FAR_Learning Assessment 2 INTEGRATED REVIEW/REFRESHER IN ACCOUNTANCY

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

FINANCIAL ACCOUNTING & REPORTING – Learning Assessment 2

Use the G-form as your answer sheet.

Multiple Choice Questions

1. 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.

2. 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.

3. 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.

4. Manning Company issued 10,000 shares of its P5 par value common stock having a fair value of
P25 per share and 15,000 shares of its P15 par value preferred stock having a fair value of P20
per share for a lump sum of P520,000. How much of the proceeds would be allocated to the
common stock?
a. P54,167
b. P236,364
c. P270,833
d. P276,250

5. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 2022, was
as follows:
Ordinary shares (P10 par value, authorized 1,000,000
shares, issued and outstanding 900,000 shares) P 9,000,000
Share premium 2,700,000
Retained earnings 1,300,000

On January 2, 2023, Peter purchased and retired 100,000 shares of its stock for P1,800,000.
Immediately after retirement of these 100,000 shares, the balances in the share premium and
retained earnings accounts, respectively, should be
Share premium Retained earnings
a. P900,000 P1,300,000
b. P1,400,000 P 800,000
c. P1,900,000 P1,300,000
d. P2,400,000 P 800,000

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FAR_Learning Assessment 2 INTEGRATED REVIEW/REFRESHER IN ACCOUNTANCY

6. Asp Co. was organized on January 2, 2021, with 30,000 authorized shares of P10 par ordinary
shares.
During 2021 the corporation had the following capital transactions:
Jan. 5 Issued 20,000 shares at P15 per share.
July 14 Purchased 5,000 shares at P17 per share.
Dec. 27 Reissued the 5,000 shares held in treasury at P20 per share.

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its
December 31, 2021, balance sheet, what amount should Asp report as share premium in excess
of par?
a. 100,000
b. 125,000
c. 140,000
d. 115,000

7. Nest Co. issued 100,000 shares of common stock (i.e., ordinary shares). Of these, 5,000 were held
as treasury stock at December 31, 2021. During 2022, transactions involving Nest's common
stock were as follows:
 May 3 - 1,000 shares of treasury stock were sold.
 August 6 - 10,000 shares of previously unissued stock were sold.
 November 18 - a 2-for-1 stock split took effect.
Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 2022,
how many shares of Nest's common stock were issued and outstanding?
Shares Issued Outstanding
a. 220,000 212,000
b. 220,000 216,000
c. 222,000 214,000
d. 222,000 218,000

8. The entry to record the issuance of ordinary shares for fully paid share subscriptions is
a. A memorandum entry.
b. Dr. Common Stock Subscribed; Cr. Common Stock; Cr. Additional Paid-In Capital
c. Dr. Subscribed Share Capital; Cr. Subscriptions Receivable
d. Dr. Subscribed Share Capital; Cr. Share Capital

9. Which of the following is an appropriate presentation of treasury stock?

a. As a marketable security
b. As a deduction at cost from total stockholders' equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders' equity

10. Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were purchased
in 2020 for P90,000. On November 15, 2024, 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 P21 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 P189,000
b. P0 P 81,000
c. P108,000 P 81,000
d. P108,000 P 27,000

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11. The stockholders' equity section of Gunkel Corporation as of December 31, 2022, 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 95,000
P145,000
On March 1, 2023, the board of directors declared a 15% stock dividend, and accordingly 1,500
additional shares were issued. On March 1, 2021, the fair value of the stock was P6 per share.
For the two months ended February 28, 2023, Gunkel sustained a net loss of P10,000.

What amount should Gunkel report as retained earnings as of March 1, 2023?

a. P76,000.
b. P82,000.
c. P86,000.
d. P92,000.

12. At December 31, 2020 and 2021, Carr Corp. had outstanding 4,000 shares of P100 par value 6%
cumulative preferred stock and 20,000 shares of P10 par value common stock (i.e., ordinary
shares). At December 31, 2020, dividends in arrears on the preferred stock were P12,000. Cash
dividends declared in 2021 totaled P44,000. Of the P44,000, what amounts were payable on
each class of stock?
Preference shares Ordinary shares
a. P44,000 P 0
b. P36,000 P 8,000
c. P32,000 P12,000
d. P24,000 P20,000

13. Red Corporation had 700,000 shares of common stock authorized and 300,000 shares
outstanding at December 31, 2020. The following events occurred during 2021:
January 31 Declared 10% stock dividend
June 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November 30 Declared 2-for-1 stock split
At December 31, 2021, how many shares of common stock are outstanding?
a. 560,000
b. 600,000
c. 630,000
d. 660,000

14. Percy Corporation was organized on January 1, 2022, with an authorization of 1,200,000 shares
of common stock with a par value of P6 per share. During 2022, the corporation had the
following capital transactions:
January 5 issued 900,000 shares @ P10 per share
July 28 purchased 120,000 shares @ P11 per share
December 31 sold the 120,000 shares held in treasury @ P18 per share

Percy used the cost method to record the purchase and reissuance of the treasury shares.
What is the total amount of additional paid-in capital as of December 31, 2022?
a. P-0-.
b. P2,760,000.
c. P3,600,000.
d. P4,440,000.

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15. Legal capital is the portion of contributed capital that cannot be distributed to the owners during
the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are
settled first. For no-par value shares, legal capital is
a. The aggregate par value of shares issued and subscribed.
b. The total consideration received or receivable from shares issued or subscribed.
c. The aggregate stated value of shares issued and subscribed.
d. The aggregate market value of shares issued and subscribed.

16. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess
of par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80
percent of the subscription price was collected. Share premium would increase on
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

17. The shareholders’ equity of Cecille Corp. revealed the following on June 30, 2022:
Preference share, P100 par value P230,000
Preference share premium 80,500
Ordinary share, P15 par value 525,000
Ordinary share premium 275,000
Ordinary share subscribed 5,000
Retained earnings 190,000
Notes payable 400,000
Subscription receivable - ordinary 40,000
How much is the legal capital of the corporation?
a. P760,000
b. P775,00
c. P1,115,000
d. P1,305,500

18. Penn Company reported the following information for 2022:

Sales revenue P510,000
Cost of goods sold 350,000
Operating expenses 55,000
Unrealized holding gain on available-for-sale securities 40,000
Cash dividends received on the securities 2,000
For 2022, Penn would report other comprehensive income of
a. P137,000.
b. P135,000.
c. P42,000.
d. P40,000.

19. Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:

5% cumulative preference shares, P100 par value 250,000

Ordinary share, par value P3.50 per share 350,000
Share premium on ordinary shares 125,000
Retained earnings 300,000

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Dividends in arrears on the preference share amount to P25,000. If Hoyt were to be liquidated,
the preference stockholders would receive par value plus a premium of P50,000. The book value
per ordinary share is
a. 7.75
b. 7.50
c. 7.25
d. 7.00

20. Jones Corp.'s capital structure was as follows: December 31

Outstanding shares of stock: 2021 2020
Ordinary 110,000 110,000
Convertible preference shares 10,000 10,000
8% convertible bonds 1,000,000 1,000,000

During 2021, Jones paid dividends of P3.00 per share on its preference shares. The preference
shares are convertible into 20,000 ordinary shares. The 8% bonds are convertible into 30,000
ordinary shares. Profit for 2021 is P850,000. The income tax rate is 30%. The diluted earnings
per share for 2021 is
a. 5.48
b. 5.66
c. 5.81
d. 6.26

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