MOCK QUIZ

CORPORATION
2ND Term SY 2020 - 2021

Test I.

PART 1 - Multiple choice – Theory 15%.

WRITE IN CAPITAL LETTER THE ANSWER OF YOUR CHOICE IN THE ANSWER

SHEET PROVIDED. PENCILS NOT ALLOWED. STRICTLY NO ERASURES.

1. When share with par value are sold, the proceeds shall be credited to the
a. Share capital account.
b. Share premium.
c. Retained earnings.
d. Share capital account to the extent of the par value of the shares issued
with any excess being reflected in share premium.
2. If shares are issued to extinguish a financial liability, what is the initial
measurement of the shares issued?
a. Par value of the shares issued.
b. Fair value of the shares issued.
c. Fair value of liability extinguished.
d. Book value of the shares issued.
3. Subscriptions receivable from sale of shares which are not collectible
currently shall be presented as
a. Deduction from the related subscribed share capital under SHE.
b. Current asset
c. Non-current asset.
d. Other asset
4. When shares are issued for services received, the measure is equal to
a. Fair value of such services.
b. Par value of the shares issued.
c. Book value of the shares issued.
d. Fair value of the shares issued.
5. Costs of public offering of shares or costs that relate to “stock market listing
of shares” should be
a. Expensed immediately.
b. Charged to retained earnings.
c. Deducted from equity.
d. Deducted from equity, net of any related income tax benefit.
6. Transaction costs that are directly attributable to the issuance of new shares
should be
a. Expensed immediately.
b. Charged to retained earnings.
c. Deducted from equity.
d. Deducted from equity, net of any related income tax benefit.
7. When collectibility is reasonably assured, the excess of the subscription price
over the stated value of the no-par subscribed share capital shall be recorded
as
a. No par share capital.
b. Share premium when the subscription is recorded.
c. Share premium when the subscription is collected.
d. Share premium when the share capital is issued.
8. Deposit on subscriptions to a proposed increase in share capital may be
classified as
a. Current liability.
b. Non-current liability.
 c. Note to financial statement.
d. Part of shareholders’ equity.
9. Which of the following statements is incorrect in relation to treasury shares?
a. Treasury shares shall be recorded at cost irrespective of whether acquired
below or above par value.
b. The total cost of treasury shares shall be deducted from equity.
c. Treasury shares may be recognized as asset.
d. Gains or losses on sale of treasury shares shall not be credited or charged
to income.
10. Total shareholders’ equity represents
a. A claim against specific assets contributed by the owners.
b. The maximum amount that can be borrowed by the entity.
c. A claim against a portion of the total assets of an entity.
d. Only the amount of the retained earnings.
11. The residual interest in a corporation belongs to the
a. Management.
b. Creditors.
c. Ordinary shareholders.
d. Preference shareholders.
PART 2. TRUE OR FALSE (15%)
WRITE A IF THE STATEMENT IS CORRECT AND B IF THE STATEMENT IS
INCORRECT.
12. All incorporators are shareholders but not all shareholders are incorporators.
A
13. A corporation, like a partnership, may be formed by the mere agreement of
five or more persons. B
14. The authorized shares represent the maximum number of shares that a
corporation may issue. A
15. It is legal to issue share capital at par or at more than par but not at less than
par. A
16. When share capital is issued for consideration in the form of property other
than cash, the net book value of the property is used to record the
transaction. B
17. The highest bidder is the one who is willing to pay the entire unpaid
subscription plus any expenses incurred in the delinquency sale and at the
same time getting the highest number of shares. B
18. Under the journal entry method, the amount of share capital issued is
determined by deducting the balance of unissued share capital account from
the balance of authorized capital account. A
19. The owners of a stock corporation are called shareholder; the owners of a
non-stock corporation are called members. B
20. When the memorandum entry method is used, the account Share Capital is
credited upon issuance of stocks. A
21. Organization (pre-operating) costs are expenditures associated with
incorporating a new business. Such cost should be recognized as expense in
the first year of operations. A

Test II. Solve for the following: (70%)

1. A corporation is being organized with an authorized capital share of

P5,000,000. How much of this P5,000,000 should be subscribed and how much
must be actually paid? 1,250,000; 312,500
5M x25% = 1,250,000 x 25% = 312,500

2. East Company issued 1,000 shares of its P5 par ordinary share to Howe as
compensation for 1,000 hours of legal services performed. Howe usually bills
 P160 per hour for legal services. On the date of issuance, the stock was trading
on a public exchange at P140 per share. By what amount should the additional
paid in capital account increase as a result of this transaction? 135,000
Pre-operating expenses 140,000
Ordinary share capital (1,000 shares @ 5) 5,000
Share premium 135,000
FV of the services
FV of the stock
PV of the stock

3. On April 1, 2016, Fox Company exchanged 20,000 shares of its P200 par value
stock for an equipment. The equipment was appraised by an independent
appraiser at P4,500,000 on March 1, 2016. Fox Company’s shares are currently
valued at P300 in the stock exchange. How much should be debited to the
Equipment account? 4.5M
Equipment 4,500,000
Ordinary share capital (20,000 shares @200) 4,000,000
Share premium 500,000
FV of the asset received

4. The shareholders’ equity section of Fair Corporation revealed the following

information on December 31, 2016:
Preference share (P100 par), P2,300,000; share premium in excess of par
preference, P805,000; ordinary share (P15 par), P5,250,000; share premium in
excess of par-ordinary, P2,750,000; subscribed ordinary share, P50,000;
Accumulated profits and losses, P1,900,000; and subscriptions receivable-
ordinary, P40,000. How much is the legal capital? 7.6M

PS 2,300,000
OS 5,250,000
Subscribed OS 50,000
Legal capital (issued and subscribed) 7,600,000
*retained earnings
5. The following is a list of selected account balances taken from the December 31,
general ledger of GHI Corporation

Accounts payable 80,000

Accounts receivable 71,4000

OSC 252,000

PIC in excess of par - OS 116,550

PIC in excess of par - PS 118,420

PSC 116,000

PSC Subscribed 12,000

Retained earnings 38,390

Subscription receivable - PS (current) 21,000

380,000 + 234,970 = 614,970

What is the total contributed capital? 614,970

Paid in capital + APIC = Contributed capital
 6. Louis Company provided the following information in December 31, 2016:
Share premium 9,000,000 Preference share (at par) 1,750,000
Accounts payable 1,100,000 Ordinary share (at par) 400,000
Sales 10,000,000 Total costs and expenses 7,800,000
Subscribed share Retained earnings, Jan. 1 1,000,000
(ordinary) 250,000
The profit is not yet closed to retained earnings. The total shareholders’ equity
should be reported on December 31, 2016 at _______________.14,600,000
PS 1,750,000
OS 400,000
Subscribed - O 250,000
Share premium 9,000,000
Retained earnings (1,000,000 + 10M – 7,800,000) 3,200,000
TOTAL SHE 14,600,000

7. The accounts shown below appear in the December 31, 2015 trial balance of MC
Corporation:
Preference share, authorized, P50 par P10,000,000
Unissued preference share 3,600,000
Ordinary shares, authorized, P20 par 4,000,000
Unissued ordinary shares 2,000,000
Subscription receivable, preference shares 380,000
Subscription receivable, ordinary shares 360,000
Subscribed preference shares 600,000
Subscribed ordinary shares 440,000
Treasury shares, preference, at cost 1,360,000
Share premium 1,700,000
Accumulated profits and losses (Retained earnings) 2,000,000
All subscription receivables are due in year 2016. How much is total contributed
capital? 11,140,000

8. Using the same information in number 7, how is much is the total

shareholders’ equity of MC Corporation? 11,780,000
PS, issued (10,000,000 – 3,600,000) 6,400,000
OS, issued (4M – 2M) 2,000,000
Subscribed - PS 600,000
Subscribed OS 440,000
Total Paid in capital 9,440,000
Share premium 1,700,000
TOTAL Contributed capital 11,140,000
Accumulated profits and losses (Retained earnings) 2,000,000
Total 13,140,000
Less: Treasury shares, preference, at cost (1,360,000)
TOTAL SHE 11,780,000

9. Presented below is the shareholders’ equity of Peneza Company on January 1,

2017.
Share capital, par value P20 authorized 50,000 shares, issued
and outstanding, 30,000 shares 600,000
Share premium 150,000
Retained earnings 230,000
During the year, the following transactions occurred relating to shareholders’
equity:

● Additional 1,000 shares were issued at P28 per share.

 ● 900 shares were subscribed at P30 per share with a 50%
downpayment.
For the year ended December 31, 2017, the entity reported net income of
P110,000. How much is the total contributed capital? 791,500

10. Using the same information in number 9, how much will be the total
shareholders’ equity? 1,131,500

Cash 28,000
Share capital (1,000 @ 20) 20,000
Share premium 8,000

Cash (900 shares x 30 x 50%) 13,500

Subscription receivable -SC 13,500
Subscribed SC (900 @ 20) 18,000
Share premium 9,000

Share capital (600,000 + 20,000) 620,000

Subscribed share capital 18,000
Less: SR 13,500 4,500
Share premium (150,000 + 8,000+ 9,000) 167,000
TOTAL Contributed capital 791,500
Retained earnings (230,000 + 110,000) 340,000
TOTAL SHE 1,131,500

11. Cayetano Company was incorporated on January 1, 2017 with the following
authorized capitalization:
200,000 ordinary shares, no par, stated value P100 per share.
200,000 preference shares, 10%, par value P50 per share.

During 2017, the entity issued 150,000 ordinary shares for a total of P18,000,000
and 50,000 preference shares at P60 per share. In addition, on December 15,
2017, subscriptions for 20,000 preference shares were taken at a price of P100.
These subscribed shares were to be paid for on January 15, 2018. Net income
for 2017 was P5,000,000. What amount should be reported as total contributed
capital on December 31, 2017? 23,000,000

Cash 18,000,000
OSC (150,000 @ 100) 15,000,000
Share premium 3,000,000

Cash (50,000 @ 60) 3,000,000

PSC (50,000 @ 50) 2,500,000
Share premium 500,000

Subscription receivable (20,000 @ 100) 2,000,000

Subscribed PSC (20,000 @ 50) 1,000,000
Share premium 1,000,000

PSC 2,500,000
OSC 15,000,000
Subscribed PSC 1,000,000
Share premium (3M + 500,000 + 1M) 4,500,000
Total Contributed capital 23,000,000
12. Using the same information in number 11, how many shares were issued and
outstanding as of December 31, 2017? OS -150,000 PS-50,000 or total 200,000

Issued – treasury shares = outstanding shares

13. Cruz Company was organized on January 1, 2017 with 100,000 authorized
shares of P100 par value. The following transactions occurred:
January 15 Sold 30,000 shares at P150 per share.
Feb 14 Issued 2,000 shares for legal services with a billing price of
P300,000. The shares on this date are quoted at P140 per share.
Mar 27 Mr. X subscribed 5,000 shares at P120 per share with a
40% downpayment.
Jul 31 Collected another 30% from Mr. X.
Nov 5 Mr X was declared delinquent and spend P10,000 for bidding the
shares to other possible subscribers.
Dec 17 Mr A, the highest bidder paid for Mr. X subscription including
expenses.
What amount should be recognized as share premium on December 31, 2017?
1,700,000

Cash (30,000 x 150) 4,500,000

Share capital 3,000,000
Share premium 1,500,000

Pre-operating expenses 300,000

Share capital (2,000 x 100) 200,000
Share premium 100,000

Cash (5,000 shares @ 120 x 40%) 240,000

Subscription receivable (5,000 x 120 x 60%) 360,000
Share capital subscribed (5,000 x 100) 500,000
Share premium 100,000

Cash 180,000
Subscription receivable (5,000 x 120 x 30%) 180,000

Receivable from Highest bidder 180,000

Subscriptions receivable (360,000 – 180,000) 180,000

Receivable from Highest Bidder 10,000

Cash 10,000

Cash 190,000
Receivable from Highest Bidder 190,000

Share capital subscribed 500,000

Share capital 500,000

14. Using the same information in number 13, how much was paid by Mr. A for
the delinquent subscription of Mr. X? 190,000

15. Franklin Company was authorized to issue share capital of 100,000 shares with
P50 par value on January 1, 2017. Sixty thousand shares were sold during the
 first year at P50 per share and 10,000 shares were later subscribed at P65 per
share. Additional 10,000 shares were issued On December 1, 2017. The
subscribed shares were paid in full on January 1, 2018
What is the balance of the number of shares issued and outstanding on
December 31, 2017? 70,000

January 1, 2017 60,000

December 1, 2017 10,000
January 1, 2018 10,000

Use the following information to answer questions 16 through 20:

The capital structure of Kiko Company at December 31, 2016 follows:

Preference Share, 12%, P200 par, 15,000 shares issued and outstanding P3, 000,000
Ordinary share, P30 par, 250,000 shares issued and outstanding 7, 500,000
Share Premium-Preference 900, 000
Share Premium-Ordinary 750, 000
Retained Earnings 2,100,000
During 2017, the following selected transactions relating to shareholders’ equity were
noted

a) Issued 2,000 preference shares at P280 each.

b) Issued 30,000 of ordinary shares at P35 per share.
c) Mr Y, subscribed 20,000 ordinary shares when the market price is P36 per share.
d) One half of the subscribed shares were paid.
e) Profit for 2017 was P1,850,000

Cash (2,000 x 280) 560,000

Preference share capital (2,000 x 200) 400,000
Share premium – Preference 160,000

Cash (30,000 x 35) 1,050,000

Ordinary share capital (30,000 x 30) 900,000
Share premium - Ordinary 150,000

Subscription receivable – OS (20,000 x 36) 720,000

Subscribed Ordinary Share capital 600,000
Share premium - Ordinary 120,000

Cash 360,000
Subscription receivable – OS 360,000

Income summary 1,850,000

Retained earnings 1,850,000

Determine the following at December 31, 2017:

16. Number of preference shares issued and outstanding. 17,000 shares

17. Number of ordinary shares issued and outstanding. 280,000 shares

18. Total amount of legal capital. 12,400,000 (3,400,000 + 8,400,000 + 600,000)

19. Total amount of contributed capital. 6,910,000

12,400,000 + 900,000 + 750,000 +430,000 – 360,000) = 14,120,000

20. Total shareholders’ equity. 14,120,000 +2,100,000 + 1,850,000 18,070,000

21. At the end of 2016, Cartoon Company has 18,000 shares of P20 par ordinary
shares which were all issued at an average price of P24 per share. The retained
earnings balance on this date is P550,000.

During 2017, the company entered into the following transactions:

January 16 Issued 13,000 ordinary shares at P25 each.

March 21 Exchanged 12,000 ordinary shares for an equipment. On this date,

the ordinary share is selling at P27. There is no established fair
market value for the equipment acquired.

May 7 Issued 5,000 of ordinary shares at P26.

July 1 Accepted subscriptions for 10,000 ordinary shares at P28. The

contract called for 20% downpayment.

December 1 Collected the balance due on July 1 subscriptions and issued the
corresponding certificates.

Profit for the year 2017 was P640,000. No dividends were declared during the
year.

What is Cartoon’s total shareholders’ equity at December 31, 2017? 2,681,000

22. Compute for the Shareholders’ equity using the following data:
Bonds payable P300,000 LIABILITY
Preference shares 400,000
Share premium on ordinary shares 50,000
Subscribed capital 40,000
Treasury shares at cost 20,000 (deduct)
Ordinary share capital, par P100 500,000
Share premium on preference shares 15,000
Investment in ABC shares 70,000 ASSET
Accumulated profits and losses 135,000 (RETAINED
EARNINGS)
 1,120,000
23. On July 1, 2016, Mar Company exchanged 20,000 shares of its P200 par
value stock for land. A few months ago, the land was appraised by an
independent appraiser at P5,000,000. Mar is currently trading at the stock
exchange at P300 per share. Earnings per share is P40. How much should
be debited to the Land account? 6M (20,000 SHARES X 300/SHARE)

24. The analysis of shareholders’ equity of Blue Company at January 1, 2016

showed the following:
Ordinary shares, par value P20, authorized 200,000
Shares, issued & outstanding, 120,000 P2,400,000
Share premium 480,000
Accumulated profits and losses 1,540,000
On July 1, 2016, Blue Company exchanged 20,000 shares of its P20 par value
stock for land. A few months ago, the land was appraised by an independent
appraiser at P5,000,000. Blue is currently trading at the stock exchange at P300
per share. What is the amount of the share premium at the end of the
accounting period? 6,080,000
480,000
20,000 shares x (300 – 20) 5,600,000
6,080,000

25. The following accounts appear in the December 31, 2009 trial balance of BBC
Corp.
ORDINARY SHARES:
● P4,000,000 authorized, P20 par value, P2,000,000 unissued.
● P440,000 subscribed, P360,000 subscriptions receivable due in
2010.

PREFERENCE SHARES:
● P10,000,000 authorized, P50 par value, P3,600,000 unissued.
● P600,000 subscribed, P380,000 subscriptions receivable due in
2010.
● Share Premium, P1,700,000.
● Accumulated Profits and losses, P2,000,000
How much is the total shareholders’ equity of BBC Corp.?
13,140,000

26. A corporation purchased 1,000 shares of its P5 par ordinary shares at P10
and subsequently sold 500 of the shares at P20. What is the amount of
revenue realized from the sale? NONE

27. At the end of 2016, Cartoon Company has 18,000 shares of P20 par ordinary
shares which were all issued at an average price of P24 per share. The
retained earnings balance on this date is P550,000.
 During 2017, the company entered into the following transactions:
January 16 Issued 13,000 ordinary shares at P25 each.
March 21 Exchanged 12,000 ordinary shares for an equipment. On this date,
the ordinary share is selling at P27. There is no established fair
market value for the equipment acquired.
July 1 Accepted subscriptions for 10,000 ordinary shares at P28. The
contract called for 20% downpayment.
December 1 Collected the balance due on July 1 subscriptions and issued the
corresponding certificates.
Profit for the year 2017 was P640,000. No dividends were declared during the
year.
What is Cartoon’s total shareholders’ equity at December 31, 2016? 2,551,000

28. Using question number 27, how many shares were outstanding at
December 31, 2017? 53,000 shares

End of examination!!!

THINK! NO MATTER HOW IT HURTS!!!

JOURNAL ENTRY METHOD:

Example : Authorized share capital of 100,000 par value P10
UPON AUTHORIZATION -
Unissued share capital 1,000,000
Authorized share capital 1,000,000

Issued 26,000 shares at P15/share

Cash 390,000
Unissued share capital (26,000 x 10) 260,000
Share premium (26,000 x 5) 130,000

How many shares were issued and outstanding?

26,000 shares

Authorized share capital xx

Less: Unissued share capital xx
Issued and outstanding xx