ACC 109

P1 QUIZ 2
1. Which of the following is most likely to be true regarding the payment of dividends?
a) Dividends may be paid from legal capital.
b) Retained earnings are available for dividends unless restricted by contract or
by statute.
c) Unrealized capital is available for any type of dividend.
d) Capital from donated assets is available for dividends.

2. When a property dividend is declared and the carrying amount of the property exceeds its
fair value, the dividend is recorded at the
a) fair value of the property at the date of distribution.
b) carrying amount of the property at the date of declaration.
c) carrying amount of the property at the date of distribution if it still exceeds the fair
value of the property at the date of declaration.
d) fair value of the property at the date of declaration.

3. Selected information from the accounts of Row Co. at December 31, 20x1, follows:
Total profit since incorporation ……….…………………….₱420,000
Total cash dividends paid ………………………….……….....130,000
Total value of property dividends distributed ………………..30,000
Excess of proceeds over cost of treasury stock sold,
accounted for using the cost method …………..………….110,000

In its December 31, 20x1, financial statements, what amount should Row report as
retained earnings?
a. 260,000 b. 290,000 c. 370,000 d. 400,000

4. Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury
stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock
were as follows:
 May 3 - 1,000 shares of treasury stock were sold.
 August 6 - 10,000 shares of previously unissued stock were sold.
 November 18 - a 2-for-1 stock split took effect.
Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31,
20x2, how many shares of Nest's common stock were issued and outstanding?
Shares Issued Outstanding Shares Issued Outstanding
a. 220,000 212,000 c. 222,000 214,000
b. 220,000 216,000 d. 222,000 218,000

5. The Gradison Corporation had the following classes of shares outstanding as of December
31, 2002:
 Ordinary shares, ₱20 par value, 20,000 shares outstanding
 Preference shares, 6 percent, ₱100 par value, cumulative, 2,000 shares outstanding
No dividends were paid on preference shares for 2001. On December 31, 2002, a total
cash dividend of ₱200,000 was declared. What amount of dividends is payable to the
ordinary shareholders?
a. 156,000 c. 176,000
b. 167,000 d. 184,000

6. Late Co. has the following shareholders’ equity:

Share capital, ₱100 par, 1,000,0
10,000 shares 00
Share premium 200,000
Retained earnings 300,000
1,500,0
Total shareholders’ equity 00

Late Co. recalled the 10,000 outstanding shares and replaced them with 20,000 no-par
shares with stated value of ₱5 per share. How much is the share premium after the
recapitalization?
a. 200,000 c. 1,100,000
 b. 1,000,000 d. 0

7. During 2002, the following transactions related to the capital stock of the Buffet-Line Corp.
occurred:
Jan. 7 Declared a ₱.75 cash dividend on 150,000 shares of preferred stock.
Feb. 7 Paid dividends on preferred stock.
March 4 Declared a ₱.50 cash dividend on 200,000 shares of common stock with a ₱20 par
value.
Mar. 18 Paid dividends on common stock.
June 30 Split common stock 4-for-1.
July 9 Purchased 12,000 shares of Buffet-Line's own common stock at ₱32 per share;
acquisition recorded at cost.
Sept. 10 Declared a cash dividend of ₱.40 per share on common stock outstanding.
Sept. 18 Paid dividends on common stock.

What total amount is debited to retained earnings for the transactions above?
a. 432,300 c. 527,700
b. 498,700 d. 614,700

8. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet
consisted of the following:
Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000
Share premium 150,000
Retained earnings (deficit) (210,000)
On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by
reducing the par value of the stock to ₱5 and eliminating the deficit against share
premium. Immediately after the quasi-reorganization, what amount should Brown report as
share premium?
a. (60,000) c. 190,000
b. 150,000 d. 0

9. I: Unrestricted retained earnings are unaffected by any type of appropriations made by the
company.
II: the asset to be distributed as a result of property dividend declaration is remeasured at
year-end and distribution date, in case the latter is after year-end.
III: recapitalization does not affect the total shareholders’ equity.
a. True, False, False
b. False, False, True
c. True, False, True
d. False, True, False

10.On January 1, 2022, Demi Corp. had five outstanding ordinary shares. On December 31,
2022, Demi declared dividends on the ordinary shares. The corporation decided to give
the ordinary shareholders a choice between receiving a cash dividend of P10 000 per
share or a property dividend in the form of noncash asset. Each noncash asset has a fair
value of P12 000. The corporation estimated that 60% of the ordinary shareholders will
take the option of the cash dividend and 40% will elect for the noncash asset. On the date
of declaration, what amount of cash and property dividends are to be charged on retained
earnings?
a. 24 000 ; 30 000
b. 54 000 ; 6 000
c. 30 000 ; 24 000
d. 6 000 ; 54 000

11.For which of the following purposes should an appropriation for possible loss contingencies
be established?
a. To charge operations in periods of rising prices for the losses which may otherwise
be absorbed in period of falling prices.
b. To inform shareholders that a portion of retained earnings should be set aside from
amounts available for dividends because of such contingencies.
c. To match applicable costs with current revenue.
d. To reduce fluctuations in net income in order to lend stability of the entity.

12.Changes in capital stock accounts should normally be approved by

a. The board of directors
 b. The stockholders
c. The audit committee
d. The president

13.An entry is not made on the

a. Date of declaration
b. Date of record
c. Date of payment
d. An is made on all of these dates

14.If an entity wishes to capitalize retained earnings, it may issue

a. Liquidating dividends
b. Property dividends
c. Cash dividends
d. Share dividends

15.The liability to pay a dividend shall be recognized when the dividend is appropriately
authorized and is no longer at the discretion at the entity, which is the date
I. When the dividend is declared by management or the board of directors if the
jurisdiction does not require further approval.
II. When declaration of dividend by management or the board of directors is approved
by relevant authority, for example, the shareholders, if the jurisdiction requires
such approval.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

16. How would retained earnings be affected by the declaration of share dividend and share split,
respectively?
a. Decrease and Decrease
b. No effect and Decrease
c. No effect and No effect
d. Decrease and No effect

17. Total shareholder equity remains the same when there is

a. Issuance of preference shares in exchange for convertible debenture
b. Issuance of non-convertible bonds with share warrants
c. Declaration of share dividends
d. Declaration of cash dividends

18. The actual total amount of cash dividend to be paid is determined on the date of
a. Record
b. Declaration
c. Declaration, or date of record, whichever is earlier
d. Payment

19. Which of the following would not affect retained earnings?

a. Conversion of preference shares into ordinary shares
b. Share split
c. Reissue of treasury shares
d. Share dividends

20. How would the declaration of a 10% stock dividend corporation affect each of the following
on its books?
Retained Earnings Total SHE
a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect

21. On July 31, 2021. Lakers Corporation purchased 500,000 shares of Celtic Corporation. On
December 31, 2022, Lakers distributed 250,000 shares of Celtic stock as dividend to Lakers’
stockholders. This is an example of a
a. Liquidating dividend
b. Investment dividend
 c. Property dividend
d. Stock dividend

Kath Incorporation declared P2 400 000 cash dividends to its preference and ordinary
shareholders out of its unappropriated retained earnings in 2022. No dividends have been
declared since 2020. Kath’s shareholders’ equity before dividend declaration is as follows:
10% Preference share capital (P300 par) P 6 000 000
Ordinary share capital (150 par) 3 000 000
Retained earnings 4 000 000
Ordinary share premium 800 000
Compute the amount of dividends to be allocated to preference shareholders and ordinary
shareholders under the following assumptions:

22. The preference shares are cumulative and but not participating
a. 600 000; 1 800 000
b. 1 800 000; 600 000
c. 1 600 000; 800 000
d. 2 100 000; 400 000

23. The preference shares are non-cumulative and fully participating

a. 600 000; 1 800 000
b. 1 800 000; 600 000
c. 1 600 000; 800 000
d. 2 100 000; 300 000

24. The preference shares are cumulative and participating only up to 15%
a. 600 000; 1 800 000
b. 1 800 000; 600 000
c. 1 600 000; 800 000
d. 2 100 000; 400 000

25. An entity declared a cash dividend on a certain date payable on another date. Retained
earnings would
a. Increase on the date of the declaration
b. Not be affected on the date of declaration
c. Not affected on the date of payment
d. Decrease on the date of payment

26. If a corporation declares a 10% stock dividend on its common stock, the account to be
debited on the date of declaration is
a. Common Stock Dividends Distributable.
b. Common Stock.
c. Paid-in Capital in Excess of Par.
d. Retained Earnings.

27. Which one of the following events would not require a formal journal entry
on a corporation's books?
a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend

28. Which of the following is not a significant date with respect to dividends?
a. The declaration date
b. The incorporation date
c. The record date
d. The payment date

29. On the dividend record date,

a. a dividend becomes a current obligation.
b. no entry is required.
c. an entry may be required if it is a stock dividend.
d. Dividends Payable is debited.
30. Which of the following statements regarding the date of a cash dividend declaration is
notaccurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.