MOCK RETENTION EXAM 2017

Corporation
THEORIES:

Multiple Choice Questions

1. The Securities and Exchange Commissions 25-25 rule means that
A. At least 25% of the total authorized share capital has been
subscribed.
B. At least 25% of the total subscriptions have been paid.
C. At least 25% of each subscription have been paid.
D. A and B
E. A and C

2. Which of the following statements is not correct regarding the

appropriation of Retained Earnings?
A. Appropriations of Retained Earnings do not change the total
amount of Retained Earnings.
B. Appropriations of Retained Earnings reflect funds set aside for
a designated purpose, such as plant expansion.
C. Appropriation of Retained Earnings can be made as a result of
contractual requirement.
D. Appropriation of Retained Earnings can be made at the discretion
of the board of directors.
E. None of the above.

3. Share dividends declared but not yet distributed as of the

statement of financial position date should be reported as a(n):
A. Current liability
B. Equity item
C. Current asset
D. Cannot be determined

4. Which of the following statements regarding dividends in arrears

is incorrect?
A. Dividends in arrears are not a liability to a corporation until
they are declared.
B. Total dividends in arrears is one year dividend requirement on
cumulative preference share capital multiplied by the number of
years in arrears.
C. Dividends in arrears must be reported in the notes to the
financial statements.
D. Dividends in arrears may arise on both preference and ordinary
share capital in any year the dividends are not paid.

5. When a small share capital dividend is declared, Retained Earnings

is debited for the
A. Par value of the share capital.
B. Fair market value of the share capital on the date of
declaration.
C. Fair market value of the share capital on the date of record.
 D. Fair market value of the share capital on the date of
distribution.

6. When a large share capital dividend is declared, Retained Earnings

is debited for the
A. Par value of the share capital.
B. Fair market value of the share capital on the date of
declaration.
C. Fair market value of the share capital on the date of record.
D. Fair market value of the share capital on the date of
distribution.

7. Cash dividends declared but not paid as of the statement of

financial position date are reported as
A. Current liability
B. Deduction from Cash
C. Non-current liability
D. Contra-liability account

8. Which of the following statements about treasury shares is (are)

correct?
A. Treasury shares are recorded at cost.
B. Purchase of treasury shares reduces the corporations total
assets and total shareholders equity.
C. Treasury shares are issued shares that are subsequently
reacquired, hence, they are no longer outstanding.
D. All of the above statements are true.

9. The purchase of treasury shares decrease the number of

A. Authorized shares
B. Issued shares
C. Outstanding shares
D. Both B and C

10. Treasury shares are reported as

A. Contra-asset
B. Asset
C. Liability
D. Contra-equity

11. The preparation and presentation of financial statements is

a responsibility of
A. Management
B. External auditor
C. Internal auditor
D. Accounting associate

12. The cash flows shown in the statement of cash flows are
grouped into the following major categories:
A. Cash receipts, cash disbursements, and non-cash activities
B. Operating, investing, financing activities
 C. Direct and indirect cash flows
D. Inflows and outflows

PROBLEMS:
1. Last September 6, 2014, Gel 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. Gel 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. -0-
B. P20,000
C. P34,000
D. P40,000

2. Lips Corp. was organized on January 1, 2016 with authorized capital

of 100,000 ordinary shares P20 par value. During 2016, Lips 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.

September 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, 2016?
A. P620,000
B. P674,000
C. P700,000
D. P704,000

What amount should be reported as ordinary share premium?

A. P50,000
B. P54,000
C. P64,000
D. P84,000

3. Razell Corp. was incorporated on June 1, 2016 with an authorized

250,000 shares of no-par ordinary share capital, stated value P15
and 10,000 shares of 10% preference share capital, par value P50.
Transactions affecting companys share capital as of June 30, 2016
were as follows:

June 1 Issued 50,000 ordinary shares for cash at par.

June 5 Issued 50,000 ordinary shares in exchange for assets

with total market value of P900,000.
 June 15 Received subscriptions for 100,000 ordinary shares at
P30 and for 5,000 preference shares at P55.

June 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. P25,000
B. P300,000
C. P1,650,000
D. P1,675,000

How much is the total shareholders equity?

A. P3,250,000
B. P4,500,000
C. P4,675,000
D. P4,925,000

4. Reinald and John are partners. They decide to incorporate their

business and are recording the incorporation of the new business.
Reinald has a P35,000 capital account balance while John has a
P26,400 balance. Reinald receives 7,500 shares and John receives
6,000 shares of P4 par ordinary share. The correct entry to record
the issuance of ordinary shares, assuming the corporation will use
the books of the partnership, is:
A. Reinald, Capital 35,000
John, Capital 26,400
Ordinary share capital 61,400

B. Reinald, Capital 35,000

John, Capital 26,400
Ordinary share capital 54,000
Ordinary share premium 7,400

C. Reinald, Capital 35,000

John, Capital 26,400
Gain on incorporation 61,400

D. Reinald, Capital 35,000

John, Capital 26,400
Revaluation increment 61,400

5. The Culta Corporation was organized on January 1, 2016 with

authorized share capital consisting of 100,000 shares of P50 par
value preference share capital and 1,000,000 shares of no-par
ordinary share capital with a stated value of P10. At December 31,
2016, the ledger included the following balances pertaining to
shareholders equity:

Preference share capital P3,000,000

Share premium Preference 300,000
Ordinary share capital 5,000,000
PIC in excess of stated value Ordinary 2,500,000

Ten thousand preference shares were issued for equipment having a

fair market of P550,000. The remaining preference share capital
were issued for cash. All preferred shares were issued in January.
All ordinary shares were issued for cash.

Compute for the following:

1. Number of preference shares issued for cash. 50,000 shares
2. Price per share of preference share capital issued for cash.
P55.00
3. Number of ordinary shares issued. 500,000 shares
4. Average price per share of the ordinary share capital issued for
cash. P15.00
5. Total preference share premium arising from issuance in exchange
of equipment. P50,000

6. The Amadeus Corporation was incorporated on January 1, 2017,

with the following authorized capitalization:
40,000 shares of ordinary share capital, no-par value, stated
value P50 per share.
10,000 shares of 5% cumulative preference share capital, par
value P100.

During 2017, Amadeus issued 24,000 ordinary shares for P60 per
share and 6,000 preference shares at P120 per share. In addition,
on December 10, 2017, subscription for 2,000 preference shares
were taken at a purchase price of P150. A down payment of 30%
was received. The full payment on these subscribed shares was
received on January 5, 2018. What should Amadeus report as total
increase in shareholders equity on its December 31, 2017
Statement of Financial Position? P2,460,000

7. The shareholders equity of Galvatron Corp. as of December 31,

2015 contained the following accounts:

Ordinary share capital, 25,000 shares P30,000

authorized, 10,000 shares issued and outstanding
Share premium 40,000
Retained earnings 80,000
P150,000

Galvatrons board of directors declared a 10% stock dividend on

April 1, 2016 when the market value of the share capital was P7
per share. All of Galvatrons shares has a par value of P3 per
share. Galvatron incurred a loss of P12,000 for the first three
months. What is the balance of the Retained Earnings account as
of April 1, 2016?
A. P61,000
 B. P65,000
C. P68,000
D. P73,000

Assume the same information except that Galvatrons board of

directors declared a 20% stock dividend on April 1, 2016, what
is the balance of the Retained earnings account as of April 1,
2016?
A. P54,000
B. P62,000
C. P74,000
D. P86,000

8. The Jengga Corporation has the following classes of share

capital outstanding as of December 31, 2014:

ORDINARY SHARE CAPITAL P20 par; 20,000 shares outstanding

PREFERENCE SHARE CAPITAL 6%; P100 par; cumulative; 2,000
shares outstanding

No dividends were paid on preference shares for 2012 and 2013.

On December 31, 2014, a total cash dividend of P200,000 was
declared.

How much dividends will be received by preference shareholders?

A. P200,000
B. P12,000
C. P24,000
D. P36,000

How much dividends will be received by ordinary shareholders?

A. -0-
B. P164,000
C. P188,000
D. P176,000

9. The shareholders equity of Naly Company on December 31, 2018

follows:

10% Preference share capital, P100 par P500,000

Ordinary share capital, P60 par 3,000,000
Share premium Preference 50,000
Share premium Ordinary 250,000
Retained earnings 300,000
Total SHE P4,100,000

Preference shares are cumulative with dividends in arrears for

5 years at the beginning of 2018 and with a liquidation value
of P120.

What is the book value per preference share?

 A. P100
B. P120
C. P170
D. P180

What is the book value per ordinary share?

A. P60
B. P64
C. P65
D. P70

10. The adjusted trial balance of Djahmae Corp. on December 31,

2015 includes the following account balances:

Dividends payable P40,000

Ordinary share capital (P5 par, 500,000 shares
authorized 750,000
Subscribed ordinary shares 25,000
Share premium Ordinary 50,000
10% Preference share capital (25,000 shares
authorized, 12,000 shares outstanding) 300,000
Share premium Preference 30,000
Retained earnings appropriated for contingencies 150,000
Retained earnings appropriated for bond retirement 100,000
Retained earnings unappropriated 450,000
Stock dividends ordinary 105,000
Share premium arising from stock dividends 63,000

What is the number of ordinary shares issued and outstanding?

A. 155,000
B. 150,000
C. P750,000
D. P775,000

What is the par value for each preference share?

A. P10
B. P12
C. P25
D. P40

What is the market value for each share declared as stock

dividends?
A. P5
B. P8
C. P10
D. P25

How much is the total amount of Retained Earnings?

A. P100,000
B. P150,000
C. P450,000
 D. P700,000

What is the total amount of Share Capital?

A. P1,050,000
B. P1,075,000
C. P1,155,000
D. P1,180,000

What is the total amount of Contributed Capital?

A. P1,050,000
B. P1,323,000
C. P1,363,000
D. P2,063,000

What is the total amount of Retained earnings available or

dividend distribution?
A. P450,000
B. P550,000
C. P600,000
D. P700,000

What is the total amount of shareholders equity?

A. P1,363,000
B. P2,000,000
C. P2,023,000
D. P2,063,000

11. MCS Company has 400 shares of 6% preference share capital

outstanding, par value is P50 per share and market value is P80
per share. The amount of dividends for the year on this share
capital would be:
A. P3
B. P4.80
C. P1,200
D. P1,920

12. For the year-ended December 31, 2016, the financial records
of CVM Corp. reported the following: total revenue, P801,400;
total expenses, P601,100; dividends declared, P25,600. What is
the entry to close the balance of Income summary to Retained
Earnings?
A. Income Summary 200,300
Retained Earnings 200,300

B. Income Summary 174,700

Retained Earnings 174,700

C. Retained Earnings 200,300

Income Summary 200,300

D. Retained Earnings 174,700

Income Summary 174,700
13. On December 24, Danielle Co. split its share capital on a 5-
for-2 when the market value was P60 per share. Prior to the
split, Danielle had 200,000 shares of P15 par value share
capital. How many shares are outstanding after the split?
A. 200,000
B. 80,000
C. 500,000
D. 1,000,000

What is the par value per share after the split?

A. P3.00
B. P6.00
C. P15.00
D. P37.50

14. JRM Corp. was organized on January 1, 2012, at which date it

issued 100,000 shares of P10 par ordinary share capital at P15
per share. For the period 2012 to 2014, the company reported
profit of P450,000 and paid cash dividends of P230,000. On
January 10, 2014, the company purchased 6,000 of its own shares
at P12 per share. On November 20, 2014, JRM sold 4,000 treasury
shares at P8 per share. What is the total shareholders equity
on December 31, 2014?
A. P1,680,000
B. P1,688,000
C. P1,704,000
D. P1,720,000

The reissuance of the treasury shares resulted in a:

A. Credit to Retained Earnings of P16,000.
B. Debit to Retained Earnings of P16,000.
C. Credit to PIC from sale of treasury shares of P16,000.
D. Debit to PIC from sale of treasury shares of P16,000.

15. The shareholders equity section of the statement of

financial position of Jenn Corporation includes the following
balances:
Share capital, 1,000 shares issued, P100 par P100,000
Share premium 30,000
Retained earnings 350,000

Jenn decided to retire 400 of its share capital at P110 per

share. What is the gain or loss on retirement of shares?
A. P4,000 gain
B. P4,000 loss
C. P8,000 gain
D. P8,000 loss
E. No gain or loss

16. On January 1, 2016, Pelovello Corp. had total assets of

P12,000,000, total liabilities of P3,000,000 and total
 contributed capital of P5,500,000. During the year 2016, the
corporation earned profit of P1,200,000 and paid cash dividends
of P500,000. At year-end, the company had total assets of
P14,500,000 and total contributed capital remained unchanged.
What is the amount of total liabilities at December 31, 2016?
A. P5,500,000
B. P8,300,000
C. P4,800,000
D. P1,800,000

17. Compute for the cost of sales given the following information:
Disbursements for purchases P6,000,000
Decrease in trade accounts payable P820,000
Increase in merchandise inventory P240,000
A. P4,940,000
B. P5,420,000
C. P6,580,000
D. P7,060,000

18. Onyok Co. provided you their list of nominal accounts taken
from their trial balance for the year ended December 31, 2016:

Debit Credit
Inventory, 1/1 100,000
Sales 3,700,000
Purchases 2,500,000
Purchase returns & allowances 150,000
Freight in 50,000
Freight out 45,000
Sales discounts 25,000
Salesmens commission 330,000
Interest income 80,000
Officers salaries 125,000
Bad debts expense 30,000
Depreciation expense Office equipment 93,000
3,298,000 3,930,000

A physical count was conducted at year-end. The result of the

physical count discloses that inventories remained unsold as of
December 31 amounted to P150,000.

What is Onyoks pre-tax net income for 2016?

A. P632,000
B. P702,000
C. P807,000
D. P782,000
 19. JK Corporation had the following capital structure during
2015 and 2016:

6% Preference share capital, P 25 par P625,000

Ordinary share capital, P 10 par 500,000

The corporation reported net income of P425,000 for the year ended
December 31, 2016. JK paid no dividends on preference shares during
2015 and paid P 70,000 dividends on preference shares during 2016.
The preference share is cumulative.

What amount should be reported as basic earnings per share?

A. P7.10
B. P7.75
C. P8.50
D. None of the choices.

20. Divina Company used the direct method to prepare the statement
of cash flows. The entity had the following cash flows during
2016:

January 1 cash balance P2,500,000

Cash receipts from issuance of ordinary shares 3,020,000
Cash receipts from customers 4,100,000
Proceeds from sale of treasury shares
(Cost P1,800,000) 2,000,000
Cash receipts from dividends on long-term investments 200,000
Cash receipts from repayment of loan made to another
company 1,600,000
Cash payments to suppliers 2,700,000
Cash paid to redeem own shares 3,000,000
Cash paid for interest on long-term notes 300,000
Cash payments for operating expenses 800,000
Cash payment for dividends 500,000
Cash payment for income taxes 360,000
Cash paid to purchase land 2,600,000

What is the net cash provided (used) by operating activities?

P140,000
What is the net cash provided (used) by investing activities?
(P1,000,000)
What is the net cash provided (used) by financing activities?
P1,520,000
What is the cash balance at year-end? P3,160,000

21. Han Corp's sales last year were P425,000, and its year-end
receivables were P52,500. The firm sells on terms that call for
customers to pay 30 days after the purchase, but some delay
payment beyond Day 30. On average, how many days late do
customers pay? (Use a 365-day year.)
 A. 13
B. 14
C. 15
D. 16

22. Wie Corp's sales last year were P315,000, and its year-end
total assets were P355,000. The average firm in the industry
has a total assets turnover ratio (TATO) of 2.4. The firm's new
CFO believes the firm has excess assets that can be sold so as
to bring the TATO down to the industry average without affecting
sales. By how much must the assets be reduced to bring the TATO
to the industry average, holding sales constant?

A. P201,934
B. P212,563
C. P223,750
D. P234,938

END