SHAREHOLDERS' EQUITY

1. During the current year, Roselle Company issued ; 0,000 ordinary shares with P200 par value
and 20,000 convertible preference share:: with P200 par value for a total of P8,000,000. On
the date of issuance, the ordinary share is selling at P360 and the preference share is selling at
P270. What amount of the proceeds shor!d be allocated to the convertible preference shares?
a. 6,000,000
b. 5,400,000
c. 4,800,000
d. 4,400,000

2. During the current year, Suzanne Company issued 6% bonds with a maturity value of
P6,000,000, together with 10,000 ordinary shares with P50 par value for a combined cash
amount of P11,000,000. The market value of the ordinary share cannot be determined. If the
bonds were issued separately, the bonds would have sold for P4,000,000 on an 8% yield to
maturity basis. What amount should be reported for share premium on the issuance of the
ordinary shares?
a. 7,500,000
b. 6,500,000
c. 5,500,000
d. 4,500,000

3. Regine Company was organized at the beginning of current year with authorized capital of
100,000 shares of P200 par value. Durirg the year, the entity had the following transactions
affecting shareholders' equity:
* Issued 25,000 shares at P220 a share.
* Issued 1,000 shares for legal services when the fair value was P240 a share.
* Issued 5,000 shares for a tract of land when the fair value was P260 a share.
What amount should be reported for share premium at year-end?
a. 840,000
b. 800,000
c. 540,000
d. 500,000

4. Therese Company reported the following equity at the beginning of the current year:
Share capital, P 10 par 5,000,000
Share premium 2,000,000
Retained earnings 1,500,000
During the current year, the entity had the following share transactions:
* Acquired 20,000 treasury shares for P1.000,000
* Sold 15,000 treasury shares at P60 por share.
* Sold the remaining treasury shares at P45 per share.
What amount should be reported as share premium at year-end?
a. 2,125,000
b. 2,150,000
c. 2,000,000
d. 1,975,000
L n C A
PRACTICAL ACCOUNTING PROBLEMS I Page 2

5. Julieta Company was organized on January 1, 2015 with 100,000 shares authorized with
P100 par value. On same date, the entity issued 75,000 shares at P140 per share and on
December 31, 2015, it purchased 5,000 shares at P110 per share to be held as treasury. The
entity used the par value method of recording treasury shares. What is the balance in the
share premium account arising from treasury share transaction on December 31, 2015?
a. 200,000
b. 150,000
c. 50,000
d. 0

6. On December 31, 2015, Claudette Company canceled 5,000 shares of P50 par value held in
treasury at an average cost of P 120 per share. Before recording the cancelation of the treasury
shares, the entity had the following shareholders' equity:

Share capital (50,000 shares originally issued at P75) 2,500,000

Share premium 1,250,000
Retained earnings 1,000,000
Treasury shares, at cost 600,000
On December 31, 2015, what amount should be reported as share capital outstanding?
a. 2,500,000
b. 1,900,000
c. 2,250,000
d. 2,125,000

7. Dayanara Company had issued 100,000 ordinary shares. Of these, 5,000 shares were held as
treasury on January 1, 2015. During the current year, transactions involving ordinary shares
were as follows:
May 1 1,000 shares of treasury were sold.
Aug 1 10,000 previously unissued shares were sold.
Nov i A 2-for-1 share split took effect.
1. On December 31, 2015, how many ordinary shares were issued?
a. 220,000
b. 218,000
c. 222,000
d. 210,000

2. On December 31, 2015 how many shares are outstanding?

a. 212,000
b. 216,000
c. 214,000
d. 218,000

8. Denise Company was organized on January 1, 2015. On that date, the entity issued 200,000
shares with Pl0 par value at P15 per share. During the period January 1, 2015 through
December 31, 2016, the entity reported net income of P2,000,000 and paid cash dividends of
P500,000. On January 5, 2016, the entity purchased 10,000 shares at P20 per share to be held
as treasury. On December 31, 2016, 5,000 treasury shares were sold at P30 per share and the
remaining treasury shares were retired. What is the total shareholders' equity on December
31,2016?
a. 4,450,000
b. 4,350,000
c. 4,400,000
d. 4,950,000

END
6064
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Ma nila

PRACTICAL ACCOUNTING PROBLEM`. I VALIX SlY VALIX LACO

RETAINED EARNINGS
1. On January 1, 2015, Monique Company reported the following shareholders' equity
Share capital, 250,000 shares authorized, 100,000 shares outstanding 5,000,000
Share premium 4,000,000
Retained earnings 5,000,000
The board of directors declared a 100./o st:cc'' dividend on July 1, 2015, when the market value
of the share was P100. The stock dividend *was issued on October 1, 2015 when the market
value of the share was P 120. The share has a par value of P50. The entity sustained a net loss
of P2,500,000 for 2015. What amount shovId hF reported as retained earnings on December
31,2015'?
a. 2,000,000
h. 3,800,000
c. 1,300,000
d. 1,500,000

2. Jeanne Company reported the following shareholders' equity on January 1, 2015.

Share capital. P5 par, 600,000 shares authorized, 200,000 shares outstanding 1,000,000
Share premium 4,000,000
Retained earnings 5,000,000
On January 31, 2015, the entity reacquired 20,000 shares at P20 per share to be held as
treasury. On June 30. 2015, the entity declared and issued a 100% stock dividend. On
December 31, 2015, the entity paid a cash dividend of P10 per share. The net income for
2015 was P3,000,000. What Is the unappropriated balance of retained earnings on December
31, 2015?
a. 3,100,000
b. 4,600,000
c. 3,500,000
d. 4,900,000

3. On January 1, 20 1 5, Lyssa Company showed the following shareholders' equity:

Share capital, P` par, 300,000 shares outstanding 1,500,000
Share premium 3,000,000
Retained earnings 5,000,000
On July 1, 2015, the entity declared a prone,ty dividend of inventory payable on March 1,
2016. The inventory had a P1,200,000 carrvins amount and a fair value less cost to distribute of
P1,500,000 on July 1, 2015, P1,800,000 on December 31, 2015 and P2,000,000 on March 1, 2016.
The net income for 2015 was P3,000,000.

1 What amount should be reported as retained earnings on December 31, 2015?

a. 8,000,000
b. 6,200,000
c. 6,000,000
d. 6,500,000
2. What amount should be recognized as gain on distribution of property dividend in 2016?
a. 300,000
b. 600,000
c. 800,00o
d. 0

6065
PRACTICAL ACCOUNTING PROBLEMS I Page 2
4. On January 1, 2015, Abigail Company had ordinary and preference shares outstanding. The
incorporators own ten ordinary shares but no preference shares. On December 31, 2015, the
entity declared dividends on the ordinary shares payable on December 31, 2016. The entity
decided to give the ordinary shareholders a choice between receiving a cash dividend of
P500,000 per share or in the form of a noncash asset. The noncash asset is a standard model
from the entity's car fleet. Each car has a fair value of P600,000 and carrying amount of
P450,000. The fair value of the car is P700,00(1 on December 31, 2016. The entity estimated
that 80% of the ordinary shareholders will take the option of the cash dividend and 20% will
elect for the noncash asset.

1. What amount should be recognized as dividend payable on December 31, 2015?

a. 5,500,000
b. 5,200,000
c. 4,000,000
d. 6,000,000
2. What amount should be recognized as gain cn distribution of property dividend in 2016 if
the ordinary shareholders elected to receive the ooricash asset?
a. 2,000,000
b. 2,500,000
c. 1,500,000
d. 1,800,000

5. On December 31, 2015, Lucille Company declared a cash dividend of P4,000,000 to

shareholders oa record on December 3 i , 2015 payable March 31, 2016. On December 31,
2015, the entity reported accumulated depleiion of P1,200,000, share capital of P5,000,000,
share premium of P1,50C,')00 and retained earnings of P3,000,000. What amount of
liquidating dividend is included in the cash dividend declared?
a. 1,000,000
b. 1,500,000
c. 3,000,000
d. 1,200,000

6. Virginia Company -began operations on January 1, 2012. The entity reported net income of
P800,000. P2,500.000 and 113,000,000 for 2012, 2013 and 2014, respectively. The entity paid
dividends of P1,000,000 in 2013 and P1,000,000 in 2014. The entity provided the following
data for 2015:
Income before income tax. (tax rate 30%) 4,800,000
Underdepreciatior. in 2013 before tax 400,000
Cumulat,ve decrease is income from change in accounting policy before tax 700,000
Dividend declared 2,000,000
What amount should be reported as retained earnings on December 31, 2015?
a. 4,890,000
b. 4,300.001)
c. 6,000,000
d. 5,390,000

7. Anya Company provided the following information during the current year:
Dividends on. 10% 50.000 cumulative preference shares with P100 par value have not
been declared or paid for 3 years.
* Treasury ordinary share- were acquired at a cost of P 1,000,000 during the year. The
treasury shares had not been reissued as at year-end.
* At year-end, the entity appropriated P2,000,000 of retained earnings for the construction of
a new plant.
* Also, P x.500,000 of cash was restricted for the retirement of bonds payable.
What amount of should be reported as appropriated retained earnings?
a. 3,000.000
b. 4,500,000
c. 7,500,000
d. 6,500.000
END 6065
 CPA REVIEW SCHOOL OF i HE PHILIPPINES
M,q nila

PRACTICAL ACCOUNTING PROBLEMS I VALIX SIY VALIX LACO

SHARE-BASED COMPENSATION

1. On January 1, 2015, Marianne Company granted 100 share options each to 500 employees,
conditional upon the employee's remaining in the ertity's employ during the vesting period. The
share options vest at the end of a three-year period. On grant date, each share option has a fair
value of P30. The par value per share is P100 and the option price is P120. On December 31, 2016,
30 employees have left and it is expected that on the basis of a weighted average probability, a
further 30 employees will leave before the end of the three-year period. On December 31, 2017,
only 20 employees actually left and all of the share options are exercised on such date.

1. What is the compensation expense for 2017?

a. 500,000
b. 880,000
c. 380,000
d. 470,000

2. What amount was credited to share premium when the share options were exercised on
December 31, 2017?.
a. 2,250,000
b. 2,350,000
c. 900,000
d. 0
2. Nina Company has granted share options to employees. The total compensation expense to the
vesting date on December 31, 2018 has been calculated at P6,000,000. The entity has decided to
settle the award early on December 31, 2017. The compensation expense charged since the date of
grant on January 1, 2015 was P1,500,000 for 2015 and P1,300,000 for 2015. The compensation
expense that would have been charged for 2017 is P1,200,000.

1. What is the compensation expense for 2017?

a. 3,200,000
b. 2,000,000
c. 1,200,000
d. 0

2. What is the compensation expense for 2017, assuming the share options are not exercised but
instead, the entity paid the employees P5,000,000 on December 31, 2017?
a. 5,000,000
h. 2,200,000
c. 3,200,000
d. 0

3. On January 1, 2015, Sharee Company granted 60.000 share options to employees. The share
options vest at the end of three years provided the employees remain in service until then. The
option price is P60 laid the par value per share is P50. At the date of grant, the entity concluded that
the fair value of the share options cannot bc- measured reliably. The share options have a life
of 4 years which means that the share optioc)s can be exercised within one year after vesting. The
share prices are P62 on December 31. 2015. P66 on December 31, 2016, P75 on December 31,
2017 and P85 on December 31. 2017. All share options were exercised on December 31, 2018.
What is the compensation expense for 2018`%

a. 900,000
b. 600,000
c. 660.000
d. 0
6066
4. On January 1, 2015, Sheila Company offered management share appreciation rights equal to
50,000 shares with a predetermined price of P100. The service period is 3 years and the exercise
date is January 1, 2018.
The quoted prices per share are P124 on December 31, 2015, P151 on December 31, 2016 and
P151 on December 31, 2017.

1. What amount should be charged to compensation expense for 2017?

a. 2,550,000
b. 1,300,000
c. 850,000
d. 0

2. What amount should be recognized as gain on reversal of share appreciation rights if the
market price dropped to P 120 on December 31, 2017?
a. 1,000,000
b. 1,700,000
c. 700,000
d. 0
5. On January 1, 2015, Sandra Company granted the president 50,000 share appreciation rights for
past services. These rights are exercisable immediately and expire on December 31, 2016. On
exercise date, the president is entitled to receive cash for the excess of the share market price over
the share market price on the grant date. The president did not exercise any of the rights during
2015. The market price of the share was P100 on January 1. 2015 and PI 15 on December 31, 2015.
The grantee exercised the rights on December 31, 2016 when the market price was P110. What
amount should be recognized as gain on reversal of share appreciation rights in 2015?
a. 750,000
b. 500,000
c. 250,000
d. 0
6. On January 1, 2015, Angel Company granted to an employee the right to choose either shares or
cash payment. The choices are as follows:
* Share alternative - equal to 25,000 shares with par value of P30.
* Cash alternative - cash payment equal to the market value of 20,000 shares
The grant is conditional upon the completion of three years of service. On grant date, on January 1,
2015, the share price is P51. The share prices for the three-year vesting period are P54 on
December 31, 2015, P66 on December 31, 2016 and P65 on December 31, 2017. After taking into
account the effect of vesting restrictions, the entity has estimated that the fair value of the share
alternative is P48.
1. What is the compensation expense for 2017?
a. 480,000
b. 420,000
c. 600,000
d. 580,000
2. What is the share premium if the employee has chosen the share alternative?
a. 730,000
b. 750,000
c. 550,000 X50;
d. 880,000 7-
3. What is the share premium if the employee has chosen the cash alternative?
a. 730.000
b. 180,000
c. 700,000
d. 0
END 6066
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Ma nila

PRACTICAL ACCOUNTING PROBLEMS I VALIX SIY VALIX LACO

BOOK VALUE AND QUASI-REORGANIZATION

1. Mauriene Company provided the following equity balances on December 31, 2015:

10% preference share capital, 30.000 shares, par P 100 3,000,000

Ordinary share capital, 50,000 shares, par P100 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000

The preference shares have a call price of 120, a liquidation price of 115 and dividends have not
been paid for 3 years. What is the book value per preference share?
a. 125
b. 130
c. 145
d. 110

2. Karen Company provided the following equity balances on December 31, 2015:

10% cumulative preference share capital, P100 par, 30,000 shares 3,000,000
Ordinary share capital, P100 par value, 50,000 shares 5,000,000
Retained earnings 4,000,000
Dividends in arrears on the preference share capital are for 5 years. If the entity were to be
liquidated, the preference share would receive par plus a premium of P300,000. What is the book
value per ordinary share?
a. 144
b. 134
c. 174
d. 150

3. Jellina Company provided the following equity balances on December 31, 2015:

Ordinary share capital, P 100 par, 72,000 shares 7,200,000

Subscribed ordinary share capital, 12,000 shares 1,200,000
Subscription receivable 400,000
Treasury shares, 4,000 at cost 600,000
Retained earnings 2,000,000

What is the book value of ordinary share?

a. 122.50
b. 117.50
c. 100.00
d. 130.00

4. On December 31, 2016 and 2015. Shane Company had 30,000 10% cumulative preference
shares of P 100 par value outstanding. No dividends were in arrears on December 31, 2014.
The entity did not declare a dividend during 2015. During 2016, the entity paid a cash
dividend of P200.000 on the preference shares. How should the dividend in arrears on
preference shares be reported in the 2016 !financial statements?
a. Accrued liability of P300,000
b. Disclosure of P300,000
c. Accrued liability of P400,000
d. Disclosure of P400,000

6067
PRACTICAL ACCOUNTING PROBLEMS I Page 2
5. Maricon Company began operations in January 2011 and reported the following net income
or loss for five years of operations:
2011 1,500,000 loss
2012 1,300,000 loss
2013 1,200,000 loss
2014 4,500,000 income
2015 9,000,000 income
On December 31, 2015, the capital accounts were as follows:

Preference share capital, P 100 par, 12% participating and

cumulative, 100,000 shares 10,000,000
Preference share capital, P 100 par, 10% nonparticipating,
noncumulative, 50,000 shares 5,000,000
Ordinary share capital, P 10 par, 1,00 0,000 shares 10,000,000
The entity has never paid cash or stock dividend. The capital accounts have not changed
since the entity began operations.
If the maximum amount available for cash dividend is declared on December 31, 2015, what
amount of dividend is payable to

1. 12% Preference shareholders?

a. 6,000,000
b. 6,900,000
c. 1,100,000
d. 1,200,000

2. 10% Preference shareholders?

a. 2,500,000
b. 2,860,000
c. 500,000
d. 860,000

3. Ordinary shareholders?
a. 2,100,000
b. 1,200,000
c. 1,920,000
d. 4,500,000

6. Adverse financial and operating circumstances warrant that Luzette Company undergo a
quasi-reorganization on December 31, 2015.
* Inventory with a fair value of P1,000,000 is currently recorded in the accounts at cost of
P 1,500,000.
* Plant assets with a fair value of P3,000,000 are currently recorded at P4,000,000 net of
accumulated depreciation.
* Unrecorded accounts payable amount to P300,000.
* Individual shareholders contribute P1,500,000 to create additional paid-in capital
to facilitate the reorganization. No new shares are issued to the shareholders.
* The par value of the share capital is reduced from P100 to P50.
* Immediately before these events, the entity reported the following shareholders' equity :
Share capital, P 100 par value, 50,000 shares 5,000,000
Share premium 500,000
Retained earnings (deficit) (2,000,000)
After the quasi-reorganization, what is the total shareholders' equity?
a. 3,200,000
b. 2,500,000
c. 1,700,000
d. 1,000,000
END 6067
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Ma nila
PRACTICAL ACCOUNTING PROBLEMS I VALIX SIY V ALIX LACO
EARNINGS PER SHARE
1. Bianca Company had the following capital during 2015:
Preference share capital, P 100 par, 10% cumulative, 30,000 shares 3,000,000
Ordinary share capital, P 100 par, 50,000 shares 5,000,000
The entity reported net income of P4,000,000 for the current year. There are no preference
dividends in arrears on December 31, 2013. The entity paid no preference dividends during
2014 and paid P500,000 in preference dividends during 2015. What amount should be
reported as basic earnings per share for 2015?
a. 74
b. 80
c. 70
d. 68

2. Pauleen Company had 100,000 ordinary shares issued and outstanding at the beginning of
current year. During the current year, the entity also had the following ordinary share
transactions.
April 1 Issued 30,000 previously unissued shares
May 1 Split the share 2-for-1
June 30 Purchased 10,000 shares for the treasury
July 30 Distributed a 20 percent bonus issue
December 31 Split the stock 3-for-1
What is the weighted average number of shares for EPS purposes?
a. 288,000
b. 864,000
c. 882,000
d. 972,000

3. On January 1, 2015, Alaine Company had 60,000 ordinary shares outstanding, P100 par, or a
total par value of P6,000,000. During 2015. the entity issued rights to acquire one ordinary
share at P100 in the ratio of one share for every 5 shares held. The rights are exercised on
March 31, 2015. The market value of each share immediately prior to March 31, 2015 was
P160. The net income for 2015 was P4.000,000. What amount should be reported as basic
earnings per share for 2015?
a. 57.14
b. 55.5.
c. 57.9 , 140. � y:
`1 If

d. 66.67

4. Filipina Company provided the following extract from the statement of comprehensive
income for the year ended December 31, 2015:
Income before tax 6,000,000
Income tax expense 1,800,000
The entity paid during the year an ordinary dividend of P1.000,000 and a dividend on the
redeemable preference shares of P500,000. The entity had P1,000,000 of P5 par value
ordinary shares in issue throughout the year and 500,000 authorized ordinary shares. What
amount should be reported as basic earrings per share for the year?
a. 30.00
b. 27.50
c. 21.00
d. 18.511
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PRACTICAL ACCOUNTING PROBLEMS I Page 2.

5. Hiawatha Company reported the following information on December 31. 2015:

Ordinary share capital 110,000 shares

Convertible noncumulative preference share capital 20,000 shares
10% convertible bonds payable P2,000,000
Share options to purchase 60,000 shares at P15 were outstanding. Market price of ordinary
share was P22 on December 31, 2015 and averaged P20 during the year. No value was
assigned to the share options. The entity paid preference dividends of P5 per share. The
preference shares are convertible into 40,000 ordinary shares. The 10% bonds are convertible
into of 30,000 ordinary shares. The net income for 2015 is P650,000. The tax rate is 30%.
1. What amount should be reported as basic earnings per share for 2015?
a. 5.00
b. 5.91
c. 4.36
d. 4.40

2. What is the total number of potential ordinary shares?

a. 130,000
b. 115,000
c. 85,000
d. 70,000

3. What amount should be reported as diluted earnings per share for 2015?
a. 5.00
b. 4.40
c. 4.05
d. 3.94

6. Ellana Company has outstanding 20,000 witten nnuui options on ordinary shares with an
exercise price of P350. The average market price oC ordinary shares for the period is P280. In
calculating diluted earnings per share, how many incremental ordinary shares should be
included as a result of the written put options'?
a. 20,000 -
b. 25,000
c. 5,000
d. 0

7. Mikaela Company reported a net loss of P3,000,000 for the year ended December 31, 2015.
The entity had share capital outstanding as ft"llows:

Ordinary share capital, P 100 par, 50,000 shares 5,000,000

Preference share capital, P 100 par, 10% cumulative, two years in arrears,
20,000 shares convertible into 20,000 ordinary shares 2,000,000
1. What is the basic loss per share?
a. 60.0(
b. 64.0U
c. 56.00
d. 68.00

2. What is _liluted loss per share?

b. 45.7
c. 60.00
d. 64.00
END 6068
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Ma nila

THEORY OF ACCOUNTS VALIX SIY VALIX LACO

SHAREHOLDERS' EQUITY

1. Total shareholders' equity represents

a. A claim to specific assets contributed by the owners.
b. The maximum amount that can be borrowed by the entity.
c. A claim against a portion of the total assets of an entity.
d. Only the amount of earnings that have been retained in the business.
2. Equity is generally classified into two major categories, namely
a. Contributed capital and appropriated capital
b. Appropriated capital and retained earrings
c. Retained earnings and unearned capital
d. Earned capital and contributed capital
3. The term residual interest means that ordinary shareholders
a. Are entitled to a dividend every year in which the entity earns a profit.
b. Have the right to specific assets of the entity.
c. Bear the ultimate risks and uncertainties and receive the benefits of ownership.
d. Can negotiate individual contracts on behalf of the entity.
4. Which is not a basic right ofa shareholder?
a. The right to participate in earnings.
b. The right to vote in the election of directors and in the determination of corporate
policies.
c. The right to share in the net assets of the corporation upon liquidation
d. The right to inspect the accounting records of the corporation.
5. The preemptive right of an ordinary shareholder is the right to
a. Share proportionately in corporate assets upon liquidation.
b. Share proportionately in any new issue of shares of the same class.
c. Receive cash dividends before they are distributed to preference shareholders.
d. Exclude preference shareholders from voting rights.
6. What is the total number of shares that a corporation may issue under its charter?
a. Authorized shares
b. Issued shares
c. Unissued shares
d. Treasury shares
7. If shares are issued for a consideration other than cash, the proceeds shall be measured by
a. Fair value of the noncash consideration received
b. Fair value of the shares issued
c. Par value of the shares issued
d. Carrying amount of the noncash consideration received
8. When ordinary shares are issue.l in payment ibr services, the least appropriate basis for
recording the transaction is the
a. Fair value of the services received
b. Par value of the shares issued
c. Fair value of the shares issued
d. Any of these provides an appropriate basis for recording the transaction
9. When collectibility is reasonably assured, the excess of the subscription price over the stated
value of the no par share capital subscribed should be recorded as
a. No par share capital
b. Share premium when the subscription is recorded
c. Share premium when the subscription collected.
d. Share premium when the shares are issued.
10. 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 outstand;ng shares.
6069
THEORY OF ACCOUNTS Page 2
11. Which of the following best describes a possible result of treasury share transactions?
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.

12. Redeemable preference shares should be

a. Included with ordinary shares.
b. Included as liability.
c. Excluded from the statement of financial position.
d. Included as a contra item in shareholders' equity.

13. Cumulative preference dividends in arrears should be reported as

a. An increase in current liabilities.
b. An increase in equity.
c. A footnote.
d. An increase in noncurrent liabilities.

14. Noncumulative preference dividends in arrears

a. Are not paid and not disclosed.
b. Must be paid before any other cash dividend can be distributed.
c. Are disclosed as a liability until paid.
d. Are paid to preference shareholders if sufficient funds are available.

15. The cumulative feature of preference shares

a. Limits the amount of cumulative dividends to the par value of the preference shares.
b. Requires that dividends not paid in any year must be made up in a later year before
dividends are distributed to ordinary shareholders.
c. Means that the shareholder can accumulate preference shares equal to the par value of
ordinary shares.
d. Enables a preference shareholder to accumulate dividends equal to the par value of the
shares and receive the shares in place of the cash dividends.
16. The features frequently associated with preference shares include all, except
a. Callable at the option of the sharehol:er
b. Convertible into ordinary shares
c. Nonvoting
d. Preference as to assets in the event of liquidation

17. 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

18. If management wishes to "capitalize" part of the retained earnings, it may issue a
a. Cash dividend
b. Share dividend
c. Property dividend
d. Liquidating dividend

19. The declaration and issuance of a large share dividend

a. Increases ordinary shares outstanding and total eauuity.
b. Decreases retained earnings but does riot change total equity.
c. May increase or decrease share premium but does not change total equity.
d. Increases retained earnings and total equity.

20. The issuer of a small ordinary share dividend to ordinary shareholders should transfer from
retained earnings to contributed capital an amount equal to
a. Fair value of the shares issued.
b. Book value of the shares issued.
c. Minimum legal requirement.
d. Par or stated value of the shares issued.
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21. At the date of declaration of a small ordinary share dividend, the entry should not include
a. A credit to ordinary share dividend payable.
b. A credit to share premium-ordinary.
c. A debit to retained earnings.
d. All of these are acceptable.
22. What amount is charged to retained earnings when treasury shares are reissued as dividends?
a. Cost of the treasury shares
b. Fair value of the treasury shares
c. Par value of the treasury shares
d. Book value of the treasury shares
23. When shareholders may elect to receive cash in lieu of a stock dividend, the amount to be
charged to retained earnings is equal to
a. Optional cash dividend
b. Fair value of the stock dividend
c. Par value of the stock dividend
d. Either fair value or par value of the stock dividend
24. A dividend which is a return to shareholders of a portion of their original investment is
a. Compensating dividend
b. Liquidating dividend
c. Property dividend
d. Liability dividend
25. Dividends are not paid on
a. Noncumulative preference shares.
b. Nonparticipating preference shares.
c. Treasury shares.
d. Dividends are paid on all of these.
26. An entity may effect a reverse share split in order to
a. Increase the number of shares outstanding
b. Raise the unit market price of the shares
c. Reduce the market price per share
d. Obtain a wider distribution of shares
27. A feature common to both share split and share dividend is
a. A transfer to earned capital of a corporation.
b. There is no effect on total equity.
c. An increase in total liabilities of a corporation.
d. A reduction in the contributed capital of a corporation.
28. Which of the following is not a legal restriction related to profit distribution?
a. The amount distributed trust be in compliance with the laws governing corporations.
b. The amount distributed can never exceed the net income reported for the year.
c. Profit distribution must he formally .approved by the board of directors.
d. Dividends must be in full agreement with the capital contracts as to preferences.
29. Which statement is incorrect in relation to appropriations of retained earnings?
a. Appropriations do not reduce total retained earnings.
b. The only proper way to eiiminat,� an appropriation of retained earnings after it has
served its purpose is to credit the unappropriated retained earnings account.
c. An appropriation (,f retained earnings does not mean that assets are segregated.
d. When treasury shares are purchased, retained earnings must be appropriated equal to the
par or stated value of such shares.
30. Which is incorrect concerning share capital transactions?
a. Deposits on subscription to a proposed increase in share capital should be classified as
noncurrent liability.
b. Subscriptions recei� able from sale of share capital which are not currently collectible
should be reflected as deduction from the related subscribed share capital.
c. Discount on share capital should he shown as deduction from total shareholders' equity.
d. When the total shareholders' equity is smaller than the amount of contributed capital,
this deficienev is called �, deficit.
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31. Share capital is said to be "watered" when
a. It is sold at a price in excess of book value
b. Liabilities are overstated
c. Assets are overstated
d. It is issued for assets other than cash
32. A "secret reserve" will be created if
a. Inadequate depreciation is charged t^ :ncome.
b. A capital expenditure is charged to expense.
c. Liabilities are understated.
d. Shareholders' equity is overstated.
33. The distribution of share rights to exist;ng shareholders would increase share premium at
a. Date of issuance of rights
b. Date of exercise of rights
c. Date of expiration of rights
d. All of these are correct choices
34. Trading on the equity is
a. The ratio of the cash dividend to net income.
b. A return.on assets that is higher than the cost of financing these assets.
c. The amount each share would receive if the entity were liquidated.
d. The revaluation surplus.
35. Convertible preference shares
a. Are compound instruments with both a liability and an equity component.
b. Include an option for the holder to convert preference shares into ordinary shares.
c. Use the "with-and-without" method to value the compound instrument.
d. All of the choices are correct.
36. The conversion of preference shares may be recorded by
a. Incremental method
b. Book value method
c. Market value method
d. Par value method

IFRIC 17 - DISTRIBUTION OF NONCASH ASSET TO OWNER

37. Which of the following statements about property dividend is not true?
a. A property dividend is usually in the form of securities of other entities.
b. A property dividend is also called dividend in kind.
c. The accounting for property dividend should be based on the carrying amount of
nonmonetary asset transferred.
d. All of these statements are true.
38. An entity shall adjust the carrying amount of the dividend payable at the end of reporting
period and at the date of settlement with any changes in the carrying amount recognized
a. In equity as adjustment to the amount of distribution.
b. In profit or loss
c. As adjustment of general reserve
d. As component of other comprehensive income.
39. When an entity settles the dividend payable, it shall recognize the difference between the
carrying amount of the asset distributed and the carrying amount of the dividend payable in
a. Profit or loss
b. Other comprehensive income
c. Equity
d. Retained earnings
40. An entity shall measure a noncurent asset classified as held for distribution to owners at
a. Carrying amount
h. Fair value less cost to distribute
c. Lower of carrying amount and fair value less cost to distribute
d. Higher of carrying amount and fair value less cost to distribute

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PFRS 2 - SHARE BASED PAYMENT'
41. Share options are what type of share-based payment transaction?
a. Asset-settled share-based payment transaction
b. Equity-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Liability-settled share-based payment transaction
42. Compensation expense resulting from a share option plan is generally
a. Recognized in the period of exercise.
b. Recognized in the period of the grant.
c. Allocated to the periods benefited by the employee's required service.
d. Allocated over the periods of the employee's service life to retirement.
43. The date on which total compensation expense is computed in a share option plan is the
a. Date of grant
b. Date of exercise
c. Date when the market price coincides with the option price
d. Date when the market price exceeds the option price
44. Which statement in relation to share options granted to employees is true?
a. The services received shall be measured at the fair value of the employees' services.
b. Fair value shall be measured at the date the options vest.
c. Fair value shall be measured at the date of exercise.
d. None of these
45. Which of the following option valuation techniques should not be used as a measure of
fair value of share options in the first instance?
a. Black-Sholes model
b. Binomial model
c. Monte-Carlo model
d. Intrinsic value
46. The payment for services in cash and based upon the price of the entity's ordinary
shares is what type of share-based payment transaction?
a. Asset-settled share-based payment transaction
b. Liability-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Equity-settled share-based payment transaction
47. A cash-settled share-based payment transaction shall give rise to an increase in
a. A current asset
b. A noncurrent asset
c. Equity
d. A liability
48. For share appreciation rights, the measurement date for computing compensation is the
a. Date the rights mature
b. Date the share reaches a predetermined amount
c. Date of grant
d. Date of exercise
49. In accounting for share appreciation rights, compensation expense is generally
a. Not recognized
b. Recognized on the date of grant
c. Allocated o"r r the service period of employees
d. Recognized on the date of exercise.
50. If share-based pa.ymenl transaction, provides that the employees have the right to
choose the settlement whether in cash or shares, the entity is deemed to have issued
a. A compound financial instrument
b. An equity instrument
c. A liability instrument
d. Either an equity instrument or liability instrument but not both
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PAS 33 - EARNINGS PER SHARE

5 1. EPS disclosures are required for
a. Entities whose ordinary shares and potential ordinary shares are publicly traded.
b. Entities that are in the process of issuing ordinary shares in the public market.
c. All entities
d. Entities whose ordinary shares and potential ordinary shares are publicly traded or
entities that are in the process of ordinary shares in public market.
52. Earnings per share shall be computed on the basis of
a. Average ordinary shares outstanding during the year.
b. Ordinary shares outstanding at the end of the year.
c. Ordinary shares outstanding at the beginning of the year.
d. Average ordinary and preference shares outstanding during the year.
53. In computing earnings per share for a simple capital structure, if the preference shares are
cumulative, the amount that should be deducted as an adjustment to the numerator is the
a. Preference dividends in arrears.
b. Preference dividends paid during the year
c. Annual preference dividend
d. Annual ordinary dividend.
54. In the computation of weighted average shares outstanding, when a share dividend or share
split occurs, the additional shares are.
a. Weighted by the number of days outstanding.
b. Weigh-redb y the number of months outstanding.
c. Considered outstanding at the beg nning of the year.
d. Considered outstanding at the beginning of the earliest year reported.
55. The main purpose of reporting diluted earnings per share is to
a. Provide a comparison figure for debt holders.
b. Indicate earnings shareholders will receive in future periods.
c. Distinguish between entities with corrtplex and simple capital structure.
d. Show the maximum possible dilution of earnings.
56. Options and warrants are dilutive if
a. The option shares represent 50% of the ordinary shares actually outstanding.
b. The option price is equal to the average market price.
c. The option price is higher than the average market price.
d. The option price � s lower than the average market price.
57. When applying the treasury share method for diluted earnings per share, the market price of
the ordinary shares used for the repurchase is the
a. Price at the end of the year
b. Average market price
c. Price at the beginning of the year
d. None of these
58. Earnings per share should always be shown separately for
a. Net income and gross profit
b. Net income and pretax income
c. Income from continuing operations
d. Discontinued operations and prior period adjustments
59. For an entity having several different issues of convertible securities, and share options and
warrants, the standard requires selection of the combination of securities producing
a.. The lowest possible earnings per share.
h. The highest possible earnings per share.
c. The EPS figure midway between the lowest possible and the highest possible EPS.
d. Any EPS figure between the lowest possible and the highest possible EPS.
60. Antidilutive securities
a. Should be included in the computation of diluted earnings per share.
b. Are those whose inclusion would decrease basic earnings per share.
c. Include share o,:,f.ions whose exerei e nice is less than the average market price.
d. Shouid be. i-'no, ed in all earnings per share calculations.
END 6069