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National Teachers College

Intermediate Accounting 2
Final Exam

Name:

1. If shares are issued below par or issued value, the deficiency of the consideration received is
recorded as “discount on share capital.” The discount is presented in the statement of financial
position
a. under current assets as a receivable from the shareholder concerned.
b. as a deduction in shareholders’ equity.
c. as an addition in shareholders’ equity.
d. a and b

2. 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.

3. How should the excess of the subscription price over the par value of ordinary subscribed be
recorded?
a. As share premium when the subscription is received.
b. As share premium when the subscription is collected.
c. As retained earnings when the subscription is received.
d. As share premium when the capital stock is issued.

4. Share issuance costs are recognized directly in equity. If the related share premium is insufficient to
offset any share issuance costs, the issuance costs are
a. recognized as expense in profit or loss
b. charged directly to retained earnings
c. charged directly to share capital
d. a or b

5. Zinc Co.'s adjusted trial balance at December 31, 20x1, includes the following account balances:
Ordinary shares, ₱3 par ₱600,000
Share premium 800,000
Treasury stock, at cost 50,000
Accumulated other comprehensive income (Debit) 20,000
Retained earnings appropriated for uninsured earthquake losses 150,000
Retained earnings - unappropriated 200,000

What amount should Zinc report as total stockholders' equity in its December 31, 20x1, balance sheet?
a. 1,680,000 b. 1,720,000 c. 1,780,000 d. 1,820,000

6. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20x2 was as
follows:
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Ordinary shares (₱10 par, authorized 1M sh., issued and outst. 900K sh.) ₱ 9,000,000
Share premium 2,700,000
Retained earnings 1,300,000

On January 2, 20x3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000. Immediately
after retirement of these 100,000 shares, the balances in the share premium and retained earnings
accounts should be
Share premium Retained earnings Share premium Retained earnings
a. ₱ 900,000 ₱1,300,000 c. ₱1,900,000 ₱1,300,000
b. ₱1,400,000 ₱ 800,000 d. ₱2,400,000 ₱ 800,000

7. On April 1, 20x9, Hyde Corp., a newly formed company, had the following stock issued and
outstanding:
 Ordinary shares, ₱1 par value, 20,000 shares originally issued for ₱30 per share.
 Preference shares, ₱10 par value, 6,000 shares originally issued for ₱50 per share.

Hyde’s April 1, 20x9, statement of shareholders’ equity should report

Ordinary shares Preference shares Share premium
a. ₱20,000 ₱60,000 ₱820,000
b. ₱20,000 ₱300,000 ₱580,000
c. ₱600,000 ₱300,000 ₱0
d. ₱600,000 ₱60,000 ₱240,000

8. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary
shares. During 20x1 the corporation had the following capital transactions:
Jan. 5 Issued 20,000 shares at ₱15 per share.
July 14 Purchased 5,000 shares at ₱17 per share.
Dec. 27 Reissued the 5,000 shares held in treasury at ₱20 per share.
Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December
31, 20x1, balance sheet, what amount should Asp report as additional paid-in capital in excess of par?
a. 100,000 b. 125,000 c. 140,000 d. 115,000

9. On March 1, 20x1, Rya Corp. issued 1,000 shares of its ₱20 par value ordinary shares and 2,000
shares of its ₱20 par value convertible preference shares for a total of ₱80,000. At this date, Rya’s
ordinary share was selling for ₱36 per share, and the convertible preference share was selling for
₱27 per share. What amount of the proceeds should be allocated to Rya’s convertible preference
share?
a. 60,000 b. 54,000 c. 48,000 d. 44,000

10. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other share
transactions occurred until March 31, 20x1, when Fogg acquired some of the issued shares for ₱20
per share and retired them. Which of the following statements correctly states an effect of this
acquisition and retirement?
a. 20x1 profit is decreased. c. Share premium is decreased.
b. 20x1 profit is increased. d. Retained earnings is increased.

11. The use of equity reserves under PFRSs

a. is strictly voluntary on the part of the management of a company.
b. is based on whether a reserve is part of distributable or non-distributable equity.
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c. is primarily for the benefit of shareholders rather than creditors.

d. results in the elimination of the retained earnings category from the total equity of a company.

12. Which of the following is most likely to be true regarding the payment of dividends?
a. Dividends may be paid from legal capital.
b. Retained earnings are available for dividends unless restricted by contract or by statute.
c. Unrealized capital is available for any type of dividend.
d. Capital from donated assets is available for dividends.

13. When a property dividend is declared and the carrying amount of the property exceeds its fair
value, the dividend is recorded at the
a. fair value of the property at the date of distribution.
b. carrying amount of the property at the date of declaration.
c. carrying amount of the property at the date of distribution if it still exceeds the fair value of the
property at the date of declaration.
d. fair value of the property at the date of declaration.

14. Selected information from the accounts of Row Co. at December 31, 20x1, follows:
Total profit since incorporation ……….…………………….₱420,000
Total cash dividends paid ………………………….……….....130,000
Total value of property dividends distributed ………………..30,000
Excess of proceeds over cost of treasury stock sold,
accounted for using the cost method …………..………….110,000

In its December 31, 20x1, financial statements, what amount should Row report as retained earnings?
a. 260,000 b. 290,000 c. 370,000 d. 400,000

15. Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at
December 31, 20x1. During 20x2, 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, 20x2, how
many shares of Nest's common stock were issued and outstanding?

Shares Issued Outstanding Shares Issued Outstanding

a. 220,000 212,000 c. 222,000 214,000
b. 220,000 216,000 d. 222,000 218,000

16. On June 27, 20x1, Brite Co. distributed to its ordinary shareholders 100,000 shares of Quik, Inc., an
unrelated party, held as investment in held for trading securities. The carrying amount of the
investment on June 27, 20x1 was ₱1 per share, while the fair value was ₱2 per share. On distribution
date, the fair value of Quik’s stock was ₱2.50 per share. In its income statement for the year ended
June 30, 20x1, what amount should Brite report as gain relating to the disposal of the stock?
a. 250,000 b. 200,000 c. 50,000 d. 0

17. The Gradison Corporation had the following classes of shares outstanding as of December 31, 2002:
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 Ordinary shares, ₱20 par value, 20,000 shares outstanding

 Preference shares, 6 percent, ₱100 par value, cumulative, 2,000 shares outstanding

No dividends were paid on preference shares for 2000 and 2001. On December 31, 2002, a total cash
dividend of ₱200,000 was declared. What amount of dividends is payable to the ordinary shareholders?
a. 156,000 c. 176,000
b. 167,000 d. 184,000

18. Late Co. has the following shareholders’ equity:

Share capital, ₱100 par, 10,000 shares 1,000,000
Share premium 200,000
Retained earnings 300,000
Total shareholders’ equity 1,500,000

Late Co. recalled the 10,000 outstanding shares and replaced them with 20,000 no-par shares with
stated value of ₱5 per share. How much is the share premium after the recapitalization?
a. 200,000 c. 1,100,000
b. 1,000,000 d. 0

19. During 2002, the following transactions related to the capital stock of the Buffet-Line Corp.
occurred:

Jan. 7 Declared a ₱.75 cash dividend on 150,000 shares of preferred stock.

Feb. 7 Paid dividends on preferred stock.
March 4 Declared a ₱.50 cash dividend on 200,000 shares of common stock with a ₱20 par
value.
Mar. 18 Paid dividends on common stock.
June 30 Split common stock 4-for-1.
July 9 Purchased 12,000 shares of Buffet-Line's own common stock at ₱32 per share;
acquisition recorded at cost.
Sept. 10 Declared a cash dividend of ₱.40 per share on common stock outstanding.
Sept. 18 Paid dividends on common stock.

What total amount is debited to retained earnings for the transactions above?
a. 432,300 c. 527,700
b. 498,700 d. 614,700

20. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet consisted of the
following:

Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000
Share premium 150,000
Retained earnings (deficit) (210,000)

On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by reducing the
par value of the stock to ₱5 and eliminating the deficit against share premium. Immediately after the
quasi-reorganization, what amount should Brown report as share premium?
a. (60,000) c. 190,000
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b. 150,000 d. 0

21. Which of the following standards is most relevant in the accounting for an entity’s equity?
a. PAS 12 b. PAS 32 c. PAS 34 d. PFRS 12

22. MUSTY STALE Co. started operations on January 1, 20x1. Its authorized capitalization is ₱4,000,000
divided into 10,000 shares with par value per share of ₱400. On January 1, 20x1, MUSTY Co.
receives cash subscriptions for 5,000 shares at ₱480 per share. On January 31, 20x1, MUSTY receives
subscription for 2,000 shares at ₱640 per share. The entry to record the subscription on January 1,
20x1 includes
a. a debit to subscription receivable for ₱2,400,000.
b. a credit to subscribed capital for ₱2,400,000.
c. a credit to subscribed capital for ₱2,000,000.
d. a credit to share premium for ₱400,000.

23. The equity section of ROUSE AWAKEN Co.’s statement of financial position showed the following
information:
6% Preference share capital, ₱400 par value 800,000
Share premium – preference share capital 200,000
Ordinary share capital 3,200,000
Share premium – ordinary share capital 1,200,000
Subscribed share capital – ordinary 400,000
Subscription receivable – ordinary share capital (200,000)
Retained earnings 1,600,000

How much is the legal capital assuming the ordinary shares have par value of ₱200 per share?
a. 5,600,000 c. 4,400,000
b. 4,200,000 d. 5,400,000

24. An entity issues 1,000 shares with par value of ₱400 for land with fair value of ₱320,000, the entry to
record the transaction includes a
a. a debit to land for ₱400,000.
b. debit to discount on share capital for ₱80,000.
c. credit to share capital for ₱320,000.
d. credit to discount on share capital for ₱80,000.

25. Two years ago, Entity A reacquired 2,000 of its own shares with par value of ₱100 per share for
₱240,000. Today, Entity A reissues half of the treasury shares at ₱160 per share. The journal entry to
record the reissuance includes which of the following?
a. Credit to Retained earnings – unrestricted account for ₱240,000
b. Debit to Treasury shares account for ₱120,000
c. Credit to Share premium – treasury shares for ₱80,000
d. Credit to Share premium – treasury shares for ₱40,000

26. On January 1, 20x1, the statement of financial position of PROFUSE EXTRAVAGANT Co. shows
the following information:
Share capital (authorized 10,000 shares with par value of ₱400) 3,200,000
Share premium 640,000
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Share premium – treasury shares 20,000

Retained earnings 2,140,000
Total shareholders’ equity 6,000,000

On July 1, 20x1, PROFUSE reacquires 1,000 shares at ₱560 and immediately retires them. The entry on
July 1, 20x1 includes a
a. debit to “retained earnings” for ₱60,000
b. credit to “share premium – original issuance” for ₱80,000
c. credit to “share premium – retirement” for ₱560,000
d. b and c

27. CONFOUND CONFUSE Co. issued 1,000 ordinary shares with par value per share of ₱400 and 200
preference shares with par value per share of ₱520 for a lump sum price of ₱800,000. The quoted
prices per share were ₱480 for the ordinary shares and ₱600 for the preference shares. What amount
of the issuance price is allocated to the preference shares?
a. 104,000 c. 160,000
b. 120,000 d. 452,174

28. OBTUSE DULL Co. issued 1,000 callable preference shares with par value of ₱400 for ₱480 per
share. Subsequently, the preference shares are called in for redemption at ₱360 per share. The entry
to record the redemption includes a
a. credit to gain for ₱120,000 c. credit to retained earnings for ₱120,000
b. debit to share premium for ₱80,000 d. a and b

29. SUBTLE DELICATE Co. issues 10,000 stock rights to shareholders which entitle them to purchase
one ordinary share with par value of ₱400 for each stock right held at a subscription price of ₱480.
The fair value per share is ₱600. Half of the stock rights were exercised, while the other half were
recalled at ₱4 per stock right. The entry to record the recall includes a
a. debit to loss for ₱20,000. c. debit to retained earnings for ₱20,000.
b. debit to share premium for ₱20,000. d. none of these

30. HOMOLOGOUS MATCHING Co. issued 1,000 convertible preference shares with par value of
₱400 for ₱480 per share. Subsequently, the preference shares were converted into ordinary shares
on a “1 ordinary share-for-1 preference share held” basis. The ordinary shares have par value per
share of ₱200. The entry to record the conversion includes a
a. credit to ordinary share capital for ₱400,000.
b. credit to retained earnings for ₱80,000.
c. credit to share premium for ₱280,000.
d. none of these

31. You and I are the accountants of A Corporation. Our company’s authorized capitalization is ₱100M
divided into 100M shares with par value per share of ₱1. Which of the following statements is
correct?
a. If our company issues 10,000 shares for ₱5 each, we will recognize a share premium of ₱50,000.
b. Our company can issue shares at a subscription price that is below ₱1.
c. Our company can issue more than 100M shares without amending its articles of incorporation.
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d. If our company receives share subscription for 20,000 shares at ₱15 per share, we will most
likely recognize the related share premium on subscription date rather than on the collection
date.

32. Treasury stock was acquired for cash at a price in excess of its par value. The treasury stock was
subsequently reissued for cash at a price in excess of its acquisition price. Assuming that the cost
method of accounting for treasury stock transactions is used, what is the effect on retained
earnings?
Acquisition of Treasury Stock Reissuance of Treasury Stock
a. No effect Increase
b. Increase No effect
c. No effect No effect
d. Increase Decrease

33. The entry to record the retirement of shares at a price that exceeds the original issuance price
includes
a. a debit to share capital and share premium arising from the original issuance.
b. a debit to any share premium arising from treasury shares.
c. a debit to retained earnings, if (b) is insufficient.
d. a, b and c.

34. Entity A has the following share capital transactions during the year:
 Issued 10,000 shares with par value of ₱10 per share for a total consideration of ₱160,000.
 Received share subscriptions for 20,000 shares at a subscription price of ₱22 per share. Only half
of the subscriptions were collected by the end of the year.

How much is the total share premium arising from the share transactions above?
a. 60,000 b. 180,000 c. 300,000 d. 320,000

35. On February 26, 20x1, Entity A acquires 10,000 of its own shares for ₱3 per share. The shares have a
par value of ₱1 and were selling in the stock market at ₱4 per share on this date. To record the
reacquisition, Entity A should
a. debit Treasury shares account for ₱30,000.
b. credit Treasury shares account for ₱30,000.
c. debit Share premium account for ₱10,000.
d. credit Treasury shares account for ₱40,000.

36. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per share.
In 20x1, Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to account
for its treasury stock transactions. What accounts and amounts should Newt credit in 20x1 to record
the issuance of the 3,000 shares?
Treasury sh. Sh. premium Retained earnings Ordinary sh.
a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000
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37. At the date of the financial statements, ordinary shares issued would exceed ordinary shares
outstanding as a result of the
a. declaration of a stock split. c. purchase of treasury stock.
b. declaration of a stock dividend. d. payment in full of subscribed stock.

38. On July 31, 2001, Lakers Corporation purchased 500,000 shares of Celtic Corporation. On December
31, 2002, Lakers distributed 250,000 shares of Celtic stock as a dividend to Lakers' stockholders. This
is an example of a
a. liquidating dividend. c. property dividend.
b. investment dividend. d. stock dividend.

39. When a portion of stockholders' original investment is returned in the form of a dividend, it is
called a
a. compensating dividend. c. property dividend.
b. liquidating dividend. d. equity dividend.

40. Which of the following actions or events does not result in an addition to retained earnings?
a. A quasi-reorganization
b. Earning of net income for the period
c. Correction of an error in which ending inventory was understated in a previous year
d. Issuance of a 3-for-1 stock split

41. Cyan Corp. issued 20,000 shares of ₱5 par ordinary share at ₱10 per share. On December 31, 20x1,
Cyan's retained earnings were ₱300,000. In March 20x2, Cyan reacquired 5,000 shares of its common
stock at ₱20 per share. In June 20x2, Cyan sold 1,000 of these shares to its corporate officers for ₱25
per share. Cyan uses the cost method to record treasury stock. Profit for the year ended December
31, 20x2, was ₱60,000. At December 31, 20x2, what amount should Cyan report as retained
earnings?
a. 360,000 c. 375,000
b. 365,000 d. 380,000

42. On July 1, 20x1, COLTISH UNDISCIPLINED Co. declared as property dividends 10,000 shares held
as investment in associate with carrying amount of ₱4,000,000. Information on fair values is shown
below:
Date Fair value*
July 1, 20x1 3,200,000
Dec. 31, 20x1 4,400,000
Feb. 1, 20x2 3,800,000

*Assume costs to distribute are immaterial.

The property dividends are distributed on Feb. 1, 20x2. The entries on February 1, 20x1 include all of
the following except
a. a debit to loss for ₱200,000
b. a debit to property dividends payable for ₱600,000
c. a debit to retained earnings for ₱200,000
d. a credit to non-current asset held for distribution to owners for ₱4,000,000
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43. On April 1, 20x1, the board of directors of LEEWAY TOLERANCE Co. declared 50% scrip
dividends to shareholders of record as of April 15, 20x1 for distribution on September 30, 20x1. The
scrip dividends bear 10% interest per annum. The shareholders’ equity of LEEWAY as of April 1,
20x1 is as follows:
Share capital, authorized capital 10,000 shares, ₱400 par 3,200,000
Subscribed share capital 880,000
Share premium 400,000
Retained earnings 1,816,000
Treasury shares (at cost of ₱480 per share) (576,000)
Other components of equity 280,000
Total shareholders’ equity 6,000,000

How much is the scrip dividends payable?

a. 1,800,000 c. 2,200,000
b. 1,360,000 d. 1,760,000

44. Bennett Company paid cash dividends totaling ₱150,000 in 2000 and ₱75,000 in 2001. In 2002,
Bennett intends to pay cash dividends of ₱800,000. Bennett Company has 25,000 shares of common;
70,000 shares of 6 percent, ₱100 par cumulative preferred. What total amount of dividends will the
common stockholders expect to receive in 2002?
a. 650,000 c. 280,000
b. 125,000 d. 0

45. On January 2, 2000, the board of directors of Gimli Mining Corporation declared a cash dividend of
₱1,200,000 to stockholders of record on January 18, 2000, and payable on February 10, 2000. The
dividend is permissible by law in Gimli's state of incorporation. Selected data from Gimli's
December 31, 1999 balance sheet follows:

Accumulated depletion ₱ 200,000

Capital stock 1,100,000
Additional paid-in capital 800,000
Retained earnings 500,000

The ₱1,200,000 dividend includes a liquidating dividend of

a. 800,000. c. 600,000.
b. 700,000. d. 200,000.

46. The board of directors of Logan Piano Co. decided that the company should undergo a quasi-
reorganization effective on December 31, 2002. On that date, the company determined the following
asset values.
Carrying Fair Value
amount
Machinery ₱ 40,000 ₱ 40,000
Building 300,000 175,000
Equipment 95,000 80,000
₱435,000 ₱295,000

The stockholders' equity section at December 31, 2002, is presented below.

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Common stock, ₱25 par, 25,000 shares issued and outstanding ₱625,000
Additional paid-in capital 250,000
Retained earnings (deficit) (225,000)
Total ₱650,000

The quasi-reorganization is to be accomplished by reducing the par value of the stock to ₱20 per share.
How much is the balance of the retained earnings account after effecting the quasi-reorganization?
a. 52,000 c. (16,000)
b. 16,000 d. 0

47. Customer X enters into a five-year contract with Supplier Y for the right to transport oil from
Country A to Country B through Supplier Y’s pipeline. The contract provides that Customer X will
have the right to use 60% of the pipeline’s capacity throughout the term of the arrangement. Is the
portion of the pipeline specified in the contract qualifies as an identified asset for purposes of lease
accounting?
a. Yes, because it is physically distinct.
b. Yes, because it represents substantially all of the capacity of the entire pipeline.
c. No, because it is not physically distinct and it does not represent substantially all of the capacity
of the entire pipeline.
d. No, but I don’t know why. ☹

48. Which of the following statements is correct regarding the accounting for leases?
a. The lessor depreciates the leased asset under a finance lease.
b. The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease.
c. When discounting lease payments both the lessor and the lessee use the interest rate implicit in
the lease, unless the lessee cannot determine this rate.
d. An entity can never be both a lessor and a lessee of a same leased asset.

Fact pattern:
On January 1, 20x1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y
(Supplier). The annual rent is ₱220,000, payable at the end of each year. The equipment has a remaining
useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee’s incremental
borrowing rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present
value factors are as follows:
- PV of an ordinary annuity of ₱1 @10%, n=4………… 3.16987
- PV of an ordinary annuity of ₱1 @12%, n=4………… 3.03735

49. How much is the lease liability to be recognized by Entity X on initial recognition?
a. 702,345 c. 668,217
b. 697,371 d. 0

50. How much is the annual depreciation on the right-of-use asset?

a. 174,343 c. 167,054
b. 175,586 d. 0

"A cheerful heart is good medicine but a crushed spirit dries up the bones." - (Proverbs 17:22)
- END -
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