353004491-Corporation-reviewer PDF

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I. True or False (R x 2). Fully shade the box for TRUE if the statement is correct, otherwise shade FALSE. Declaration and issuance of bonus issue will not affect the total shareholders’ equity. – T Non-cumulative preference shares are entitled to dividends that have not been declared in the prior y...

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I.

True or False (R x 2). Fully shade the box for TRUE if the statement is correct, otherwise shade FALSE. 1. 2. 3. 4. 5. 6. 7. 8. 9.

II.

Declaration and issuance of bonus issue will not affect the total shareholders’ equity. – T Non-cumulative preference shares are entitled to dividends that have not been declared in the prior years. – F A deficit in retained earnings arises whenever a net loss is reported for an accounting period. – F Preference share or preferred stock gives the holder a preference over the holders of ordinary shares with respect to payment of dividends. – T A scrip dividend is a distribution to shareholders representing a return of a portion of contributed capital. – F A bonus issue increases contributed capital and retained earnings. – F Deficit is the term that is used to indicate a debit balance in the retained earnings account. – T A bonus issue requires a transfer of retained earnings to contributed capital. – T Dividends, other than bonus issue, reduce total shareholders’ equity. – T

Multiple Choice (R x 2). Fully shade the box representing the letter of your answer. 1. Kiara Company provided the following data:

Share capital (P100 par value) Share premium Retained earnings

12/31/2015 P 5,000,000 2,500,000 5,000,000

12/31/2016 P 5,100,000 2,900,000 ?

During 2016, the entity declared and paid cash dividend of P750,000 and also declared and issued a share dividends of P500,000. There were no other changes in shares issued and outstanding during 2016. The net income for 2016 was P1,500,000. What is the balance of retained earnings on December 31, 2016? a. P 5,250,000 b. P 5,750,000 c. P 6,250,000 d. P 6,500,000 Retained earnings Beginning Cash dividends Share dividends Net income Ending

5,000,000.00 (750,000.00) (500,000.00) 1,500,000.00 5,250,000.00

2. Which of the following transactions will decrease retained earnings? a. Declaration of a bonus issue b. Payment of cash dividend c. Profit for the period d. Issuance of share dividend 3. Lauretta Company reported the following shareholders’ equity on January 1, 2016: Share capital Share premium Retained earnings

P 1,500,000 3,000,000 2,000,000

The entity had 400,000 authorized shares of P5 par value of which 300,000 shares were issued and outstanding. On December 31, 2016, the entity declared and distributed a property dividend of inventory. The inventory had a

P750,000 carrying amount and a P1,000,000 fair value. The net income for 2016 was P2,500,000. What amount should be reported as retained earnings on December 31, 2016? a. P 1,000,000 b. P 1,250,000 c. P 3,500,000 d. P 3,750,000 Retained earnings Beginning Property dividends Net income Ending

2,000,000.00 (1,000,000.00 ) 2,500,000.00 3,500,000.00

4. What is the effect of the declaration of scrip dividends on total liabilities and shareholders’ equity, respectively? a. Increase, decrease b. Increase, increase c. Decrease, decrease d. No effect, decrease 5. On January 1, 2016, Easy Company had ordinary and preference shares outstanding. The incorporators or original shareholders own ten ordinary shares but no preference shares. On December 31, 2016, the entity declared dividends on the ordinary shares. The entity decided to give ordinary shareholders a property dividend in the form of a non-cash asset. The non-cash asset is a standard model from the entity’s car fleet. Each car has a cost of P500,000 and fair market value of P600,000. What is gain on disposal that should be recognized on December 31, 2016? a. P 0 b. P 100,000 c. P 500,000 d. P 1,000,000 (No gain or loss to be recognized on the date of DECLARATION (December 31, 2016) 6. How is the balance of the share dividends distributable presented in the statement of financial position? a. As deduction from retained earnings b. As part of current liabilities c. As addition to share capital d. As addition to retained earnings 7. At the current year-end, Grey Company issued 4,000 ordinary shares of P100 par value in connection with a share dividend. The market value per share on the date of declaration was P150. The shareholders’ equity accounts immediately before the issuance of the stock dividend shares were as follows: Ordinary share capital, P100 par, 50,000 shares authorized, 20,000 shares outstanding Share premium Retained earnings

P 2,000,000 3,000,000 1,500,000

What amount should be reported as retained earnings immediately after the stock dividend? a. P 900,000 b. P 1,100,000 c. P 1,500,000

d.

P 2,100,000 Share dividend No. of issued shares in relation to the share dividends Divided by: Oustanding shares % of share dividends (to use par value)

4,000.00 20,000.00 20%

No. of issued shares in relation to the share dividends x Par value Amount of share dividends

4,000.00 100.00 400,000.00

Retained earnings Beginning Amount of share dividends Ending

1,500,000.00 (400,000.00) 1,100,000.00

8. Ray Company declared a 5% share dividend on 100,000 issued and outstanding shares of P20 par value, which had a fair value of P50 per share before the share dividend was declared. This share dividend was distributed 60 days after the declaration date. What is the increase in current liabilities as a result of the stock dividend declaration? a. P 250,000 b. P 100,000 c. P 150,000 d. P 0 Share dividends distributable account is a contra capital account not a liability account. 9. In the process of closing the books of a corporation, any resulting balance of the Income Summary account representing profit or loss is transferred to: a. Contributed capital account b. Cumulative other comprehensive income c. Retained earnings d. The shareholders’ individual drawing accounts 10. The declaration of share dividend or bonus issue will: a. Decrease total assets b. Increase total liabilities c. Decrease in total shareholders’ equity d. Not affect total shareholders’ equity (Increase iin share dividends distributable and decrease in retained earnings.) 11. The liability for property dividends shall be measured at the reporting date at the: a. Carrying value of the non-cash asset to be distributed as dividends. b. Original cost of the non-cash assets to be distributed as dividends. c. Fair value of the non-cash asset on the date of declaration. d. Fair value of the non-cash asset at the reporting date. 12. X Corporation declared 15% bonus issue. The fair value of each share exceeds the par value on the date of declaration. The bonus shall: a. Be charged to retained earnings at the fair market value of the shares.

b. c. d.

Be charged to retained earnings at the par value of the shares. Be credited to a financial liability. Decrease the total shareholders’ equity.

13. How would the declaration of a 10% bonus issue affect each of the following, when the market price on the date of declaration exceeds the par value? Share premium Retained earnings a. No effect Decrease b. Decrease Decrease Decrease c. Increase d. Decrease Increase 10% share dividends will be computed based on the market value of the shares resulting to an increase in share premium account. 14. East Company had sufficient retained earnings in 2015 as a basis for dividends but was temporary short of cash. The entity declared a dividend of P1,000,000 on April 1, 2016, and issued promissory notes to the shareholders in lieu of cash. The notes, which were dated April 1, 2016, had a maturity date of March 31, 2017 and a 10% interest rate. How should the scrip dividend and related interest be accounted for? a. Debit retained earnings P1,100,000 on April 1, 2016. b. Debit retained earnings P1,100,000 on March 31, 2017. c. Debit retained earnings P1,000,000 on April 1, 2016 and debit interest expense P100,000 on March 31, 2017. d. Debit retained earnings P1,000,000 on April 1, 2016 and debit interest expense P75,000 on December 31, 2016.

Scrip dividends x Interest x Time Interest from Apr 1 - Dec 31

1,000,000.0 0 10% 9/12 75,000.00

For the next 3 items: The Eric Corporation was organized early on Year 1. Authorization was obtained to issue 100,000 shares of P10 par value ordinary share capital and 20,000 shares of P100 par, 10% cumulative preference share capital. All the preference shares were issued at par and 80,000 ordinary shares were sold for P15 per share. During the first five years of operations, the corporation earned a total of P3,600,000 and paid annual dividends of P2 per ordinary share. 15. What amount of total dividends was paid each year? a. P 160,000 b. P 200,000 c. P 360,000 d. P 400,000 Preference x Dividend rate Preference dividends Ordinary dividends Total dividends per year

(20,000 shares x P100)

(P2 x 80,000 shares)

16. How much was the retained earnings at the end of the fifth year?

2,000,000.00 10% 200,000.00 160,000.00 360,000.00

a. b. c. d.

P 2,800,000 P 2,600,000 P 1,800,000 P 1,600,000 Total earnings Dividends paid (P360,000 x 5) Retained earnings, end

3,600,000.00 (1,800,000.00 ) 1,800,000.00

17. How much was the total shareholders’ equity at the end of the fifth year? a. P 5,000,000 b. P 5,100,000 c. P 6,000,000 d. P 6,100,000 Preference share Ordinary share Share premium - ordinary Retained earnings Shareholders' equity

(20,000 shares x P100) (80,000 shares x P10) (80,000 shares x P5)

2,000,000.00 800,000.00 400,000.00 1,800,000.00 5,000,000.00

III. Distribution between Preference and Ordinary shares. (R x 2). Write your answer on the sheet provided. The capital structure of San Miguel Corporation (SMC) are as follows (in millions): 8% Preference Share, P500 par Ordinary Share, P50 par Share premium

P

Retained earnings Total Shareholders' Equity

80 120 99 150

P

449

Cash dividends were declared in 2017. Dividends were declared last 2014. Determine the dividend per share for both preference and ordinary share under the following independent scenarios (2 decimal places): a. Preference share is non-cumulative and non-participating. Dividends declared amounted to P10 million. b. Preference share is cumulative and non-participating. Dividends declared amounted to P20 million. c. Preference share is cumulative and participating. Dividends declared amounted to P30 million. d. Preference share is cumulative and participating. Dividends declared amounted to P15 million. e. Preference share is cumulative and participating up to an additional 2% . Preference share is cumulative and participating. Dividends declared amounted to P30 million....