LA SALLE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY

First Semester of A.Y. 2018-2019
INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY
FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA
LECTURE NOTES
1. The owners of shares in a stock corporation are called 9. When a corporation issues its capital stock in payment
a. Incorporators for services, the least appropriate basis for recording
b. Promoters the transaction is the
c. Members a. Par value of the shares issued.
d. Stockholders b. Market value of the shares issued.
c. Market value of the services rendered.
2. The arbitrary value assigned to a share of stock is called d. Any of those provides an appropriate basis for
a. Market value recording the transaction.
b. Par value
10. The preemptive right of an ordinary shareholder is the
c. Liquidation value
right to
d. Book value
a. Share proportionately in corporate assets upon
liquidation.
3. The most powerful person in a corporation is the b. Share proportionately in any new issue of shares of
a. Incorporator the same class.
b. President c. Receive cash dividends before distribution to
c. Vice-President preference shareholders.
d. Chairman of the board d. Exclude preference shareholders from voting
rights.
4. The contributed capital of a corporation does not
include 11. A restriction of retained earnings is most likely to be
a. Retained earnings required by
b. The stated value of common stock issued a. Purchase of property, plant and equipment
b. Purchase of treasury shares
c. Paid-in capital in excess of par
c. Payment of last maturing series of a serial bond
d. Preferred stock
issued
d. Funding of past service cost
5. The maximum number of shares of common stock that
may be issued according to the corporation’s charter is 12. The cumulative feature of preference shares
referred to as a. Limits the amount of cumulative dividends to the
a. Authorized shares par value of the preference shares.
b. Issued shares b. Requires that dividends not paid in any year must be
c. Unissued shares made up in a later year before dividends are
d. Outstanding shares distributed to ordinary shareholders.
c. Means that the shareholders can accumulate
preference share equal to the par value of ordinary
6. All of the following normally are found in a
shares at which time the preference shares can be
corporation’s stockholders’ equity section except
converted into ordinary shares.
a. Dividends in Arrears d. Enables a preference shareholder to accumulate
b. Common Stock dividends equal to the par value of the shares.
c. Paid-in Capital in Excess of Par
d. Retained Earnings 13. Contributed capital consists of which of the following
major components?
7. Shares of treasury stock are a. Legal and stated capital.
a. Issued shares that have been bought back by the b. Retained earnings and legal capital.
corporation and are being held by the corporation c. Legal capital and additional paid-in capital.
b. Unissued shares that are held by the treasurer of d. Additional paid-in capital and retained earnings.
the corporation
c. Part of the total outstanding shares but not part of 14. On February 1, authorized common stock was sold on a
the total issued shares of corporation subscription basis at a price in excess of par value, and
d. Shares held by the Bureau of Treasury 20% of the subscription price was collected. On May 1,
the remaining 80% of the subscription price was
8. Treasury stock should be shown on the balance sheet collected. Additional Paid-in Capital would increase on
as February May 1
a. A current asset 1
b. A current liability a. No No
c. An investment asset b. No Yes
d. A reduction of the corporation’s stockholders’
c. Yes No
equity
d. Yes Yes

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15. Five persons decided to organize a corporation. Which b. Decrease No effect
of the following situation illustrates best the minimum c. Decrease Increase
requirement of the law to capital formation? d. No effect No effect
Authorize Subscribe Paid-
d Capital d Capital In 22. At the date of the financial statements, common stock
Capita shares issued would exceed common stock outstanding
l
as a result of the
a. ₱100,000 ₱20,000 ₱5,000
a. Purchase of treasury stock.
b. ₱100,000 ₱25,000 ₱5,000
c. ₱100,000 ₱25,000 ₱6,250 b. Declaration of a stock split.
d. ₱100,000 ₱30,000 ₱6,000 c. Declaration of a stock dividend.
d. Payment in full of subscribed stock.
16. Which of the following is issued to shareholders by a
corporation as evidence of the ownership of rights to 23. Which of the following statements is incorrect
acquire its unissued or treasury stock? concerning treasury shares?
a. Stock rights. a. Treasury shares shall be recorded at cost
b. Stock options. irrespective of whether acquired below or above
c. Stock dividends. par value.
b. The total cost of treasury shares shall be deducted
d. Stock subscriptions.
from equity.
c. Treasury shares may be recognized as financial
17. A company issued rights to its existing shareholders to asset.
purchase at par, the unissued shares of common stock d. Gain or loss on sale of treasury shares shall not be
with a par value of ₱10 per share. When the market included in profit or loss.
value of the common stock was ₱12 per share, the
rights were exercised. Common Stock should be 24. When preference shares are purchased and retired by
credited at ₱10 per share and the issuing entity for less than original issue price,
a. Stock Rights credited at ₱2 per share. proper accounting for the retirement
b. Retained Earnings credited at ₱2 per share. a. Increases the amount of dividends available to
c. Additional Paid-in Capital credited at ₱2 per share. ordinary shareholders
d. No credit made to Additional Paid-in Capital or b. Increases the contributed capital of the ordinary
Retained Earnings. shareholders
c. Increase reported income for the period
18. Stock warrants outstanding should be classified as d. Increases the treasury shares held by the
a. Liabilities. corporation
b. Capital stock.
c. Additions to contributed capital. 25. Watered stocks
d. Reductions of capital contributed in excess of par a. Arises when shares are issued for non-cash
value. consideration with fair value that is above par or
stated value but the consideration received is
19. Which of the following is an appropriate presentation recorded at par or stated value.
of treasury stock? b. Arises when shares are issued for non-cash
a. As a marketable security. consideration with fair value that is below par or
b. As a deduction at cost from total stockholders’ stated value.
equity.
c. Are an entity’s own shares that were previously
c. As a deduction at cost from total contingent
issued but are subsequently reacquired but not
liabilities.
d. As a deduction at par from total stockholders’ retired.
equity. d. Are shares that give the holderse thereof certain
preferences over other shareholders.
20. Gains and losses on the purchase and resale of treasury
stock may only be reflected in 26. Jared Corporation issued 10,000 shares of ₱20 par
a. Paid-in capital accounts. value common stock at ₱50 per share. The amount that
b. Income and paid-in capital accounts. would be credited to Paid-In Capital in Excess for Par-
c. Paid-in capital and retained earnings accounts. Common is
d. Income, paid-in capital, and retained earnings a. ₱200,000
accounts. b. ₱500,000
c. ₱300,000
21. Treasury stock was acquired for cash at a price in
d. ₱700,000
excess of its par value. The treasury stock was
subsequently sold for cash at a price in excess of its
27. Claim Corporation was organized on January 1, 2017,
acquisition price. Assuming that the cost method of
with authorized capital of 100,000 shares of ₱200 par
accounting for treasury stock is used, what is the effect
value common stock. During 2017, Claim had the
on total stockholders’ equity?
following transactions affecting stockholders’ equity:
Purchase of Sale of
Jan. 10 Issued 25,000 shares at ₱220 a share.
Treasury Treasury
Mar. 25 Issued 1,000 shares for legal services when
Stock Stock
the fair value was ₱240 a share.
a. Increase Decrease

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 Sept. 30 Issued 5,000 shares for a tract of land when Subscribed ordinary share capital 50,000
the fair value was ₱260 a share. Retained earnings 1,900,000
What amount should Claim report for additional paid-in Note payable 4,000,000
capital at December 31, 2017? Subscription receivable – ordinary share 400,000
a. ₱840,000 How much is the legal capital?
b. ₱800,000 a. ₱ 7,550,000
c. ₱540,000 b. ₱ 7,600,000
d. ₱500,000 c. ₱11,155,000
d. ₱13,055,000
28. Hulu Corporation was organized on January 1, 2017,
with an authorization of 1,000,000 ordinary shares 32. Veer Company issued 1,000 shares with ₱5 par to Howe
with a par value of ₱5 per share. During 2017, the as compensation for 1,000 hours of legal services
corporation had the following equity transactions: performed. Howe usually bills ₱160 per hour for legal
January 4 Issued 200,000 shares @ ₱5 per share. services. On the date of issuance, the share was trading
April 8 Issued 100,000 shares @ ₱7 per share. on a public exchange at ₱140. By what amount should
June 9 Issued 30,000 shares @ ₱10 per share. the share premium account increase as a result of the
July 29 Purchased 50,000 shares @ ₱4 per share. transaction?
Dec. 31 Sold 50,000 shares held in treasury @₱8 a. ₱135,000
per share. b. ₱140,000
What should be the total Share Premium as of c. ₱155,000
December 31, 2017? d. ₱160,000
a. ₱400,000
b. ₱450,000
c. ₱500,000 Use the following information to answer the next five
d. ₱550,000 questions:
The following data were compiled prior to preparing
29. At December 31, 2016, Glades Corp. had 20,000 shares the balance sheet of the Conviction Corporation as of
of ₱1 par value treasury shares that had been acquired December 31, 2017:
in 2015 at ₱12 per share. In May 2017, Glades issued Authorized common stock, ₱100 par value ₱4,000,000
15,000 of these treasury shares at ₱10 per share. At Cash dividends payable 160,000
December 31, 2017, what amount should Glades show Donated capital 800,000
in notes to financial statements as a restriction of Gain on sale of treasury stock 80,000
retained earnings as a result of its treasury shares Net unrealized loss on available for sale 96,000
transactions? securities
a. ₱ 0 Premium on capital stock 320,000
b. ₱ 5,000 Premium on bonds payable 240,000
c. ₱ 60,000 Reserve for bond sinking fund 400,000
Reserve for depreciation 600,000
d. ₱240,000
Revaluation increment on property 800,000
Retained earnings, unappropriated 720,000
30. The accounts below appear in the December 31, 2017 Subscribe capital stock 480,000
trial balance of Airily Company: Stock subscriptions receivables 120,000
Authorized share capital ₱5,000,000 Stock warrants outstanding 200,000
Unissued share capital 2,000,000 Treasury stock, at cost 144,000
Subscribed share capital 1,000,000 Unissued common stock 800,000
Subscription receivable 400,000
Share premium 500,000 33. Common stock issued
Retained earnings unappropriated 600,000 a. ₱3,056,000
Retained earnings appropriated 300,000 b. ₱3,200,000
Revaluation surplus 200,000
c. ₱3,680,000
Treasury shares, at cost 100,000
In the December 31, 2017 statement of financial d. ₱4,000,000
position, what should be reported as shareholders’
equity? 34. Additional paid-in capital (APIC)
a. ₱4,800,000 a. ₱320,000
b. ₱4,900,000 b. ₱1,200,000
c. ₱5,100,000 c. ₱1,320,000
d. ₱5,500,000 d. ₱1,400,000

31. The shareholders’ equity section of Lecanto Company 35. Appropriated retained earnings
revealed the following information on December 31, a. ₱0
2017. b. ₱400,000
Preference share capital, ₱100 par ₱2,300,000 c. ₱544,000
Share premium – preference share 805,000 d. ₱1,000,000
Ordinary share capital, ₱10 par 5,250,000
Share premium – ordinary share 2,750,000 36. Total stockholders’ equity

FAR 7.1MC: SHAREHOLDERS’S EQUITY (PART 1) Page 3 of 5

 a. ₱6,240,000 2017, the corporation had the following capital
b. ₱6,480,000 transactions:
c. ₱6,640,000 Jan. 5 Issued 20,000 shares at ₱15 per share
d. ₱6,760,000 July 14 Purchased 5,000 shares at ₱17 per share
Dec. 27 Reissued the 5,000 shares held in treasury
37. Legal capital at ₱20 per share
a. ₱3,200,000 Asp used the cost method to record the purchase and
b. ₱3,560,000 reissuance of the treasury shares. In its December 31,
c. ₱3,680,000 2017, balance sheet, what amount should Asp report as
d. ₱4,000,000 additional paid-in capital in excess of par?
a. ₱100,000
38. Zinc Co.’s adjusted trial balance at December 31, 2017, b. ₱115,000
includes the following account balances: c. ₱125,000
Ordinary shares, ₱3 par ₱600,000 d. ₱140,000
Share premium 800,000
Treasury stock, at cost 50,000 42. Bemoan Company issued 10,000 shares of ₱20 par
Accumulated other comprehensive 20,000 value common stock at ₱24 per share. Bemoan
income (debit) reacquired 1,000 shares of its own stock at a cost of
Retained earnings appropriated for ₱30 per share. The entry to record the reacquisition is
uninsured earthquake losses 150,000 a. Paid-in capital from ₱6,00
Retained earnings unappropriated 200,000 treasury stock 0
What amount should Zinc report as a total Treasury stock 24,00 ₱30,000
shareholders’ equity in its December 31, 2017, balance Cash 0
sheet? b. Paid-in capital from 10,00
a. ₱1,680,000 treasury stock 0
b. ₱1,720,000 Treasury stock 20,00 30,000
c. ₱1,780,000 Cash 0
d. ₱1,820,000 c. Treasury stock 30,00
Cash 0 30,000
d Treasury stock 20,00
39. On April 1, 2017, Hyde Corp., a newly formed company, . Paid-in capital from 0
had the following stock issued and outstanding: treasury stock 10,00 30,000
 Ordinary shares, ₱1 par value, 20,000 shares Cash 0
originally issued for ₱30 per share.
 Preference shares, ₱10 par value, 6,000 shares 43. The stockholders’ equity section of Peter Corporation’s
originally issued for ₱50 per share. balance sheet at December 31, 2016, was as follows:
Hyde’s April 1, 2017, statement of shareholders’ equity Ordinary shares (₱10 par value, 9,000,000
should report authorized 1,000,000 shares, issued
Ordinar Preferenc Share and outstanding 900,000 shares)
y shares e shares premiu Share premium 2,700,000
m Retained earnings 1,300,000
a. ₱20,000 ₱60,000 ₱820,00 On January 1, 2017, Peter purchase and retired 100,000
0 shares of its stock for ₱1,800,000. Immediately after
b. ₱20,000 ₱300,000 ₱580,00 retirement of these 100,000 shares, the balances in the
0 share premium and retained earnings accounts should
c. ₱600,00 ₱300,000 ₱0 be
0 Share Retained
d. ₱600,00 ₱60,000 ₱240,00 premium earnings
0 0 a. 900,000 1,300,000
b. 1,400,000 800,000
40. On March 1, 2017, Rya Corp. issued 1,000 shares of its c. 1,900,000 1,300,000
₱20 par value ordinary shares and 2,000 shares of its d. 2,400,000 800,000
₱20 par value convertible preference shares for a total
of ₱80,000. At this date, Rya’s ordinary share was 44. Time Co. issued 1,000 preference shares with par value
selling for ₱36 per share and the convertible preference of ₱100 for ₱135,000. The preference shares included
share was selling for ₱27 per share. What amount of the 1,000 share warrants that entitle the holder to acquire
proceeds should be allocated to Rya’s convertible 500 ordinary shares with par value of ₱50 for ₱70 per
preference share? share. The fair values are determined as follows:
a. ₱44,000 Preference share with warrant 120
b. ₱48,000 Warrant 10
c. ₱54,000 How much should be credited as share premium –
d. ₱60,000 warrants outstanding?
a. ₱0
41. Asp Co. was organized on January 2, 2017, with 30,000 b. ₱11,250 (10/110)*135,000
authorized shares of ₱10 par ordinary shares. During c. ₱23,750
d. ₱34,000

FAR 7.1MC: SHAREHOLDERS’S EQUITY (PART 1) Page 4 of 5

45. Time Co. issued 1,000 preference shares with par value
of ₱100 for ₱135,000. The preference shares included
1,000 share warrants that entitle the holder to acquire
500 ordinary shares with par value of ₱50 for ₱70 per
share. The fair values of the preference shares and
share warrants are not available. However, the
ordinary shares have a fair value of ₱100 per share.
How much should be the intrinsic value of the share
warrants?
a. ₱0
b. ₱15,000 (100-70)*500
c. ₱30,000
d. ₱35,000

46. On January 1, 2017 Coin Co. received from a

shareholder cash of ₱100,000 and land with fair value
of ₱500,000 and historical cost of ₱300,000. No
conditions are attached to the donation. Which of the
following journal entries should be made by the
company?
a. Memorandum entry only
b. Jan. 1, Debit Cash, ₱100,000; Land, ₱500,000
c. Jan. 1, Debit Cash, ₱100,000; Land, ₱300,000
d. Jan. 1, Credit Income from donation, ₱600,000

47. On January 1, 2017 Coin Co. received 1,000 shares with

par value of ₱100 and fair value of ₱120 per share from
a shareholder as donation. February 1, 2017, the
company reissues the 1,000 donated shares at ₱130 per
share. Which of the following journal entries should be
made by the company?
a. Jan. 1, Debit Treasury shares, 120,000.
b. Jan. 1, Credit Donated capital, 120,000.
c. Feb. 1, Credit Treasury shares, 120,000.
d. Feb. 1, Credit Donated capital, 130,000.

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