KATHLEEN D.

GONZALES BSA-II

MODULE 3

Exercises/Assignments

Answer the following Problems.

Problem 1
True or False.
Write True if the statement is correct otherwise write false.

FALSE 1. The income statement is useful for helping to assess the risk or uncertainty of
achieving future cash flows.
FALSE 2. A strength of the income statement as compared to the balance sheet is that items
that cannot be measured reliably can be reported in the income statement.
FALSE 3. Earnings management generally makes income statement information more useful
for predicting future earnings and cash flows.
TRUE 4. The transaction approach of income measurement focuses on the income-related
activities that have occurred during the period.
TRUE 5. Companies frequently report income tax expense as the last item before net income
on a singlestep income statement.
TRUE 6. Both revenues and gains increase both net income and owners’ equity.
FALSE 7. Use of a multiple-step income statement will result in the company reporting a higher
net income than if they used a single-step income statement.
FALSE 8. The primary advantage of the multiple-step format lies in the simplicity of
presentation and the absence of any implication that one type of revenue or expense
item has priority over another.
TRUE 9. Gross profit and income from operations are reported on a multiple-step but not a
single-step income statement.
FALSE 10. The accounting profession has adopted a current operating performance approach
to income reporting.
TRUE 11. Companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
FALSE 12. Gains or losses from exchange or translation of foreign currencies are reported as
extraordinary items.
FALSE 13. Discontinued operations, extraordinary items, and unusual gains and losses are all
reported net of tax in the income statement.
TRUE 14. Intraperiod tax allocation relates the income tax expense of the period to the
specific items that give rise to the amount of the tax provision.
FALSE 15. A company that reports a discontinued operation or an extraordinary item has the
option of reporting per share amounts for these items.
FALSE 16. Dividends declared on common and preferred stock are subtracted from net income
in the computation of earnings per share.
TRUE 17. Prior period adjustments can either be added or subtracted in the Retained Earnings
Statement.
FALSE 18. Companies only restrict retained earnings to comply with contractual requirements
or current necessity.
FALSE 19. Comprehensive income includes all changes in equity during a period except those
resulting from distributions to owners.
TRUE 20. The components of other comprehensive income can be reported in a statement of
stockholders’ equity.

Problem 2
Multiple Choice.
Encircle the letter of the correct answer.

1. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners.

b. To report a measure of overall enterprise performance.
c. To replace net income with a better measure.
d. To combine income from continuing operations with income from discontinued operations
and extraordinary items.

2. During year 1, the “other revenues and gains” section of Totman Company’s Statement of
Earnings and Comprehensive Income contains P5,000 in interest revenue, P15,000 equity in
Harpo Co. earnings, and P25,000 gain on sale of available-for-sale securities. Assuming the sale
of the securities increased the current portion of income tax expense by P10,000, determine
the amount of Totman’s reclassification adjustment to other comprehensive income.

a. $ 5,000 b. $ 2,500 c. $35,000 d. $15,000

3. Which of the following is not an acceptable option of reporting other comprehensive income
and its components?
 I. In a separate statement of comprehensive income.
II. In a statement of earnings and comprehensive income.
III. In a statement of changes in stockholders’ equity.

a. I only. b. II only. c. III only. d. I and II.

4. Accumulated other comprehensive income should be reported on the balance sheet as a

component of

Retained earnings Additional paid-in capital

a. No Yes
b. Yes Yes
c. Yes No
d. No No

5. Which of the following changes during a period is not a component of other comprehensive
income?

a. Unrealized gains or losses as a result of a debt security being transferred from held-
tomaturity to available-for- sale.
b. Stock dividends issued to shareholders.
c. Foreign currency translation adjustments.
d. Pension liability adjustments.

6. A company buys ten shares of securities at P1,000 each on January 15, year 1. The securities
are classified as available-for-sale. The fair value of the securities increases to P1,250 per share
as of December 31, year 1. The company does not elect to use the fair value option for
reporting availablefor-sale securities. Assume no dividends are paid and that the company has a
30% tax rate. What is the amount of the holding gain arising during the period that is classified
in other comprehensive income for the period ending December 31, year 1?

a. 0 b. P1,750 c. P2,500 d. P7,500

7. If (P2,450) net of tax is the reclassification adjustment included in other comprehensive

income in the year the securities are sold, what is the gain (loss) that is included in income from
continuing operations before income taxes? Assume a 30% tax rate.

a. P(2,450) b. P(3,500) c. P 2,450 d. P3,500

8. Which of the following changes during a period is not a component of other comprehensive
income?
a. Pension liability adjustment for funded status of plan.
b. Treasury stock, at cost.
c. Foreign currency translation adjustment.
d. Reclassification adjustment, for securities gain included in net income.

9. In the revenues section of the year 1 income statement, Baer Food should have reported
total revenues of

a. P216,300 b. P215,400 c. P203,700 d. P201,900

10. What amount should Vane report as the cost of goods manufactured?

a. P200,000 b. P215,000 c. P280,000 d. P295,000

11. What amount should Vane report as income after income taxes from continuing
operations?

a. P126,000 b. P129,500 c. P140,000 d. P147,000

12. A material loss should be presented separately as a component of income from continuing
operations when it is

a. An extraordinary item.
b. A discontinued component of the business.
c. Unusual in nature and infrequent in occurrence.
d. Not unusual in nature but infrequent in occurrence.

13. Which of the following should be included in general and administrative expenses?

Interest Advertising
a. Yes Yes
b. Yes No
c. No Yes
d. No No
 14. An extraordinary item should be reported separately on the income statement as a
component of income

Net of income taxes Before discontinued operations of a component of a business

a. Yes Yes
b. Yes No
c. No No
d. No Yes

15. Searles does not elect the fair value option for recording financial assets and liabilities.
What amount of comprehensive income should Searles Corporation report on its statement of
income and comprehensive income given the following net of tax figures that represent
changes during a period?
Pension liability adjustment recognized in OCI P (3,000)
Unrealized gain on available-for-sale securities 15,000
Reclassification adjustment, for securities gain included in net income (2,500)
Stock warrants outstanding 4,000
Net income 77,000

a. P86,500 b. P89,000 c. P89,500 d. P90,500

16. The following changes in Vel Corp.’s account balances occurred during year 1:
Increase
Assets P89,000
Liabilities 27,000
Capital stock 60,000
Additional paid-in capital 6,000
Except for a $13,000 dividend payment and the year’s earnings, there were no changes in
retained earnings for year 1. What was Vel’s net income for year 1?

a. P 4,000 b. P 9,000 c. P13,000 d. P17,000

17. A company buys ten shares of securities at P2,000 each on December 31, year 1. The
securities are classified as available for sale. The company does not elect to use the fair value
option for reporting its available-for-sale securities. The fair value of the securities increases to
P2,500 on December 31, year 2, and to P2,750 on December 31, year 3. On December 31, year
3, the company sells the securities. Assume no dividends are paid and that the company has a
tax rate of 30%. What is the amount of the reclassification adjustment for other comprehensive
income on December 31, year 3?

a. P 7,500 b. P (7,500) c. P 5,250 d. P (5,250)

18. When a component of a business has been discontinued during the year, the loss on
disposal should

a. Include operating losses of the current period.

b. Exclude operating losses during the period.
c. Be an extraordinary item.
d. Be an operating item.

19. On January 1, year 2, Shine Co. agreed to sell a business component on March 1, year 2. The
gain on the disposal should be

a. Presented as an extraordinary gain.

b. Presented as an adjustment to retained earnings.
c. Netted with the loss from operations of the component as a part of discontinued operations.
d. None of the above.

20. On December 1, year 2, Greer Co. committed to a plan to dispose of its Hart business
component’s assets. The disposal meets the requirements to be classified as discontinued
operations. On that date, Greer estimated that the loss from the disposition of the assets would
be P700,000 and Hart’s year 2 operating losses were P200,000. Disregarding income taxes,
what net gain (loss) should be reported for discontinued operations in Greer’s year 2 income
statement?

a. P0 b. P(200,000) c. P(700,000) d. P(900,000)

Answer as required.
Problem 1
Presented below is certain information pertaining to Edson Company.
Assets, January 1 P240,000
Assets, December 31 230,000
Liabilities, January 1 150,000
Common stock, December 31 80,000
Retained earnings, December 31 31,000
Common stock sold during the year 10,000
Dividends declared during the year 13,000
Compute the net income for the year.

SOLUTION:

Assets, January 1 P240,000 Common stock, December 31 P80,000

Liabilities, January 1 (150,000) Retained earnings, December 31 31,000
Equity, January 1 P90,000 Equity, December 31 P111,000

Equity, January 1 P90,000

Equity, December 31 P111,000
Increase P21,000
Dividends declared during the year 13,000
Common stock sold during the year (10,000 )
NET INCOME P24,000

Problem 2
Fill in the appropriate blanks for each of the independent situations below.

Company A Company B Company C

Sales (a) P261,000 P343,400 P540,000
Beginning inventory 52,600 (d) 97,800 90,000
Net purchases 175,300 255,600 (g) 380,000
Ending inventory 52,200 108,000 63,000
Cost of goods sold (b)175,700 (e) 245,400 407,000
Gross profit 85,300 98,000 (h) 133,000
Operating expenses (c) 79,300 50,000 48,000
Income before taxes 6,000 (f) 48,000 (i) 85,000

Problem 3
For each of the items listed below, indicate how it should be treated in the financial
statements. Use the following letter code for your selections:
a. Ordinary or unusual (but not extraordinary) item on the income statement
b. Discontinued operations
c. Extraordinary item on the income statement
d. Prior period adjustment

A 1. The bad debt rate was increased from 1% to 2%, thus increasing bad debt expense.
A 2. Obsolete inventory was written off. This was the first loss of this type in the company's
history.
C 3. An uninsured casualty loss was incurred by the company. This was the first loss of this type
in the company's 50-year history.
D 4. Recognition of income earned last year which was inadvertently omitted from last year's
income statement.
A 5. The company sold one of its warehouses at a loss.
A 6. Settlement of litigation with federal government related to income taxes of three years
ago. The company is continually involved in various adjustments with the federal government
related to its taxes.
C 7. A loss incurred from expropriation (the company owned resources in South America which
were taken over by a dictator unsympathetic to American business).
D 8. The company neglected to record its depreciation in the previous year.
A 9. Discontinuance of all production in the United States. The manufacturing operations were
relocated in Mexico.
B 10. Loss on sale of investments. The company last sold some of its investments two years ago.

Problem 4
Presented below is information related to Farr Company.
Retained earnings, December 31, 2010 P 650,000
Sales 1,400,000
Selling and administrative expenses 240,000
Hurricane loss (pre-tax) on plant (extraordinary item) 290,000
Cash dividends declared on common stock 33,600
Cost of goods sold 780,000
Gain resulting from computation error on depreciation charge in 2018 (pre-tax) 520,000
Other revenue 120,000
Other expenses 100,000
Instructions : Prepare in good form a multiple-step income statement for the year 2020.
Assume a 30% tax rate and that 80,000 shares of common stock were outstanding during the
year.
Farr Company
 Statement of Financial Performance
For the year ended December 31, 2020

Sales ₱ 1,400,000.00
Less: Cost of Good Sold -₱ 780,000.00
Gross Profit ₱ 620,000.00
Less: Selling and Administrative Expense -₱ 240,000.00
Operating Income ₱ 380,000.00
Other Revenue ₱ 120,000.00
Less: Other Expenses -₱ 120,000.00
Income Before Tax ₱ 400,000.00
Less: Income Tax -₱ 120,000.00
Income before extraordinary item ₱ 280,000.00
Less: Extraordinary loss, Net of tax -₱ 203,000.00
Net Income ₱ 77,000.00

Per share of common stock

Income before extraordinary item (280K/80K) ₱ 3.50
Less: Extraordinary item, net of tax (203K/80K) -₱ 2.54
Net income ₱ 0.96

MODULE 4
Exercises/Assignments
Answer the following Problems.
Problem 1 True or False.
Write True if the statement is correct otherwise write false.

TRUE 1. A corporation is incorporated in only one state regardless of the number of states in which it
operates.
FALSE 2. The preemptive right allows stockholders the right to vote for directors of the company.
TRUE 3. Common stock is the residual corporate interest that bears the ultimate risks of loss.
FALSE 4. Earned capital consists of additional paid-in capital and retained earnings.
TRUE 5. True no-par stock should be carried in the accounts at issue price without any additional
paidin capital reported.
FALSE 6. Companies allocate the proceeds received from a lump-sum sale of securities based on the
securities’ par values.
TRUE 7. Companies should record stock issued for services or noncash property at either the fair value
of the stock issued or the fair value of the consideration received.
FALSE 8. Treasury stock is a company’s own stock that has been reacquired and retired.
FALSE 9. The cost method records all transactions in treasury shares at their cost and reports the
treasury stock as a deduction from capital stock.
TRUE 10. When a corporation sells treasury stock below its cost, it usually debits the difference
between cost and selling price to Paid-in Capital from Treasury Stock.
FALSE 11. Participating preferred stock requires that if a company fails to pay a dividend in any year, it
must make it up in a later year before paying any common dividends.
TRUE 12. Callable preferred stock permits the corporation at its option to redeem the outstanding
preferred shares at stipulated prices.
TRUE 13. The laws of some states require that corporations restrict their legal capital from distribution
to stockholders.
FALSE 14. The SEC requires companies to disclose their dividend policy in their annual report.
FALSE 15. All dividends, except for liquidating dividends, reduce the total stockholders’ equity of a
corporation.
TRUE 16. Dividends payable in assets of the corporation other than cash are called property dividends
or dividends in kind.
TRUE 17. When a stock dividend is less than 20-25 percent of the common stock outstanding, a
ompany is required to transfer the fair value of the stock issued from retained earnings.
FALSE 18. Stock splits and large stock dividends have the same effect on a company’s retained
earnings and total stockholders’ equity.
FALSE 19. The rate of return on common stock equity is computed by dividing net income by the
average common stockholders’ equity.
TRUE 20. The payout ratio is determined by dividing cash dividends paid to common stockholders by
net income available to common stockholders.
Multiple Choice.
Encircle the letter of the correct answer.

21. The residual interest in a corporation belongs to the

a. management.
b. creditors.
c. common stockholders.
d. preferred stockholders.

22. The pre-emptive right of a common stockholder is the right to

a. share proportionately in corporate assets upon liquidation.

b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights.

23. The pre-emptive right enables a stockholder to

a. share proportionately in any new issues of stock of the same class.

b. receive cash dividends before other classes of stock without the pre-emptive right.
c. sell capital stock back to the corporation at the option of the stockholder.
d. receive the same amount of dividends on a percentage basis as the preferred stockholders. S

24. In a corporate form of business organization, legal capital is best defined as

a. the amount of capital the state of incorporation allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
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. S

25. Stockholders of a business enterprise are said to be the residual owners. The term residual owner
means that shareholders

a. are entitled to a dividend every year in which the business earns a profit.
b. have the rights to specific assets of the business.
c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
d. can negotiate individual contracts on behalf of the enterprise.

26. Total stockholders' equity represents

a. a claim to specific assets contributed by the owners.
b. the maximum amount that can be borrowed by the enterprise.
c. a claim against a portion of the total assets of an enterprise.
d. only the amount of earnings that have been retained in the business.

27. A primary source of stockholders' equity is

a. income retained by the corporation.

b. appropriated retained earnings.
c. contributions by stockholders.
d. both income retained by the corporation and contributions by stockholders.

28. Stockholders' equity is generally classified into two major categories:

a. contributed capital and appropriated capital.

b. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
d. earned capital and contributed capital.

29. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of
securities. An acceptable method of allocation is the

a. pro forma method.

b. proportional method.
c. incremental method.
D. either the proportional method or the incremental method.

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for
recording the transaction is the

a. market value of the services received.

b. par value of the shares issued.
c. market value of the shares issued.
d. Any of these provides an appropriate basis for recording the transaction.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted for as
1. a reduction of additional paid-in capital.
2. an expense of the period in which the stock is issued.
3. an intangible asset.
a. 1 b. 2 c. 3 d. 1 or 3
32. A "secret reserve" will be created if

a. inadequate depreciation is charged to income.

b. a capital expenditure is charged to expense.
c. liabilities are understated.
d. stockholders' equity is overstated. P

33. Which of the following represents the total number of shares that a corporation may issue under
the terms of its charter?

a. authorized shares
b. issued shares
c. unissued shares
d. outstanding shares S

34 Stock that has a fixed per-share amount printed on each stock certificate is called

a. stated value stock.

b. fixed value stock.
c. uniform value stock.
d. par value stock. S

35. Which of the following is not a legal restriction related to profit distributions by a corporation?

a. The amount distributed to owners must be in compliance with the state laws governing corporations.
b. The amount distributed in any one year can never exceed the net income reported for that year.
c. Profit distributions must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital stock contracts as to preferences and
participation. S

36. In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its P10 par
common stock for P15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its
outstanding stock for P12 per share. The acquisition of these treasury shares

a. decreased total stockholders' equity.

b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares. P

37. Treasury shares are

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

38. 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?

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. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the
par value.

39. “Gains" on sales of treasury stock (using the cost method) should be credited to

a. paid-in capital from treasury stock.

b. capital stock.
c. retained earnings.
d. other income.

40. Porter Corp. purchased its own par value stock on January 1, 2010 for P20,000 and debited the
treasury stock account for the purchase price. The stock was subsequently sold for P12,000. The P8,000
difference between the cost and sales price should be recorded as a deduction from

a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock
are included therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to whether or not there have been previous net "gains"
from sales of the same class of stock included therein.
c. retained earnings.
d. net income.

41. How should a "gain" from the sale of treasury stock be reflected when using the cost method of
recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.

b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.
42. Which of the following best describes a possible result of treasury stock transactions by a
corporation?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.

43. Which of the following features of preferred stock makes the security more like debt than an equity
instrument?

a. Participating
b. Voting
c. Redeemable
d. Noncumulative

44. The cumulative feature of preferred stock

a. limits the amount of cumulative dividends to the par value of the preferred stock.
b. requires that dividends not paid in any year must be made up in a later year before dividends are
distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it is equal to the par value of
common stock at which time it can be converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock
and receive the stock in place of the cash dividends. P

45. According to the FASB, redeemable preferred stock should be

a. included with common stock.

b. included as a liability.
c. excluded from the stockholders’ equity heading.
d. included as a contra item in stockholders' equity. S

46. Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a. an increase in current liabilities.

b. an increase in stockholders' equity.
c. a footnote.
d. an increase in current liabilities for the current portion and long-term liabilities for the long-term
portion.

47. At the date of the financial statements, common stock shares issued would exceed common stock
shares outstanding as a result of the
 a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.

48. An entry is not made on the

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

49. Cash dividends are paid on the basis of the number of shares

a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares.

50. Which of the following statements about property dividends is not true?

a. A property dividend is usually in the form of securities of other companies.

b. A property dividend is also called a dividend in kind.
c. The accounting for a property dividend should be based on the carrying value (book value) of the
nonmonetary assets transferred.
d. All of these statements are true.

51. Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were purchased in
2016 for P90,000. On November 15, 2020, Pierson declared a property dividend of one share of Hunter
for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter
was P14 per share, there were 90,000 shares of Pierson outstanding. What gain and net reduction in
retained earnings would result from this property dividend?

Gain Net Reduction in Retained Earnings

a. P0 P126,000
b. P0 P 81,000
c. P45,000 P 81,000
d. P45,000 P 36,000
52. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in
2016 for P270,000. On November 15, 2020, Stinson declared a property dividend of one share of Matile
for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was
P14 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in
retained earnings would result from this property dividend?

Gain Net Reduction in Retained Earnings

a. P0 P243,000
b. P0 P378,000
c. P135,000 P108,000
d. P135,000 P243,000

53. Winger Corporation owned 900,000 shares of Fegan Corporation stock. On December 31, 2020,
when Winger's account "Investment in Common Stock of Fegan Corporation" had a carrying value of P5
per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid P8 for
each share. Fegan has 3,000,000 shares issued and outstanding, which are traded on a national stock
exchange. The quoted market price for a Fegan share was P7 on the declaration date and P9 on the
distribution date. What would be the reduction in Winger's stockholders' equity as a result of the above
transactions?

a. P3,600,000. b. P4,500,000. c. P7,200,000. d. P8,100,000.

54. Gibbs Corporation owned 20,000 shares of Oliver Corporation’s P5 par value common stock. These
shares were purchased in 2016 for P180,000. On September 15, 2020, Gibbs declared a property
dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when
the market price of Oliver was P14 per share, there were 180,000 shares of Gibbs outstanding. What
NET reduction in retained earnings would result from this property dividend?

a. P90,000 b. P252,000 c. P72,000 d. P162,000

55. Melvern’s Corporation has an investment in 5,000 shares of Wallace Company common stock with a
cost of P218,000. These shares are used in a property dividend to stockholders of Melvern’s. The
property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of
record on June 15. The market value per share of Wallace stock is P63 on May 25, P66 on June 15, and
P68 on July 31. The net effect of this property dividend on retained earnings is a reduction of

a. P340,000. b. P330,000. c. P315,000. d. P218,000.

56. Hernandez Company has 350,000 shares of P10 par value common stock outstanding. During the
year, Hernandez declared a 10% stock dividend when the market price of the stock was P30 per share.
Four months later Hernandez declared a P.50 per share cash dividend. As a result of the dividends
declared during the year, retained earnings decreased by
a. P1,242,500. b. P525,000. c. P192,500. d. P175,000.
57. On June 30, 2020, when Ermler Co.'s stock was selling at P65 per share, its capital accounts were as
follows: Capital stock (par value P50; 60,000 shares issued) P3,000,000 Premium on capital stock
600,000 Retained earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital
stock would be

a. P3,000,000. b. P3,600,000. c. P6,000,000. d. P7,800,000.

58. The stockholders' equity section of Gunkel Corporation as of December 31, 2020, was as follows:
Common stock, par value P2; authorized 20,000 shares;
issued and outstanding 10,000 shares P 20,000
Paid-in capital in excess of par 30,000
Retained earnings 75,000
P125,000
On March 1, 2021, the board of directors declared a 15% stock dividend, and accordingly 1,500
additional shares were issued. On March 1, 2021, the fair market value of the stock was P6 per share.
For the two months ended February 28, 2021, Gunkel sustained a net loss of P10,000. What amount
should Gunkel report as retained earnings as of March 1, 2021?

a. P56,000. b. P62,000. c. P66,000. d. P72,000.

59. The stockholders' equity of Howell Company at July 31, 2020 is presented below:
Common stock, par value P20, authorized 400,000 shares;
issued and outstanding 160,000 shares P3,200,000
Paid-in capital in excess of par 160,000
Retained earnings 650,000
P4,010,000
On August 1, 2020, the board of directors of Howell declared a 15% stock dividend on common stock, to
be distributed on September 15th. The market pric..e of Howell's common stock was P35 on
August 1, 2020, and P38 on September 15, 2020. What is the amount of the debit to retained earnings
as a result of the declaration and distribution of this stock dividend?

a. P800,000. b. P840,000. c. P912,000. d. P600,000.

60. On January 1, 2020, Dodd, Inc., declared a 10% stock dividend on its common stock when the market
value of the common stock was P20 per share. Stockholders' equity before the stock dividend was
declared consisted of:
Common stock, P10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares P1,200,000
Additional paid-in capital on common stock 150,000

Retained earnings 700,000

Total stockholders' equity P2,050,000
What was the effect on Dodd’s retained earnings as a result of the above transaction?

a. P120,000 decrease
b. P240,000 decrease
c. P400,000 decrease
d. P200,000 decrease

61. On January 1, 2020, Culver Corporation had 110,000 shares of its P5 par value common stock
outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On
December 1, when the market price of the stock was P8, the corporation declared a 10% stock dividend
to be issued to stockholders of record on December 16, 2020. What was the impact of the 10% stock
dividend on the balance of the retained earnings account?

a. P50,000 decrease
b. P80,000 decrease
c. P88,000 decrease
d. No effect

62. At the beginning of 2020, Flaherty Company had retained earnings of P200,000. During the year
Flaherty reported net income of P100,000, sold treasury stock at a “gain” of P36,000, declared a cash
dividend of P60,000, and declared and issued a small stock dividend of 3,000 shares (P10 par value)
when the market value of the stock was P20 per share. The amount of retained earnings available for
dividends at the end of 2020 was

a. P180,000. b. P210,000. c. P216,000. d. P246,000.

63. Masterson Company has 420,000 shares of P10 par value common stock outstanding. During the
year Masterson declared a 5% stock dividend when the market price of the stock was P36 per share.
Three months later Masterson declared a P.60 per share cash dividend. As a result of the dividends
declared during the year, retained earnings decreased by

a. P1,020,600 b. P756,000 c. P264,600 d. P252,000

64. On December 31, 2019, the stockholders' equity section of Arndt, Inc., was as follows:
Common stock, par value P10; authorized 30,000 shares;
issued and outstanding 9,000 shares P 90,000
Additional paid-in capital 116,000
Retained earnings 174,000
Total stockholders' equity P380,000
On March 31, 2020, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were
issued, when the fair market value of the stock was P18 per share. For the three months ended March
31, 2020, Arndt sustained a net loss of P32,000. The balance of Arndt’s retained earnings as of March 31,
2020, should be

a. P125,800. b. P133,000. c. P134,800. d. P142,000.