1.

On January 1, 2021, an entity reported the following shareholders’ equity:

Share capital, 100,000 shares authorized, 50,000 shares outstanding, P100 5,000,000
par
Share premium 4,000,000
Retained earnings 5,000,000
The board of directors declared a 10% share dividend on July 1, 2021 when the market value
of the share was P150. The share dividend was issued on October 1, 2021 when the market
value of the share was P200. The entity sustained a net loss of P2,000,000 for 2021. What
amount should be reported as retained earnings on December 31, 2021?
a. 2,250,000
b. 2,000,000
c. 2,500,000
d. 3,000,000
2. An entity reported the following shareholders’ equity on January 1, 2021:
Share capital, P50 par, 110,000 shares 5,500,000
Share premium 2,000,000
Retained earnings 5,000,000
Treasury shares at cost, 10,000 shares 1,500,000
On June 30, 2021, the entity declared and issued a 20% share dividend when the market value
per share was P150. On December 31, 2021, the entity paid a cash dividend of P20 per share.
The net income for 2021 was P6,000,000. What amount should be reported as unappropriated
balance of retained earnings on December 31, 2021?
a. 7,600,000
b. 6,100,000
c. 7,100,000
d. 4,100,000
3. On January 1, 2021, an entity showed the following shareholders’ equity:
Share capital, P50 par, 30,000 shares outstanding 1,500,000
Share premium 3,000,000
Retained earnings 5,000,000
On July 1, 2021, the entity declared a property dividend of inventory payable on March 1,
2022. The inventory had a P1,200,000 carrying amount and a fair value less cost to distribute
of P1,500,000 on July 1, 2021, P1,800,000 on December 31, 2021 and P2,000,000 on March
1, 2022. The net income for 2021 was P6,000,000. On December 31, 2021 the entity paid cash
dividend of P2,500,000.
1. What amount should be reported as retained earnings on December 31, 2021?
a. 7,000,000
b. 6,700,000
c. 6,500,000
d. 8,500,000
2. On December 31, 2021, the inventory should be reported at what amount?
a. 1,200,000
b. 1,500,000
c. 1,800,000
d. 2,000,000
3. What amount should be recognized as gain distribution of property dividend in 2022?
a. 300,000
b. 600,000
c. 800,000
d. 0
4. On January 1, 2021, an entity had ordinary and preference shares outstanding. The
incorporators own ten ordinary shares but no preference shares. On December 31, 2021, the
entity declared dividends on the ordinary shares payable on December 31, 2022. The entity
decided to give the ordinary shareholders a choice between receiving a cash dividend of
P500,000 per share or in the form of a noncash asset. The noncash asset is standard model from
the entity’s car fleet. Each car has a fair value of P600,000 and carrying amount of P450,000
on December 31, 2021. The fair value of the car is P700,000 on December 31, 2022. The entity
estimated that 80% of the ordinary shareholders will take the option of the cash dividend and
20% will elect for the noncash asset.
1. What amount should be recognized as dividend payable on December 31, 2021?
a. 5,500,000
b. 5,200,000
c. 4,000,000
d. 6,000,000
2. What amount should be recognized as gain on distribution of property dividend in 2022 if
the ordinary shareholders elected to receive the noncash asset?
a. 2,000,000
b. 2,500,000
c. 1,500,000
d. 1,800,000
5. An entity had retained earnings of P3,500,000 at the beginning of 2021. Throughout 2021, the
entity had 40,000 ordinary shares of P100 par value that are issued and outstanding. During
2021, the entity reported net income of P5,500,000, purchased 5,000 treasury shares for
P600,000, declared cash dividends of P2,000,000, reissued all treasury shares at a gain of
P200,000, and declared and issued a 10% ordinary share bonus issue when the market value
was P150 per share. What amount should be reported as retained earnings on December 31,
2021?
a. 7,200,000
b. 6,800,000
c. 6,600,000
d. 6,400,000
6. On January 1, 2021, an entity reported P1,750,000 of appropriated retained earnings for the
construction of a new office building which was completed on December 31, 2021 at a total
cost of P1,500,000. On December 31, 2021, the entity appropriated P1,200,000 of retained
earnings for the construction of a new plant. Also, P2,000,000 of cash was restricted for the
retirement of bonds due in 2022. On December 31, 2021, dividends on 50,000 cumulative
preference shares 10% P100 par value have not been declared for 3 years. On December
31,2021, what amount should be reported as appropriated retained earnings?
a. 1,200,000
b. 2,700,000
c. 4,700,000
d. 3,200,000
7. An entity provided the following data for the year ended December 31, 2021:
Retained earnings unappropriated, January 1 2,000,000
Overdepreciation of 2020 due to prior period error, net of tax 400,000
Net income 3,000,000
Retained earnings appropriated for treasury shares (original balance is
P500,000 300,000
but reduced by P200,000 by reason of reissuance of the treasury shares)
Retained earnings appropriated for contingencies (beginning balance
P700,000, 800,000
but increased by current appropriation of P100,000)
Cash dividends paid to shareholders 1,000,000
Change in accounting policy from FIFO to an average – credit, net of tax 300,000
What is the balance of unappropriated retained earnings on December 31, 2021?
a. 4,500,000
b. 4,800,000
c. 4,700,000
d. 4,200,000