COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

PRELIMINARY EXAM
in ACCOUNTING 2

NAME :____________________________ DATE :___________

COURSE/YEAR :____________________________ TIME/DAYS :___________
Score

Corporation Accounting Exequiel C. Cruspero Jr., CPA

GENERAL INSTRUCTIONS: Cheating in any form is absolutely prohibited. Anyone caught doing this will automatically
get 5.0 grade in the exam. The questions are in the multiple choice format. Just write your letter of choice (in ink, ALL
CAPS) on the space before the number. For theory questions, no solutions are needed. For problem questions,
solutions are necessary. NO SOLUTIONS, NO CREDIT. Strictly NO ERASURES allowed. Good Luck! Take your time.

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THEORY.

_____ 1. Which of the following would not be considered a characteristic of a corporation?

a. Separate legal entity c. Mutual agency
b. Limited liability of shareholders d. Both a and c

_____ 2. Which of the following statements describing a corporation is not true?

a. Shareholders are the owners of a stock corporation
b. When ownership of a corporation changes, the corporation does not terminate
c. Shareholders own the business and manage its day-to-day affairs.
d. A corporation is subject to a greater governmental regulation than a single proprietorship or capital

_____ 3. The par value of a share capital

a. is usually different from its market value
b. is often higher for preference share than for ordinary share
c. is an arbitrary amount assigned to a share of stock
d. all of these

_____ 4. Which of the following is not one of the basic rights of a shareholder?
a. The right to participate in earnings.
b. The right to maintain one's proportionate interest in the corporation.
c. The right to inspect the accounting records of the corporation.
d. The right to participate in the proceeds from the sale of corporate assets upon liquidation of the
company.

_____ 5. The ownership of share capital entitles ordinary shareholders to all of the following rights except:
a. voting right
b. right to receive a proportionate share of assets in corporate liquidation
c. right to receive guaranteed dividends.
d. preemptive right

_____ 6. Which of the following statements about preference share capital is true?
a. Preference share capital usually carries the right to vote.
b. Preference share capital dividends are usually paid prior to payment of ordinary share capital dividends.
c. Preference share capital usually shares the right to receive assets pro-rata with the ordinary
shareholders in case of corporate liquidation.
d. In addition to being paid dividends prior to those paid to ordinary shareholders, preference shareholders
have the right to receive assets pro-rata with ordinary shareholders in the event of corporate liquidation.

_____ 7. The maximum number of shares of stock that the government gives a corporation permission to
issue is the
a. granted shares c. issued shares
b. authorized shares d. outstanding shares

_____ 8. A preference share capital that may be exchanged for ordinary share capital is known as
a. cumulative c. noncumulative
b. participating d. Convertible

_____ 9. The cost of organizing a corporation should be

a. expensed in the year of organization
b. reported as an intangible asset
c. reported as a tangible asset
d. deducted from share capital

_____ 10. A non-cash asset received in exchange for share capital is recorded at
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a. its book value
b. its fair market value
c. the lower of its book value or fair market value
d. the higher of its book value or fair market value

_____ 11. The entry to record the issuance of ordinary share capital for fully paid stock subscription is
a. Memorandum entry
b. Debit Ordinary Share capital Subscribed and credit Ordinary Share Capital
c. Debit Ordinary Share Capital Subscribed and credit Additional Paid-in Capital
d. Debit Ordinary Share Capital Subscribed and credit Subscription Receivable

_____ 12. The issuance of shares of ordinary share capital to shareholders

a. increases ordinary share capital authorized
b. decreases ordinary share capital authorized
c. increases ordinary share capital outstanding
d. decreases ordinary share capital outstanding

_____ 13. On June 1, authorized ordinary share capital was sold on a subscription basis at a price in excess
of par value, and 40% of the subscription price was collected. On October 1, the remaining 60% of the
subscription price was collected. Ordinary Share Premium will be credited on
June 1 October 1
a. No Yes
b. No Yes
c. Yes No
d. Yes Yes

_____ 14. When there is no bidder for delinquent subscription, the subscribed shares
a. will be issued to the delinquent subscriber
b. will be issued in the name of the corporation
c. will be reverted back to unsubscribed shares
d. none of these

_____ 15. Violet Inc. issued 8,000 shares of P20 par ordinary share capital for P24 per share. In recording
this sale of share capital, Violet will include a credit to
a. gain on issuance of stock for P32,000
b. Ordinary share capital for P192,000
c. Paid-in capital in excess of par for P32,000
d. Discount on ordinary share capital for P16,000

PROBLEMS.

_____ 1. Cream Corporation was organized on January 1, 2012 with authorized capital of P2,000,000
consisting of 100,000 ordinary shares, P20 par value. Subsequently, incorporators subscribed for 25,000
shares at P24. How much must be paid up upon subscription to comply with the requirement of the
Securities and Exchange Commission?
a. P600,000
b. P125,000
c. P500,000
d. P150,000

_____ 2. Beige Co. was authorized to issue 10,000 preference shares, p100 par value and 200,000 no-par
ordinary shares. Subscriptions for 4,000 preference shares was received at P110 with a down payment of
25%. What entry should be made in the books of Beige Co. to record the receipt of subscription?
a. Subscription Receivable – Pref. 440,000
Subcribed Share Capital – Pref 400,000
Share Premium – Pref 40,000

b. Subscription Receivable – Pref. 440,000

Subcribed Share Capital – Pref 440,000

c. Subscription Receivable – Pref. 400,000

Subcribed Share Capital – Pref 400,000

d. Subcribed Share Capital – Pref 400,000

Subscription Receivable – Pref. 400,000

_____ 3. Using the information in #2, how much was the downpayment received by Beige Co. as a result of
the subscription?
a. P100,000
b. P 10,000

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c. P110,000
d. P 11,000

_____ 4. Last September 6, 2012, Brown Co. issued 2,000 shares of its P10 par value ordinary share capital
in exchange for a piece of land to be held for a future plant site. Brown Co.'s ordinary share capital was
listed and traded at P27 per share on the same date. The land has no known market value. How much is
the increase in ordinary share premium resulting from this exchange?
a. P0
b. P20,000
c. P34,000
d. P40,000

_____ 5. Violet Co. was organized on January 1, 2012 with authorized capital of 100,000 ordinary shares,
P20 par value. During 2012, Violet Co. had the following transactions affecting the shareholders' equity.

January 10 Issued 25,000 shares at P22 per share

March 25 Issued 1,000 shares for legal service when the fair value was P24 per share
Sept. 30 Issued 5,000 shares for a piece of equipment when the value was P26 per share

How much is the balance of the ordinary share capital account as of September 30?
a. P620,000
b. P700,000
c. P704,000
d. P674,000

_____ 6. Using the information in #5, what amount should be reported as ordinary share premium?
a. P84,000
b. P54,000
c. P56,000
d. P50,000

_____ 7. Aqua Co. was incorporated on June 1, 2012 with an authorized 250,000 share of no-par ordinary
share capital, stated value P15 and 10,000 shares of 10% preference share capital, par value P50.
Transactions affecting company's share capital as of June 30, 2012 were as follows:

June 1 Issued 50,000 ordinary shares for cash at P15 per share

5 Issued 50,000 ordinary shares in exchange for assets with total market value of
P900,000.

15 Received subscriptions for 100,000 ordinary shares at P30 and for 5,000 preference
shares at P55.

25 Received full payment for subscriptions received on June 15 and the corresponding
stock were issued.

What is the total paid-in capital in excess of par and stated value for both ordinary and preference shares?
a. P1,650,000
b. P300,000
c. P25,000
d. P1,675,000

_____ 8. Using the information in #7, how much is the total shareholders' equity?
a. P4,925,000
b. P4,500,000
c. P3,250,000
d. P4,675,000

_____ 9. Violet Inc. issued 8,000 shares at P20 par ordinary share capital for P24 per share. In recording this
sale of share capital, Violet will include a credit to
a. gain on issuance of stock for P32,000
b. ordinary share capital for P192,000
c. paid-in capital in excess of par for P32,000
d. discount on ordinary share capital for P16,000

_____ 10. Indigo Co. has authorized 200,000 shares at P30 par value ordinary share capital and 5,000
shares of P50 par, 9% preference share capital. On June 3, 2012, the company issued 100,000 ordinary
shares and 3,000 preference shares, both at par. Which of the following is correct journal entry in
recording the transaction?
a. Cash 3,600,000
Ordinary Share Capital 3,000,000
Preference Share Capital 600,000

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b. Cash 1,540,000
Ordinary Share Capital 1,000,000
Preference Share Capital 540,000

c. Ordinary Share Capital 3,000,000

Preference Share Capital 600,000
Income from Sale of Share Capital 3,600,000

d. Cash 3,150,000
Ordinary Share Capital 3,000,000
Preference Share Capital 150,000

“There is no such thing as failure... only delay of results”

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Merry Christmas and a Happy New Year!
See you next year..

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