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1. You and I are the accountants of A Corporation. Our company’s authorized capitalization is
₱100M divided into 100M shares with par value per share of ₱1. Which of the following
statements is correct?
a. If our company issues 10,000 shares for ₱5 each, we will recognize a share premium of
₱50,000.
b. Our company can issue shares at a subscription price that is below ₱1.
c. Our company can issue more than 100M shares without amending its articles of
incorporation.
d. If our company receives share subscription for 20,000 shares at ₱15 per share, we will most
likely recognize the related share premium on subscription date rather than on the collection
date.

2. Treasury stock was acquired for cash at a price in excess of its par value. The treasury stock was
subsequently reissued for cash at a price in excess of its acquisition price. Assuming that the cost
method of accounting for treasury stock transactions is used, what is the effect on retained
earnings?
Acquisition of Treasury Stock Reissuance of Treasury Stock
a. No effect Increase
b. Increase No effect
c. No effect No effect
d. Increase Decrease

3. The entry to record the retirement of shares at a price that exceeds the original issuance price
includes
a. a debit to share capital and share premium arising from the original issuance.
b. a debit to any share premium arising from treasury shares.
c. a debit to retained earnings, if (b) is insufficient.
d. a, b and c.

4. Entity A has the following share capital transactions during the year:
 Issued 10,000 shares with par value of ₱10 per share for a total consideration of ₱160,000.
 Received share subscriptions for 20,000 shares at a subscription price of ₱22 per share. Only
half of the subscriptions were collected by the end of the year.

How much is the total share premium arising from the share transactions above?
a. 60,000 b. 180,000 c. 300,000 d. 320,000

[160,000 – (10,000 x 10)] + [20,000 x (22 – 10)] = 300,000

5. On February 26, 20x1, Entity A acquires 10,000 of its own shares for ₱3 per share. The shares
have a par value of ₱1 and were selling in the stock market at ₱4 per share on this date. To
record the reacquisition, Entity A should
a. debit Treasury shares account for ₱30,000.
b. credit Treasury shares account for ₱30,000.
c. debit Share premium account for ₱10,000.
d. credit Treasury shares account for ₱40,000.
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6. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per
share. In 20x1, Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to
account for its treasury stock transactions. What accounts and amounts should Newt credit in
20x1 to record the issuance of the 3,000 shares?
Treasury sh. Sh. premium Retained earnings Ordinary sh.
a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000

Cash (3,000 × 25) 75,000

Treasury stock(3,000 × 18) 54,000
APIC-treasury stock 21,000

7. At the date of the financial statements, ordinary shares issued would exceed ordinary shares
outstanding as a result of the
a. declaration of a stock split. c. purchase of treasury stock.
b. declaration of a stock dividend. d. payment in full of subscribed stock.

8. On July 31, 2001, Lakers Corporation purchased 500,000 shares of Celtic Corporation. On
December 31, 2002, Lakers distributed 250,000 shares of Celtic stock as a dividend to Lakers'
stockholders. This is an example of a
a. liquidating dividend. c. property dividend.
b. investment dividend. d. stock dividend.

9. When a portion of stockholders' original investment is returned in the form of a dividend, it is

called a
a. compensating dividend. c. property dividend.
b. liquidating dividend. d. equity dividend.

10. Which of the following actions or events does not result in an addition to retained earnings?
a. A quasi-reorganization
b. Earning of net income for the period
c. Correction of an error in which ending inventory was understated in a previous year
d. Issuance of a 3-for-1 stock split

11. Cyan Corp. issued 20,000 shares of ₱5 par ordinary share at ₱10 per share. On December 31,
20x1, Cyan's retained earnings were ₱300,000. In March 20x2, Cyan reacquired 5,000 shares of its
common stock at ₱20 per share. In June 20x2, Cyan sold 1,000 of these shares to its corporate
officers for ₱25 per share. Cyan uses the cost method to record treasury stock. Profit for the year
ended December 31, 20x2, was ₱60,000. At December 31, 20x2, what amount should Cyan report
as retained earnings?
a. 360,000 c. 375,000
b. 365,000 d. 380,000
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12. On July 1, 20x1, COLTISH UNDISCIPLINED Co. declared as property dividends 10,000 shares
held as investment in associate with carrying amount of ₱4,000,000. Information on fair values is
shown below:
Date Fair value*
July 1, 20x1 3,200,000
Dec. 31, 20x1 4,400,000
Feb. 1, 20x2 3,800,000

*Assume costs to distribute are immaterial.

The property dividends are distributed on Feb. 1, 20x2. The entries on February 1, 20x1 include all
of the following except
a. a debit to loss for ₱200,000
b. a debit to property dividends payable for ₱600,000
c. a debit to retained earnings for ₱200,000
d. a credit to non-current asset held for distribution to owners for ₱4,000,000

13. On April 1, 20x1, the board of directors of LEEWAY TOLERANCE Co. declared 50% scrip
dividends to shareholders of record as of April 15, 20x1 for distribution on September 30, 20x1.
The scrip dividends bear 10% interest per annum. The shareholders’ equity of LEEWAY as of
April 1, 20x1 is as follows:
Share capital, authorized capital 10,000 shares, ₱400 par 3,200,000
Subscribed share capital 880,000
Share premium 400,000
Retained earnings 1,816,000
Treasury shares (at cost of ₱480 per share) (576,000)
Other components of equity 280,000
Total shareholders’ equity 6,000,000

How much is the scrip dividends payable?

a. 1,800,000 c. 2,200,000
b. 1,360,000 d. 1,760,000

14. Bennett Company paid cash dividends totaling ₱150,000 in 2000 and ₱75,000 in 2001. In 2002,
Bennett intends to pay cash dividends of ₱800,000. Bennett Company has 25,000 shares of
common; 70,000 shares of 6 percent, ₱100 par cumulative preferred. What total amount of
dividends will the common stockholders expect to receive in 2002?
a. 650,000 c. 280,000
b. 125,000 d. 0

15. On January 2, 2000, the board of directors of Gimli Mining Corporation declared a cash dividend
of ₱1,200,000 to stockholders of record on January 18, 2000, and payable on February 10, 2000.
The dividend is permissible by law in Gimli's state of incorporation. Selected data from Gimli's
December 31, 1999 balance sheet follows:

Accumulated depletion ₱ 200,000

Capital stock 1,100,000
Additional paid-in capital 800,000
Retained earnings 500,000
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The ₱1,200,000 dividend includes a liquidating dividend of

a. 800,000. c. 600,000.
b. 700,000. d. 200,000.

16. The board of directors of Logan Piano Co. decided that the company should undergo a quasi-
reorganization effective on December 31, 2002. On that date, the company determined the
following asset values.
Carrying Fair Value
amount
Machinery ₱ 40,000 ₱ 40,000
Building 300,000 175,000
Equipment 95,000 80,000
₱435,000 ₱295,000

The stockholders' equity section at December 31, 2002, is presented below.

Common stock, ₱25 par, 25,000 shares issued and outstanding ₱625,000 
Additional paid-in capital 250,000 
Retained earnings (deficit) (225,000)
  Total ₱650,000 

The quasi-reorganization is to be accomplished by reducing the par value of the stock to ₱20 per
share. How much is the balance of the retained earnings account after effecting the quasi-
reorganization?
a. 52,000 c. (16,000)
b. 16,000 d. 0

Use the following information for the next three questions:

Caroline Co.’s equity structure at December 31, 20x1 is shown below:

10% Preference sh., ₱100 par (liquidation value ₱120 per share) 1,000,000
Ordinary shares, ₱100 par 3,000,000
Subscribed share capital - ordinary shares 100,000
Subscription receivable (60,000)
Retained earnings 900,000
Treasury shares (at cost) - 2,000 ordinary shares. (260,000)
Total shareholders' equity 4,680,000

17. The preference shares are cumulative. Dividends are in arrears for three years. How much is the
book value per ordinary share?
a. 150
b. 111.72
c. 112.37
d. 141.38
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18. The preference shares are noncumulative. Dividends are in arrears for three years. How much is
the book value per ordinary share?
a. 118.62
b. 112.62
c. 98.87
d. 122.39

19. The preference shares are cumulative. All dividends are paid up to end of the current year. How
much is the book value per ordinary share?
a. 120.00
b. 119.82
c. 118.62
d. 122.07

Solution:
Total shareholders' equity, excldg.
subscription receivable (4.68M + 60K) 4,740,000
Preference shareholders' equity:
Liquidation value (10,000 shares x 120) 1,200,000
Dividends in arrears (1,200,000)
Ordinary shareholders' equity 3,540,000
Preference shareholders' equity 1,200,000
Divide by: No. of preference shares outstanding 10,000
Book value per share (Preference shares) 120
Ordinary shareholders' equity 3,540,000
Divide by: No. of ordinary shares outstanding a 29,000
Book value per share (Ordinary shares) 122.07

20. The shareholders' equity of ABC Construction, Inc. on December 31, 20x1 includes the following:

8% Preference shares, 20,000 shares, ₱100 par value 3,000,000

10% Preference shares, 10,000 shares, ₱300 par value 4,500,000
Ordinary shares, 50,000 shares, ₱100 par value 7,500,000
Share premium in excess of par 2,250,000
Retained earnings 3,350,000
Total shareholders' equity 20,600,000

The 8% stock is cumulative and fully participating. The 10% stock is noncumulative and fully
participating. Dividends have not been paid for 3 years.

How much is the book value per ordinary share?

a. 192.30
b. 200.30
c. 202.30
d. 205.30
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Solution:
Total shareholders' equity 20,600,000
8% PS (aggregate par value) (3,000,000)
8% PS (dividends) - (3M x 8% x 3 yrs.) (720,000)
10% PS (aggregate par value) (4,500,000)
10% PS (dividends) - (4.5M x 10% x 1 yr.) (450,000)
Ordinary shares (aggregate par value) (7,500,000)
Ordinary shares (dividends) - (7.5M x 8% x 1 yr.) (600,000)
Amount for allocation 3,830,000
8% PS (3.83M x 3/15) (766,000)
10% PS (3.83M x 4.5/15) (1,149,000)
Ordinary shares (3.83M x 7.5/15) (1,915,000)
As allocated
-
Ordinary shareholders' equity:
Aggregate par value 7,500,000
Dividends 600,000
Participation 1,915,000
Total 10,015,000
Divide by: Outstanding shares 50,000
Book value per ordinary share 200.30

21. PAS 33 is intended to apply to which of the following?

a. Publicly-listed entities
b. Non-publicly listed entities
c. Financial institutions
d. All entities using the PFRSs

22. Which of the following does not result to a retrospective adjustment of prior-period EPS
information?
a. share dividends c. issuance of shares for cash
b. share split d. issuance of stock rights

23. Earnings per share is not required to be computed on

a. profit or loss from continuing operations.
b. results of discontinued operations.
c. profit or loss for the year.
d. other comprehensive income.

24. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout
20x1. Entity A reported profit after tax of ₱2,800,000 for the year ended December 31, 20x1.
The movements in the number of ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
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Outstanding shares at the end of period 170,000

What is the basic earnings per share?

a. 18.92
b. 17.09
c. 18.07
d. 16.98

25. Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each
₱1,000 bond is convertible into 30 ordinary shares ₱2,000,000
Ordinary shares, ₱10 par, 100,000 shares issued and
outstanding 1,000,000

Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.

What is the diluted earnings per share in 20x1?

a. 6.28
b. 6.05
c. 6.15
d. 5.98

26. Entity A is computing for its basic earnings per share and has gathered the following
information:
Loss for the year (1,000,000)
Preferred dividends 50,000
Outstanding ordinary shares 100,000

There have been no changes in the number of outstanding ordinary shares during the period. What
is the basic earnings (loss) per share?
a. -10.50 c. -9.50
b. 10.50 d. 9.50

(-1M) – 50K] ÷ 100,000 = -1,050,000 ÷ 100,000 = -10.5

27. Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2, the following
share issuances occurred:
 On April 1, 20,000 shares were issued for cash.
 On September 30, a 10% bonus issue (share dividend) was declared.
 On November 1, a 2-for-1 share split was issued.

Entity A had the following profits: ₱2,200,000 in 20x2 and ₱1,800,000 in 20x1. What are the earnings
per share to be disclosed in Entity A’s 20x2 comparative financial statements?
20x2 20x1
a. 4.22 4.02
b. 4.37 4.07
c. 4.65 4.09
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d. 4.78 4.12
28. Entity A has 200,000 ordinary shares outstanding on January 1, 20x1. Entity A offers rights issue
to its existing shareholders that enable them to acquire 1 ordinary share at a subscription price of
₱120 for every 5 rights held. The rights are exercised on May 1, 20x1. The market price of one
ordinary share immediately before exercise is ₱180. Entity A reported profit after tax of
₱2,900,000 in 20x1. What is the basic earnings per share in 20x1?
a. 12.58
b. 12.67
c. 11.92
d. 17.67