000 to creat share premium to
Date of declaration P950,000 facilitate the reorganization. No new
Date of record P930,000 outstanding shares pass to the companys
Date of distribution P920,000 shareholders.
How much should the entity recognize in profit or loss in  The par value of the ordinary share is
relation to this property dividend? reduced from P100 to P50
a. P10,000 c. P40,000  Immediately before these events, the
b. P20.000 d. Nil shareholders equity section appears as
follows.

21. On January 2, 2019, Simpson Co.s board of

directors declared a cash dividend of P400,000 to Share capital, P100 par value,
shareholders of record on January 18, 2019, 500,000 shares P50,000,000
payable on February 10, 2016. Selected data from Share premium P5,000,000
Simpsons December 31, 2018 balance sheet are as Retained earnings (deficit) P(15,000,000)
follows: Compute the balance of share premium after the quasi-
Accumulated Depletion P100,000 reorganization.
Share capital 500,000 a. P11,000,000 c. P5,000,000
Share premium 150,000 b. P6,000,000 d. P 0
Retained earnings 300,000
The P400,000 dividend includes a liquidating dividend
of 25. At the recommendation of the newly hired president of
a. P 0 c. P150,000 Leyte Corp. the board of directors voted to implement a
b. P100,000 d. P300,000 quasi-reorganization. Immediately prior to the
restatement, on June 30, Leytes balance sheet was as
22. Retained earnings appropriation can be used to follows:
a. Absorb fire loss when a company is self-insured Current assets P550,000
b. Provide for a contingent loss that is probable Property, plant, and equipment(net) 1,350,000
and reasonable estimable Other assets 200,000
c. Smooth periodic income P2,100,000
d. Restrict earnings available for dividends. Total liabilities P600,000
Share capital 1,600,000
23. The primary purpose of quasi reorganization is to give Share premium 300,000
a corporation the opportunity to
a. Obtain relief from its creditors
b. Revalue understated assets to their fair value Retained earnings (deficit) (400,000)
c. Distribute the stock of a newly created P2,100,000
subsidiary to its stockholders in exchange for The shareholders approved the quasi-reorganization
part of their stock in the corporation. effective July 1, to be accomplished by a reduction in
d. Eliminate a deficit in retained earnings. other assets of P150,000; a reduction in property, plant,
and equipment (net) of P350,000; and appropriate
24. Adverse financial and operating circumstances warrant adjustment to the capital structure. To implement the
that Hikahos Company undergo a quasi-reorganization quasi-reorganization, Leyte should reduce the share
at the end of the current year. The following capital account in the amount of
information may be relevant in accounting for the a. P 0 c. P 400,000
quasi reorganization. b. P100,000 d. P600,000
 Inventory with a net realizable value of
P5,000,000 is currently recorded in the
accounts at its cost of P7,000,000.
 Plant assets with a recoverable amount of
P20,000,000 are currently recorded at
26. Balances in shareholders equity accounts before 30. The Bukidnon Company has sustained heavy losses over a
reorganization are: period of time and conditions warrant that Bukidnon
Share capital, P30 par, 50,000 undergo a quasi-organization at December 31, 2019.
Authorized, 40,000 outstanding P1,200,000 Selected balance sheet items prior to the quasi-
Share premium 100,000 reorganization are as follows:
Retained earnings(deficit) (364,000)  Inventory was recorded in the accounting records
at December 31, 2019, at its net realizable value
A quasi-reorganization was approved. Par value is to be of P6,000,000. Cost was P6,500,000.
P20 per share, equipment written down P101,800, and  Property, Plant and equipment were recorded in
inventory increased P5,800. the accounting records at December 31, 2019, at
P12,000,000, net of accumulated depreciation.
How much share premium from reorganization should The fair value is P9,000,000 ( cost to sell is
initially be recorded? P1,500,000). The expected discounted net future
a. P364,000 c. P 460,000 cash inflow from the discounted use and eventual
b. P400,000 d. P1,000,000 disposal is P8,000,000.
 Shareholders equity on December 31, 2019 was
27. Selected information for the accounts of Bibbo Co. at as follows:
December 31, 2019 follows: Share capital, par value P10 per share;
Total income since incorporation P420,000 Authorized, issued and outstanding,
Total cash dividends paid P130,000 700,000 shares P7,000,000
Total value of property dividends Share premium 1,600,000
distributed 30,000 Retained earnings (deficit) (900,000)
excess of proceeds over cost of treasury P7,700,000
stock sold 110,000 Under the terms of the quasi-reorganization, the
a. P260,000 c. P370,000 par value of the ordinary share is to be reduced
b. P290,000 d. P400,000 from P10 per share to P5 per share.

28. The following share dividends were declared and Immediately after the quasi-reorganization has
distributed by Sol Corp.: been accomplished, the total of shareholders`
Percentage of ordinary equity should be
Share outstanding at a. P3,300,000 c. P3,700,000
declaration date fair value par value b. P3,500,000 d. P4,200,000
10 P15,000 P10,000
28 40,000 30,800
What aggregate amount should be debited to retained 31. Immediately after the quasi-reorganization has been
earnings for these share dividends? accomplished, retained earnings (deficit) should be
a. P 0 c. P(4,400,000)
a. 40,800 c. 50,000 b. P (200,000) d. P(4,900,000)
b. 45,800 d. 55,000

29. On May 1, 2019, Lett Corp. declared and issued a 15%

share dividend. Prior to this dividend, Lett had
100,000, 1 par value, ordinary shares issued and
outstanding. The fair value of Letts ordinary share was
P20 per share on May 1, 2016. As a result of this share
dividend, Letts retained earnings
a. Increased by P300,000
b. Decreased by P300,000
c. Decreased by P15,000
d. Did not change