2

The residual interest in a corporation belongs to the

Select one:
a. management
b. common stockholders
c. creditors
d. preferred stockholders
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Question 2
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During 2018, Hyatt Company issued P110 per share, 15,000 convertible preference shares of
P100 par value. One preference share may be converted into three ordinary shares of P25
par value at the option of the preference shareholder.
On December 31, 2018, all of the preference shares were converted into ordinary shares.
The market value of the ordinary share at the conversion date was P40.
What amount should be credited to share premium as a result of conversion?

Select one:
a. 0
b. 525,000
c. 375,000
d. 150,000
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Question 3
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In 2017, Rona Company issued 50,000 shares of P10 par value for P100 per share.
In 2018, the entity reacquired 2,000 shares at P150 per share and immediately canceled
these 2,000 shares.
In connection with the retirement of shares, what amount should be debited to retained
earnings?

Select one:
a. 280,000
b. 180,000
c. 0
d. 100,000
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Question 4
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In 2017, Rona Company issued 50,000 shares of P10 par value for P100 per share.
In 2018, the entity reacquired 2,000 shares at P150 per share and immediately canceled
these 2,000 shares.
1. In connection with the retirement of shares, what amount should be debited to share
premium?

Select one:
a. 20,000
b. 180,000
c. 280,000
d. 100,000
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Question 5
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During 2018, Hyatt Company issued P110 per share, 15,000 convertible preference shares of
P100 par value. One preference share may be converted into three ordinary shares of P25
par value at the option of the preference shareholder.
On December 31, 2018, all of the preference shares were converted into ordinary shares.
The market value of the ordinary share at the conversion date was P40.
What amount should be credited to ordinary share capital as a result of conversion?

Select one:
a. 1,650,000
b. 1,125,000
c. 1,800,000
d. 1,500,000
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Stock that has a fixed per-share amount printed on each stock certificate is called

Select one:
a. fixed value stock.
b. uniform value stock.
c. stated value stock.
d. par value stock.
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Question 7
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In a corporate form of business organization, legal capital is best defined as

Select one:
a. the par value of all capital stock issued.
b. the amount of capital the state of incorporation allows the company to accumulate over
its existence.
c. the amount of capital the federal government allows a corporation to generate.
d. the total capital raised by a corporation within the limits set by the Securities and
Exchange Commission.
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Cash dividends are paid on the basis of the number of shares

Select one:
a. outstanding.
b. issued.
c. outstanding less the number of treasury shares.
d. authorized.
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When treasury stock is purchased for more than the par value of the stock and the cost
method is used to account for treasury stock, what account(s) should be debited?

Select one:
a. Treasury stock for the par value and paid-in capital in excess of par for the excess of
the purchase price over the par value.
b. Treasury stock for the purchase price.
c. Treasury stock for the par value and retained earnings for the excess of the purchase price
over the par value.
d. Paid-in capital in excess of par for the purchase price.
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If management wishes to "capitalize" part of the earnings, it may issue a

Select one:
a. liquidating dividend.
b. cash dividend.
c. stock dividend.
d. property dividend.
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Question 11
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Vicar Company was organized on January 1, 2018 with 100,000 authorized shares of P100
par value. On January 5, the entity issued 75,000 shares at P140 per share.
On December 31, the entity purchased 5,000 shares at P110 per share. The entity used the
par value method to record the purchase of the treasury shares.
What is the balance of the share premium from the original issuance of shares on December
31, 2018?

Select one:
a. 3,000,000
b. 2,800,000
c. 3,800,000
d. 4,000,000
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Question 12
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Glenn Company provided the following information at year-end:

Preference share capital, P100 par 2,300,000
Share premium – preference share 805,000
Ordinary share capital, P10 par 5,250,000
Share premium – ordinary share 2,750,000
Subscribed ordinary share capital 50,000
Retained earnings 1,900,000
Note payable 4,000,000
Subscription receivable – ordinary share 400,000
What is the amount of legal capital?

Select one:
a. 11,150,000
b. 7,600,000
c. 7,550,000
d. 13,055,000
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Which dividends do not reduce stockholders' equity?

Select one:
a. Stock dividends
b. Cash dividends
c. Property dividends
d. Liquidating dividends
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Pryor Corporation issued a 100% stock dividend of its common stock which had a par value
of P10 before and after the dividend. At what amount should retained earnings be
capitalized for the additional shares issued?

Select one:
a. Market value on the declaration date
b. Market value on the payment date
c. Par value
d. There should be no capitalization of retained earnings.
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Question 15
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Vicar Company was organized on January 1, 2018 with 100,000 authorized shares of P100
par value. On January 5, the entity issued 75,000 shares at P140 per share.
On December 31, the entity purchased 5,000 shares at P110 per share. The entity used the
par value method to record the purchase of the treasury shares.
What is the balance of the share premium from treasury shares on December 31, 2018?

Select one:
a. 150,000
b. 0
c. 50,000
d. 200,000
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Which of the following is not a legal restriction related to profit distributions by a

corporation?

Select one:
a. The amount distributed in any one year can never exceed the net income reported for
that year.
b. Dividends must be in full agreement with the capital stock contracts as to preferences and
participation.
c. The amount distributed to owners must be in compliance with the state laws governing
corporations.
d. Profit distributions must be formally approved by the board of directors.
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Question 17
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Mara Company provided the following data at year-end:

Authorized share capital 5,000,000
Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 100,000

What total amount should be reported as shareholders’ equity?

Select one:
a. 5,100,000
b. 4,800,000
c. 5,500,000
d. 4,900,000
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Question 18
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Day Company held 10,000 shares of P10 par value as treasury reacquired for P120,000. On
December 31, 2018, the entity reissued all 10,000 shares for P190,000.
What is credited for the excess of the reissue price over the cost of treasury shares?

Select one:
a. Share premium P70,000
b. Gain on sale of investment P70,000
c. Share capital P100,000
d. Retained earnings P70,000
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Question 19
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An entry is not made on the

Select one:
a.
date of declaration.
b. date of payment.
c.
An entry is made on all of these dates.
d.
date of record.
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When a corporation issues its capital stock in payment for services, the least appropriate
basis for recording the transaction is the

Select one:
a. market value of the services received.
b. market value of the shares issued.
c. par value of the shares issued.
d. Any of these provides an appropriate basis for recording the transaction.
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Question 21
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Stockholders of a business enterprise are said to be the residual owners. The term residual
owner means that shareholders

Select one:
a. can negotiate individual contracts on behalf of the enterprise.
b. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
c. have the rights to specific assets of the business.
d. are entitled to a dividend every year in which the business earns a profit.
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The pre-emptive right of a common stockholder is the right to

Select one:
a. share proportionately in any new issues of stock of the same class.
b. exclude preferred stockholders from voting rights.
c. share proportionately in corporate assets upon liquidation.
d. receive cash dividends before they are distributed to preferred stockholders.
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Question 23
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Stockholders' equity is generally classified into two major categories:

Select one:
a. contributed capital and appropriated capital.
b. earned capital and contributed capital.
c. appropriated capital and retained earnings.
d. retained earnings and unappropriated capital.
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Total stockholders' equity represents

Select one:
a. only the amount of earnings that have been retained in the business.
b. the maximum amount that can be borrowed by the enterprise.
c. a claim to specific assets contributed by the owners.
d. a claim against a portion of the total assets of an enterprise.
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Which of the following represents the total number of shares that a corporation may issue
under the terms of its charter?

Select one:
a. unissued shares
b. authorized shares
c. issued shares
d. outstanding shares
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Question 26
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In January 2018, Castro Corporation, a newly formed company, issued 10,000 shares of its
P10 par common stock for P15 per share. On July 1, 2018, Castro Corporation reacquired
1,000 shares of its outstanding stock for P12 per share. The acquisition of these treasury
shares

Select one:
a. did not change total stockholders' equity.
b. increased total stockholders' equity.
c. decreased the number of issued shares.
d. decreased total stockholders' equity.
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Question 27
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At the beginning of current year, Hanna Company reported the following shareholders’
equity:
Share capital, P10 par, outstanding 225,000 shares 2,250,000
Share premium 900,000
Retained earnings 2,190,000

During the current year, the entity had the following share transactions:
* Acquired 6,000 treasury shares for P270,000.
* Sold 3,600 treasury shares at P50 a share.
* Sold the remaining treasury shares at P41 per share.
What is the total amount of share premium at year-end?

Select one:
a. 891,600
b. 870,000
c. 908,400
d. 927,600
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The pre-emptive right enables a stockholder to

Select one:
a. receive cash dividends before other classes of stock without the pre-emptive right.
b. receive the same amount of dividends on a percentage basis as the preferred
stockholders.
c. sell capital stock back to the corporation at the option of the stockholder.
d. share proportionately in any new issues of stock of the same class.
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A primary source of stockholders' equity is

Select one:
a. both income retained by the corporation and contributions by stockholders.
b. income retained by the corporation.
c. appropriated retained earnings.
d. appropriated retained earnings.
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Treasury shares are

Select one:
a. issued but not outstanding shares.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. shares held as an investment by the treasurer of the corporation.
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