FATHER SATURNINO URIOS UNVERSITY

Accountancy Program
Quiz on Shareholders Equity /Retained Earnings Carl Vincent L. Alaan, CPA

Name: _________________________________ Schedule: ________ Score: ______

Theories
Instruction: Read through the questions or statements. The answer to the questions or the statements is
provided. If the answer is correct write TRUE before the number. If the answer is incorrect write FALSE before
the number and indicate the CORRECT ANSWER right after the question.
1. What is the meaning of net assets of a corporation? Answer: Retained Earnings
2. The par value of shares issued is normally recorded in Answer: Share capital account

3. Shares that have a fixed per share amount printed on the share certificate are called? Answer: Uniform
Value Shares

4. If shares are issued for non-cash consideration the proceeds shall be measured by the? Answer: Par value
of the shares issued

5. Share issue cost are Answer: Recorded as an asset

6. It represents a corporation's total accumulated earnings and losses from the point of incorporation to the
reporting date. Answer: Retained Earnings

7. Under this doctrine, it is illegal to return the legal capital to shareholders during the lifetime of a corporation.
Answer: Right of Pre-emption

8. The date whereby the amount of dividends to be paid is determined. Answer: Date of Record

9. Noncurrent assets classified for distribution to the owners are measured at ________________. Answer:
Carrying Amount

10. If a 20% share dividend of a closely held corporation is declared, the retained earnings are capitalized at
what cost. Answer: Par Value

PROBLEMS

Instruction: Provide as required. Computations or solutions for the answers are REQUIRED.
Problem #1
At the beginning of current year, Valeroso Company was organized with authorized capital of 100,000 shares
of P 200 par value.
January 10 Issued 25,000 shares at P220 a share
March 25 Issued 1,000 shares for legal services when the fair value was P240 a share
September 30 Issued 5,000 shares for a tract of land when the fair value was P 260 a share

1. What amount should be reported as share capital? 6,200,000

2. What amount should be reported for share premium? 840,000
3. What is the correct entry to record the transaction on March 25? Legal Fees 240
Share Capital 200
Share Premiu 40
FATHER SATURNINO URIOS UNVERSITY
Accountancy Program
Quiz on Shareholders Equity /Retained Earnings Carl Vincent L. Alaan, CPA

Problem #2
During the current year, Manguilimutan Company issued for P110 per share, 15,000 convertible preference
shares of P100 par value. The entity incurred 50,000 as share issuance cost for the transaction.
One preference share may be converted into three ordinary shares of P25 par value at the option of the
preference shareholder.
At year-end, all of the preference shares were converted into ordinary shares. The market value of the ordinary
share at the conversion date was P40.
1. What is the net effect of the share premium as a result of the issuance? 150-50 = 100,000
2. What amount should be credited to ordinary share capital as a result of the conversion? 1,125,000
3. What amount should be credited to share premium as a result of the conversion? 525,000
4. What is the journal entry to record the conversion?
PSC 1500
SP 100
Osc 1125
SP -OS 475

Problem #3
Ledesma Company had 400,000 ordinary shares P15 par value at the beginning of current year. These shares
were originally issued at 30 per share. During the current year, the entity purchased 50,000 treasury shares at
P30 per share, issued a 4 for 1 split, and then reissued 20,000 treasury shares at P20 per share.
1. What amount should be reported as remaining cost of treasury shares? 1,350,000
2. What is the number of shares outstanding at year-end? 1,420,000
3. What is the entry to record the re-issuance of 20,000 treasury shares? Cash 400
TS 150
SP – TS 250
4. If the remaining 180,000 treasury shared are retired, what is the correct entry to record the transaction?
OSC 675,000
SP 675,000
Treasury Shares 1,350,000

Problem #4
At year end, Ledesma Company cancelled 5,000 shares of P 50 par value held in treasury at an average cost
of P120 per share.
Before recording the cancellation of the treasury shares, the entity had the following balances:
Share Capital issued originally at P75 per share 2,500,000
Share Premium 1,250,000
Retained Earnings 1,000,000
Treasury Shares at cost 600,000

1. What amount should be reported as adjusted share capital at year end? 2,250,000
FATHER SATURNINO URIOS UNVERSITY
Accountancy Program
Quiz on Shareholders Equity /Retained Earnings Carl Vincent L. Alaan, CPA
2. What amount should be reported as adjusted share premium at year-end? 1,125,000
3. What amount should be reported as adjusted retained earnings at year-end? 1,000 – 225 = 775
4. What is the journal entry to record the cancellation?
Share Capital 250
Share Premium 125
RE 225
TS 600

Problem #5
At the beginning of current year, Mapayo Company was organized with 100,000 authorized shares of P100
par value.
January 1 Sold 30,000 shares at P150 per share
February 1 lssued 2,000 shares for legal services with a fair value of P250,000. The shares on this
date are quoted at P140 per share
March 15 Purchased 5,000 treasury shares at a cost of P120 per share
October 31 Issued P5,000,000 convertible bonds at 120. The bonds are quoted at 98 without the
conversion feature.
November 5 Declared a 2-for-1 share split when the market value of the share was P160.
December 15 Sold 20,000 shares at P75 per share.
December 31 The net income for the current year was P2,000,000.
1. What amount should be reported as share capital at year-end? 4,200,000
2. What amount should be reported as share premium at year-end? 3,150,000
3. What amount should be reported as total shareholders' equity at year-end? 8,750,000
4. How many shares are outstanding at year-end? 74,000