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UNION CHRISTIAN COLLEGECity of San Fernando, La UnionSchool of Business and Sciences Accountancy ProgramMOCK BOARD EXAMINATIONSY 2019-Instructions : Kindly encircle the correct letter using black or blue ball pen. Double encircling, erasures, usage of pencil and friction pen in encircling means wron...

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UNION CHRISTIAN COLLEGE City of San Fernando, La Union School of Business and Sciences Accountancy Program MOCK BOARD EXAMINATION SY 2019-2020 Instructions: Kindly encircle the correct letter using black or blue ball pen. Double encircling, erasures, usage of pencil and friction pen in encircling means wrong.

1. On December 31,2020, Zebra Company showed the following shareholder’s equity: Share capital, P100 par, 100,000 shares authorized 50,000 shares issued 5,000,000 Share premium 1,000,000 Retained earnings 2,000,000 Treasury shares, 5,000 at cost 600,000 On December 31,2020, Zebra Company declared a cash dividend of P30 per share to shareholders of record on January 15,2021 and payable on January 31,2021. Required: Prepare journal entry on December 31,2020, January 15,2021 and January 31,2021. 2. On January 1,2020, Leilanie Company reported the following shareholder’s equity: Share capital 1,500,000 Share premium 3,000,000 Retained earnings 5,000,000 The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were issued and outstanding. On March 1, 2020, the entity acquired 50,000 shares for P10 per share to be held as treasury. The shares were originally issued at P8 per share. The entity used the cost method to account for treasury shares. On July 1,2020, the entity declared a property dividend of inventory payable on March 1,2021. The inventory had a P1,200,000 carrying amount and a fair value of P1,500,000 on July 1,2020, P1,800,000 on December 31,2020 and P2,000,000 on March 1,2021. The net income for 2020 was P3,000,000. Required: Prepare journal entries for 2020 and 2021 in connection with treasury shares, property dividend and net income.

3. Oriental Company showed the following balances at year-end: Wasting asset

8,000,000

Accumulated depletion Share capital, P100 par

1,000,000 5,000,000

Capital liquidated

500,000

Retained earnings

1,200,000

The Board of Directors declared a dividend of P30 per share at year-end. Required: Prepare journal entry for the declaration of the dividend and the subsequent payment. 4. On January 1,2020, Easy Company had ordinary and preference shares outstanding. The incorporators or original shareholders own ten ordinary shares but no preference shares. On December 31,2020, the entity declared dividends on the ordinary shares’ payable on July 1,2021. The entity decided to give the ordinary shareholders a choice between receiving a cash dividend in the form of a noncash asset. The noncash asset is a standard model from the car fleet. Each car has a fair value of P600,000 and carrying amount of P400,000. Th e entity estimated that 80% of the ordinary shareholders will take the option of the cash dividend and 20% will elect for the noncash asset. Required: 1. Prepare journal entries for 2020 and 2021 assuming the shareholders have chosen the cash alternative. 2. Prepare journal entries for 2020 and 2021 assuming the shareholders have chosen the noncash alternative and the fair value of the car did not change. 5. Valerie Company showed the following data: Share capital, per value P100, 50,000 shares issued Share premium Retained earnings Market value of share on declaration date Market value of share on distribution date

5,000,000 200,000 2,000,000 150 170

Required: For each of the following, prepare journal entries on the date of declaration and date of payment: 1. A 20% share dividend is declared. 2. A 10% share dividend is declared.

6. Michelle Company showed the following data: Preference share capital, par value P20, 100,000 shares authorized, 50,000 shares issued Ordinary share capital, par value P10, 200,000 shares authorized, 100,000 shares issued Retained earnings Market value of share on date of declaration: Preference share Ordinary share

1,000,000 1,000,000 2,000,000 30 15

Required: For each of the following prepare journal entries on the date of declaration and date of payment: a. A 10% ordinary share dividend is declared on ordinary share. b. A 50% ordinary share dividend is declared on ordinary share. c. A 10% ordinary share dividend is declared on both ordinary and preference share. d. An ordinary share dividend is declared whereby each ordinary shareholder shall receive one ordinary share for every five shares held. In view of the ratio of new shares to old shares, it is necessary that fractional share warrants be issued to various shareholders calling for 3,000 shares. Only 90% of the warrants are turned in and the remainder lapsed. 7. National Company provided the following transactions: 2020 September 15 Declared a 20% share dividend on 100,000 shares, par value P10 The shares were originally sold at 15.

October 15 December 1

Distributed the share dividend declared on September 15 which included fractional warrants for 2,000 shares. One thousand five hundred shares were issued for fractional warrants. The remaining warrants expired.

2021 September 15 November 15

Paid the scrip dividend

December 1

Declared a dividend of 1 share of Sharp Company on every share of National Company owned.

Declared scrip dividend of P2 per share payable on November 15, 2021 with interest at 12%

Sharp Company shares are carried at a cost of P3 per share and the market value is P4 per share.

31

Distributed the Sharp Company shares to shareholders. The market value of Sharp Company share is P6.

Required: Prepare journal entries to record the transactions. 8. East Company had sufficient retained earnings in 2020 as a basis for dividends but was temporarily short of cash. The entity declared a dividend of P100,000 on April 1,2020 and issued promissory notes to its shareholders in lieu of cash. The notes which were dated April 1,2020, had a maturity date of March 31,2021 and a 10% interest rate. How should the scrip dividend and related interest be accounted for? a. Debit retained earnings P110,000 on April 1,2020. b. Debit retained earnings P110,000 on March 31,2021. c. Debit retained earnings P100,000 on April 1,2020 and debit interest expense P10,000 on March 31,2021. d. Debit retained earnings P100,000 on April 1,2020 and debit interest expense P7,500 on December 31,2020. 9. During 2020, Ray Company reported the following cash dividends on the P10 par value share capital: The 4th quarter cash dividend was declared on December 20,2020 to shareholders of record December 31,2020 payable on January 31,2021. 1st quarter 800,000 2nd quarter 900,000 3rd quarter 1,000,000 4th quarter 1,100,000 In addition, the entity declared a 10% share dividend on December 1,2020 when there were 300,000 shares issued and outstanding and the market value was P25 per share on declaration date and P30 distribution date. 1. What total amount was charged against retained earnings for the dividends? a. 3,800,000 b. 4,550,000 c. 4,700,000 d. 4,100,000 2. What amount was credited to share capital for the share dividend? a. 300,000 b. 750,000 c. 450,000 d. 0 3. What amount was credited to share premium for the share dividend? a. 600,000 b. 450,000

c. 300,000 d. 0 10. Kiara Company provided the following shareholders’ equity at year-end: 2020 2021 Share capital (100 par value) Share premium Retained earnings

5,000,000 2,500,000 5,000,000

5,100,000 2,900,000 ?

During 2021, the entity declared and paid cash dividend of P750,000 and also declared and issued a share dividend. There were no other changes in shares issued and outstanding during 2021. The net income for 2021 was P1,500,000. What amount should be reported as retained earnings on December 31,2021? a. 5,250.000 b. 5,750,000 c. 5,650,000 d. 6,500,000 11. Beauty Company provided the following information: Preference share capital, P500 par value,2,200 shares Treasury preference shares, 100 shares at cost Ordinary share capital, no par, 3,000 shares at issue price Retained earnings

1,100,000 110,000 600,000 2,500,000

The Board of Directors resolve to pay a 100% share dividend on all shares outstanding capitalizing amounts of retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding, respectively. Subsequently, the Board of Directors resolved to pay a cash dividend of 10% on preference share and a cash dividend of P10 per ordinary share. What is the shareholders’ equity after effecting the dividend transactions? a. 4,090,000 b. 3,810,000 c. 3,820,000 d. 3,955,000 12. Budd Company had 700,000 ordinary shares authorized and 300,000 shares outstanding at the beginning of current year. January 31 June 30 August 1 November

Declared 10% share dividend Purchased 100,000 shares Reissued 50,000 shares Declared 2 for 1 share split

30

How many ordinary shares are outstanding at year-end? a. 560,000 b. 600,000 c.630,000 d. 660,000 13. At the beginning of current year, Franta Company was authorized to issue share capital of 100,000 shares with P50 par value. The entity had the following share capital transactions during the year: January 1 Sold 80,000 shares at P60 per share May 1 Reacquired 4,000 treasury shares at P65 per share July 1 Approved a share split of 5 for 1 Declared and issued a 10% share dividend when the market October 31 value of a share is P25 December 31 Reissued all of the treasury shares at P30 December 31 Net income for the year was P3,000,000 1. What is the number of shares outstanding at year-end? a. 418,000 b. 438,000 c. 440,000 d. 422,000 2. What amount should be reported as share capital at year-end? a. 4,000,000 b. 4,380,000 c. 3,800,000 d. 3,760,000 3. What total amount should be reported as share premium at year-end? a. 1,370,000 b. 1,710,000 c. 1,400,000 d. 1,970,000 4 What is the total shareholders’ equity at year-end? a. 8,140,000 b. 7,800,000 c. 7,560,000 d. 8,400,000 14. As a result of an agreement with bondholders, Malice Company is required to appropriate earnings of P200,000 at the end of each calendar year for the years 2016-2020. At the beginning of 2021, upon liquidation of the bonded indebtedness of P1,000,000, the retained earnings appropriation is canceled.

This is followed by the declaration and the issue of a 30% share dividend on 250,000 outstanding shares with P10 par value. The market value is P15 per share. Required: Prepare all indicated entries for the annual appropriation of retained earnings, payment of bonds payable, cancellation of appropriation and issuance of share dividend. 15. The board of directors of Mazda Company decided to embark on a substantial plant expansion. To demonstrate the need to retain assets in the entity, the board agreed on December 31,2020 to authorize an appropriation of retained earnings in the amount of P5,000,000, the anticipated cost of plant expansion. The plant was partially constructed on December 31,2021 and the board decided to reduce the appropriation by P3,000,000 the cost incurred to date. Finally, in July 2022, the plant was completed and the remaining portion of the appropriation was removed. Required: Prepare journal entries to record, reduce and finally remove the appropriation. 16. On January 1,2020, Susan Company disclosed the following shareholders’ equity: During the current year, the entity had the following transactions: 1. In February, the entity reacquired 6,000 shares for P90 per share. 2. In June, the entity sold 3,000 shares of its treasury for P120 per share. 3. In September each shareholder was issued for each share held one stock right to purchase two additional shares for P140 per share. The rights expire on December 31,2020. 4. In October, 10,000 stock rights were exercised when the market value was P150 per share. 5. On December 15,2020, the entity declared the first cash dividend to shareholders of P20 per share, payable on January 10,2021, to shareholders of record on December 31,2020. 6. On December 21,2020, the entity formally retired 2,000 treasury shares. 7. Net income for the current year was P540,000 8. Appropriated retained earnings equal to the cost of treasury shares. Required: a. Prepare journal entries to record the transactions. b. Prepare a statement of changes in equity for the year ended December 31,2020. c. Present the shareholders’ equity on December 31,2020. 17. On January 1,2020, Marimar Company reported the following shareholders’ equity: Share capital P100 par 6,000,000 Share premium 500,000 Retained earnings 1,800,000 Transactions during the year and other information relating to shareholders’ equity accounts were as follows: 1. On January 26, the entity reacquired for cash 5,000 shares for P110 per share.

2. On April 4, the entity sold for cash 3,000 shares of treasury for P140 per share. 3. On June 1, the entity declared a cash dividend of P20 per share, payable July 5, to shareholders of record on July 1. 4. On November 1, the entity declared a 2 for 1 split and changed the par value from P100 to P50. On November 20, shares were issued for the share split. 5. On December 5. 4,000 shares were just issued in exchange for a second hand equipment. The equipment originally cost P400,000 was carried by the previous owner at a carrying amount of P200,000 and was fairly valued at P260,000. 6. Net income for the current year was P1,730,000 7. Appropriated retained earnings equal to the cost of treasury shares. Required: a. Prepare journal entries to record the transactions. b. Prepare a statement of changes in equity for the year ended December 31,2020 c. Present the shareholders’ equity on December 31,2020 18. On January 1,2020, Nissan Company had an ordinary share capital of 4,000,000 authorized shares with P20 per value, of which 1,000,000 shares were issued and outstanding The shareholders’ equity on January 1,2020 revealed the following balances: Ordinary share capital Share premium Retained earnings

20,000,000 6,000,000 5,000,000

Transactions during the year and other information relating to shareholders’ equity accounts were: 1. On January 5, the entity issued at P54 per share, 100,000 preference shares with P50 par value and 9% cumulative. Each preference share is convertible at the option of the holder, into two ordinary shares. The entity had 400,000 authorized preference shares. 2. On February 1, the entity reacquired 10,000 ordinary shares at P32 per share. 3. On April 30, the entity sold 250,000 ordinary shares at P34 per share. 4. On June 18, the entity declared a cash dividend of P2 per ordinary share, payable on July 12, to shareholders of record on July 1. 5. On November 19. The entity sold 5,000 shares of treasury for P42 per share. 6. On December 15, the entity declared the yearly cash dividend on preference share capital, payable on January 14,2021 to shareholders of record on December 31,2020. 7. The net income for the current year was P3,500,000 8. Appropriated retained earnings equal to the cost of treasury shares. Required: a. Prepare journal entries to record the transactions. b. Prepare a statement of changes in equity for 2020 c. Present the shareholders’ equity on December 31,2020

19. Subic Company has suffered substantial operating losses for several years. The entity’s ability to service debts and pay operating expenses has been impaired. Consequently, the owners, and creditors have decided to execute a quasi-reorganization. The statement of financial position of Subic Company prior to the organization is as follows:

ASSETS Ordinary share capital Share premium Retained earnings

20,000,000 6,000,000 5,000,000

Cash Accounts receivable Inventory Property, plant and equipment Accumulated depreciation Goodwill

200,000 300,000 500,000 9,900,000 (3,100,000) 1,200,000

Total assets

9,000,000 LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable Note payable Mortgage payable Ordinary share capital, P100 par, 50,000 shares Share premium Retained earnings Total Liabilities and shareholders' equity

1,100,000 500,000 4,200,000 5,000,000 1,000,000 (2,800,000) 9,000,000

The entity provided the following information in relation to the quasi-reorganization: 1. An independent appraisal of the entity’s inventory reveals goods with carrying amount of P150,000 to be obsolete and worthless. 2. Equipment costing P2,000,000 and with accumulated depreciation of P1,200,000 is expected to be sold for P300,000. However, the holder of the note payable agrees to accept the equipment in full satisfaction of the note. 3. The goodwill is to be written off as loss. 4. The mortgage holder agrees to accept 40,000 new preference shares with P100 par value in satisfaction of the liability. 5. The par value of the ordinary share is reduced to P20 6. The resulting deficit is offset against the share premium. Required:

a. Prepare journal entries to give effect to the quasi-reorganization. b. Prepare a statement of financial position immediately after the reorganization. 20. Bacolod Company approved the following reorganization at year-end: 1. The preference share capital is to be exchanged for P2,000,000 of 10% debenture bonds. 2. Goodwill is to be written off. 3. The property, plant and equipment are appraised by independent expert at a replacement cost of P12,000,000. The SEC approved the revaluation of the property, plant and equipment to give effect to the reorganization. 4. The resulting deficit is to be offset against the revaluation surplus.

Statement of financial position at year end Assets Cash Other current assets Property, plant and equipment Less accumulated depreciation Goodwill

425,000 1,325,000 8,000,000 2,000,000

Total assets

6,000,000 500,000 8,250,000

Liabilities and Shareholders' Equity Current liabilities Preference share capital, 12% cumulative P100 par Ordinary share capital, 50,000 shares, P100 par Share premium Retained earnings

20,000,000 1,500,000 5,000,000 750,000 (1,000,000)

Total liabilities and shareholders' equity

8,250,000

Required: a. Prepare journal entries to give effect to the reorganization. b. Prepare a statement of financial position after the reorganization. 21. On January 1,2020, Rama Company had 20,000 treasury shares of P5 par value that had been previously acquired at P12 per share. In May 2020, the entity reissued 15,000 of these treasury shares at P10 per share. The cost method is used to record treasury transactions. On December 31,2020, what amount should be reported in the notes to financial statements as a restriction of retained earnings as a result of the treasury share transactions? a. 5,000 b. 10,000 c. 60,000

d. 90,000

22. Elvis Company reported the following shareholders’ equity on January 1,2020: Share capital, P5 par, 600,000 shares authorized, 200,000 shares issued and outstanding 1,000,000 Share premium 6,000,000 Retained earnings 2,800,000 On January 31,2020, the entity declared and paid cash dividend of P10 per share. The net income for the current year was P3,000,000. What is the unappropriated balance of retained earnings on December 31,2020? a. 2,745,000 b. 3,045,000 c. 2,700,000 d. 2,600,000 23. Cerritos Company began operation on January 1,2017. During the first three years of operations, Cerritos Company reported net income of P800,000 for 2017, P2,500,000 for 2018 and P3,000,000 for 2019. The entity also declared and paid dividends of P1,00,000 for 2018 and P1,000,000 for 2019. Income before income tax 4,800,000 Prior period adjustment-understatement of 2018 depreciation before tax 400,000 Cumulative decrease in income from change in inventory method before tax 700,000 Dividend declared (of this amount, P500,000 will be paid on January 15,2021) 2,000,000 Income tax rate 30% What amount should be reported as retained earnings on December 31,2020? a. 4,890,000 b. 5,450,000 c. 6,000,000 d. 5,660,000 24. Adverse financial and operating circumstances warrant that Solid Company should undergo a quasireorg...