LA SALLE UNIVERSITY

College of Business and Accountancy

Second Semester 2030-2024

INTERMEDIATE ACCOUTING 2
Shareholders’ Equity
May 27, 2024

1. The pre-emptive right enables a stockholder to

a. share proportionately in any new issues of stock of the same class.
b. receive cash dividends before other classes of stock without the pre-emptive right.
c. sell capital stock back to the corporation at the option of the stockholder.
d. receive the same amount of dividends on a percentage basis as the preferred stockholders.

2. In a corporate form of business organization, legal capital is best defined as

a. the amount of capital the state of incorporation allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the government allows a corporation to generate.
d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

3. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that
shareholders
a. are entitled to a dividend every year in which the business earns a profit.
b. have the rights to specific assets of the business.
c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
d. can negotiate individual contracts on behalf of the enterprise.

4. Total stockholders' equity represents

a. a claim to specific assets contributed by the owners.
b. the maximum amount that can be borrowed by the enterprise.
c. a claim against a portion of the total assets of an enterprise.
d. only the amount of earnings that have been retained in the business.

5. In January 2023, Castro Corporation, a newly formed company, issued 10,000 shares of its ₱10 par common stock for
₱15 per share. On July 1, 2023, Castro Corporation reacquired 1,000 shares of its outstanding stock for ₱12 per
share. The acquisition of these treasury shares
a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.

6. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for
treasury stock, what account(s) should be debited?
a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the
par value.
b. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

7. Which of the following best describes a possible result of treasury stock transactions by a corporation?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.

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

9. Farmer Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2023, Farmer distributed
these shares of stock as a dividend to its stockholders. This is an example of a
a. property dividend.
b. stock dividend.
 c. liquidating dividend.
d. cash dividend.

10. If management wishes to "capitalize" part of the earnings, it may issue a

a. cash dividend.
b. stock dividend.
c. property dividend.
d. liquidating dividend.

11. The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding
a. increases common stock outstanding and increases total stockholders' equity.
b. decreases retained earnings but does not change total stockholders' equity.
c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity.
d. increases retained earnings and increases total stockholders' equity.

12. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings
to contributed capital an amount equal to the
a. market value of the shares issued.
b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued.

13. What effect does the issuance of a 2-for-1 stock split have on each of the following?
Par Value per Share Retained Earnings
a. No effect No effect
b. Increase No effect
c. Decrease No effect
d. Decrease Decrease

14. Presented below is information related to Edis Corporation:

Common Stock, ₱1 par ₱4,300,000
Paid-in Capital in Excess of Par— 550,000
Common Stock
Preferred 8 1/2% Stock, ₱50 par 2,000,000
Paid-in Capital in Excess of Par— 400,000
Preferred Stock
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000

The total stockholders' equity of Edis Corporation is

a. ₱8,600,000. c. ₱8,750,000.
b. ₱7,100,000. d. ₱7,250,000.

15. Adler Corporation has 50,000 shares of ₱10 par common stock authorized. The following transactions took place
during 2024, the first year of the corporation’s existence:
Sold 5,000 shares of common stock for ₱18 per share.
Issued 5,000 shares of common stock in exchange for a patent valued at ₱100,000.
At the end of the Adler’s first year, total share capital amounted to
a. ₱40,000. c. ₱90,000.
b. ₱100,000. d. ₱190,000.

16. Renfro Corporation started business in 1999 by issuing 200,000 shares of ₱20 par common stock for ₱36 each. In
2013, 20,000 of these shares were purchased for ₱52 per share by Renfro Corporation and held as treasury stock. On
June 15, 2024, these 20,000 shares were exchanged for a piece of property that had an assessed value of ₱810,000.
Renfro’s stock is actively traded and had a market price of ₱60 on June 15, 2024. The cost method is used to account
for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events
would be
a. ₱800,000. c. ₱480,000.
b. ₱390,000. d. ₱160,000.

17. Gannon Company acquired 6,000 shares of its own common stock at ₱20 per share on February 5, 2022, and sold
3,000 of these shares at ₱27 per share on August 9, 2023. The market value of Gannon's common stock was ₱24 per
share at December 31, 2022, and ₱25 per share at December 31, 2023. The cost method is used to record treasury
stock transactions. What account(s) should Gannon credit in 2023 to record the sale of 3,000 shares?
a. Treasury Stock for ₱81,000.
b. Treasury Stock for ₱60,000 and Paid-in Capital from Treasury Stock for ₱21,000.
 c. Treasury Stock for ₱60,000 and Retained Earnings for ₱21,000.
d. Treasury Stock for ₱72,000 and Retained Earnings for ₱9,000.

18. An analysis of stockholders' equity of Jinn Corporation as of January 1, 2023, is as follows:

Common stock, par value ₱20; ₱1,800,000
authorized 100,000 shares; issued
and outstanding 90,000 shares
Paid-in capital in excess of par 900,000
Retained earnings
760,000
Total ₱3,460,000

Jinn uses the cost method of accounting for treasury stock and during 2023 entered into the following transactions:
• Acquired 2,500 shares of its stock for ₱75,000.
• Sold 2,000 treasury shares at ₱35 per share.
• Sold the remaining treasury shares at ₱20 per share.

Assuming no other equity transactions occurred during 2023, what should Jinn report at December 31, 2023, as total
additional paid-in capital?
a. ₱895,000 c. ₱900,000
b. ₱905,000 d. ₱915,000

19. Trent Corporation was organized on January 1, 2023, with an authorization of 1,200,000 shares of common stock with
a par value of ₱6 per share. During 2023, the corporation had the following capital transactions:
Jan. 5 issued 675,000 shares @ ₱10 per share
Jul. 28 purchased 90,000 shares @ ₱11 per share
Dec. 31 sold the 90,000 shares held in treasury @ ₱18 per share
Trent used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of
additional paid-in capital as of December 31, 2023?
a. ₱-0-. c. ₱2,070,000.
b. ₱2,700,000. d. ₱3,330,000.

20. Presented below is the stockholders' equity section of Mead Corporation at December 31, 2022:
Common stock, par value ₱20; authorized 75,000 shares; issued and outstanding 45,000 shares ₱ 900,000
Paid-in capital in excess of par value 250,000
Retained earnings 500,000
₱1,650,000
During 2023, the following transactions occurred relating to stockholders' equity:
• 3,000 shares were reacquired at ₱28 per share.
• 3,000 shares were reacquired at ₱35 per share.
• 1,800 shares of treasury stock were sold at ₱30 per share.
For the year ended December 31, 2023, Mead reported net income of ₱450,000. Assuming Mead accounts for
treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2023,
balance sheet?
a. ₱1,965,000. c. ₱1,961,400.
b. ₱1,957,800. d. ₱1,515,000.

21. Vittly Corporation owned 900,000 shares of Nixon Corporation stock. On December 31, 2023, when Vittly's account
"Investment in Common Stock of Nixon Corporation" had a carrying value of ₱5 per share, Vittly distributed these
shares to its stockholders as a dividend. Vittly originally paid ₱8 for each share. Nixon has 3,000,000 shares issued
and outstanding, which are traded on a national stock exchange. The quoted market price for a Nixon share was ₱7 on
the declaration date and ₱9 on the distribution date.
What would be the reduction in Vittly's stockholders' equity as a result of the above transactions?
a. ₱3,600,000. c. ₱4,500,000.
b. ₱7,200,000. d. ₱8,100,000.

22. Baden Corporation owned 20,000 shares of Terney Corporation’s ₱5 par value common stock. These shares were
purchased in 2013 for ₱180,000. On September 15, 2024, Baden declared a property dividend of one share of Terney
for every ten shares of Baden held by a stockholder. On that date, when the market price of Terney was ₱14 per
share, there were 180,000 shares of Baden outstanding. What NET reduction in retained earnings would result from
this property dividend?
a. ₱90,000 c. ₱252,000
b. ₱72,000 d. ₱162,000

23. Gonzalez Company has 350,000 shares of ₱10 par value common stock outstanding. During the year, Gonzalez
declared a 10% stock dividend when the market price of the stock was ₱30 per share. Four months later Gonzalez
 declared a ₱.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. ₱1,242,500. c. ₱525,000.
b. ₱192,500. d. ₱175,000.

24. On June 30, 2023, when Vietti Co.'s stock was selling at ₱65 per share, its capital accounts were as follows:
Capital stock (par value ₱50;
60,000 shares issued) ₱3,000,000
Premium on capital stock 600,000
Retained earnings 4,200,000
If a 100% stock dividend were declared and distributed, capital stock would be
a. ₱3,000,000. c. ₱3,600,000.
b. ₱6,000,000. d. ₱7,800,000.

25. The stockholders' equity section of Lawton Corporation as of December 31, 2022, was as follows:
Common stock, par value ₱2;
authorized 20,000 shares;
issued and outstanding 10,000 shares ₱ 20,000
Paid-in capital in excess of par 30,000
Retained earnings 75,000
₱125,000
On March 1, 2023, the board of directors declared a 15% stock dividend, and accordingly 1,500 additional shares
were issued. On March 1, 2023, the fair market value of the stock was ₱6 per share. For the two months ended
February 28, 2023, Lawton sustained a net loss of ₱10,000.
What amount should Lawton report as retained earnings as of March 1, 2023?
a. ₱56,000. c. ₱62,000.
b. ₱66,000. d. ₱72,000.

Use the following to answer the next two questions.

Tomlin, Inc. has outstanding 300,000 shares of ₱2 par common stock and 60,000 shares of no-par 8% preferred stock
with a stated value of ₱5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every
year except the past two years and the current year.

26. Assuming that ₱150,000 will be distributed as a dividend in the current year, how much will the common stockholders
receive?
a. Zero. c. ₱78,000.
b. ₱102,000. d. ₱126,000.

27. Assuming that ₱63,000 will be distributed as a dividend in the current year, how much will the preferred stockholders
receive?
a. ₱21,000. c. ₱24,000.
b. ₱48,000. d. ₱63,000.

28. Assuming that ₱183,000 will be distributed, and the preferred stock is also participating, how much will the common
stockholders receive?
a. ₱111,000. c. ₱90,000.
b. ₱93,000. d. ₱48,000.

29. Wiley, Inc. has 50,000 shares of ₱10 par value common stock and 25,000 shares of ₱10 par value, 6%, cumulative,
participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that
Wiley wishes to distribute ₱135,000 as dividends, the common stockholders will receive
a. ₱30,000. c. ₱55,000.
b. ₱80,000. d. ₱105,000.

30. Norton Co. was organized on January 2, 2023, with 500,000 authorized shares of ₱10 par value common stock.
During 2023, Norton had the following capital transactions:
• January 5—issued 375,000 shares at ₱14 per share.
• July 27—purchased 25,000 shares at ₱11 per share.
• November 25—sold 15,000 shares of treasury stock at ₱13 per share.
Norton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in
Capital from Treasury Stock account at December 31, 2023?
a. ₱0. c. ₱15,000.
b. ₱30,000. d. ₱45,000.