Quizzers - Theory

Test I

True or False

Instruction: Write “T” if the statement is correct and “F” if incorrect.

__T__ 1. The accumulated profit (losses) of a corporate entity is called “Accumulated
Profits (Losses)” account.
__F__ 2. Accumulated Profits (Losses) account has a normal balance of a debit.
__T__ 3. A “deficit” is a debit balance in the Accumulated Profits (Losses) account.
__T__ 4. Accumulated Profits (Losses) is said to be in “deficit” when the accumulation of
losses exceeds the accumulation of profit at the end of the year.
__T__ 5. When accumulated profits and losses "deficit" exceeds the total of other capital
account balances, the caption "Capital Deficiency" instead of "Shareholders' Equity" is used.
__T__ 6.Deficiency in Accumulated Profits (Losses) balance will decrease the Shareholder’s
Equity.
__F__ 7. Unappropriated Accumulated Profits (Losses) is that portion of Accumulated
Profits (Losses) that is appropriated for the purchase of treasury share, plant expansion
and other contingencies.
__F__ 8. As a legal requirement, the law provides that a corporation should have an
adequate amount of Unappropriated Accumulated Profits (Losses) in order to acquire its
own shares.
__T__ 9. When treasury shares are reissued or resold, the appropriation is being reverted
back to Unappropriated Accumulated Profits (Losses) which can be available for dividend
distribution.
__T__ 10. The dividends that the shareholders may receive representing the corporation's
accumulated profit from operation what We referred to as "dividends out of earnings".
__T__ 11. Cash dividends decrease the Shareholders' Equity balance.
__T__ 12. Dividends are always distribution of profits.
__T__ 13. Share corporations are prohibited from retaining surplus profits in excess of
100% of their Paid-in Share Capital, except when justified by the circumstance.
__F__ 14. The date of declaration is the date when liability "Dividends payable" is paid and
assets decrease in case of cash or property dividends.
__T__ 15. Subscribe Par Value shares are entitled to receive dividends provided they are not
delinquent.
__T__ 16. The declaration of share dividends requires approval of shareholders
representing not less than two-thirds (2/3) of the outstanding share capital at a regular
meeting called for the purpose.
__F__ 17. Share dividends payable will result to increase Accumulated Profits (Losses) and
decreases share capital.
__T__ 18. In a share dividend distribution, the assets of the corporation are not affected.
__T__ 19. Trust fund doctrine is where legal capital of the corporation is held intact for the
protection with the creditors.
__F__ 20. Treasury share is an asset of the issuing corporation.
__T__ 21. Treasury share is a reduction from Shareholder's Equity.
__F__ 22. Treasury shares shall have the voting rights while they remained in the treasury.
__T__ 23. The reason why an appropriation from the Unrestricted Accumulated (Losses) is
required by law when treasury shares are acquired in order to protect creditors shares so
as by not impairing the corporation's legal capital.
__T__ 24. The purchase of treasury share decreases the outstanding shares.
__T__ 25. Delinquent share may be purchased by the corporation.
__T__ 26. Share dividends payable is similar to share dividends distributable.
__T__ 27. When there are two classes of shares, the Preference Share should be presented in
the Statement of Financial position ahead of the Ordinary Share.
__F__ 28. Appropriation of Accumulated Profits (Losses) is necessary before a corporation
can reacquire its own shares.
__T__ 29.”Dividends in Arrears” is a term that applies to cumulative dividend preference.
__T__ 30. Earnings per Share is a measurement of amount of income earned for each share.
 Test 1
Multiple Choices
Instruction: Encircle the letter of the corresponding answer.

1. Which of the following statement is true concerning Accumulated Profits (Losses)?

a.it has a normal balance of a credit
b. it represents the cumulative profit (losses)
c. it decreases when dividends are declared
d. all of the above

2. Profit is closed to Accumulated Profits (Losses) by this entry-

a. Debit, Profit and Credit, Accumulated Profits (Losses)
b. Debit, Accumulated Profits (Losses) and Credit, Profit
c. Debit, Income and Expense Summary and Credit, Accumulated Profits (Losses)
d. Debit, Accumulated Profits (Losses) and Credit, Income and Expense Summary

3. The following would affect the balance of the Accumulated profits (Losses) except-
a. fundamental error
b. declaration of cash dividend
c. when there are appropriations made
d. payment of cash dividend

4. In dividends declaration, there are three (3) important dates to remember, except-
a. date of declaration
b. date of record
c. date of incurrence
d. date of payment

5. Which of the following dates pertaining to dividend will not require a journal entry?
a. date of declaration
b. date of record
 c. date of payment
d. all of the above

6. Shareholders' share of a corporation's accumulated profit from its operation is termed

as-
a. liquidating dividend
b. dividends out of earnings
c. unappropriated dividends
d. dividends on hand

7. Cash dividends declared but still unpaid during the preparation of Statement of Financial
Position is presented as a/an-
a. current liability
b. addition to shareholders’ equity
c. disclosure in the balance sheet
d. current asset under cash and cash equivalent

8. Which of the following dividends is considered as return of capital?

a. Cash Dividend
b. Liquidity Dividend
c. Property Dividend
d. Scrip Dividend

9. Which of the following is entitled to dividends?

a. treasury shares
b. total shares issued and outstanding
c. total outstanding liability
d. all of the above

10. Which of the following statement is true concerning share dividends?

a. it reduces accumulated profits (losses) and increases share capital
 b. it does not change the total shareholders' equity
c. retained earnings is said to have been capitalized
d. all of the above
11. Treasury shares are recorded at-
a. fair market value at the date of acquisition
b. at acquisition cost
c. at acquisition cost plus incidental cost
d. none of the above
12. Treasury shares can be reissued -
a. at cost
b. below cost
c. above cost
d. all of the above

8-5
The following corporate data were taken from the records of Negros Grains, Incorporated.

7% Preference Share, P50 par - 2,000 shares were issued.

Ordinary Share, P100 par — 3,000 shares were issued
Accumulated Profits (Losses), P110,000
P80,000 is declared as cash dividends. No dividends were declared in the past two
(2) years

Required:
1. Proforma journal entries to record the declaration and payment of cash dividends
when there are two classes of shares being issued.
Upon Declaration
Accumulated Profits (Losses) Pxx
Cash Dividends Payable- Preference Pxx
Cash Dividends Payable- Ordinary xx
To record declaration of share dividends.
 Upon Payment
Cash Dividends Payable- Preference Pxx
Cash Dividends Payable- Ordinary xx
Cash Pxx
To record payment of share dividends.
2. Prepare a Schedule of Cash Dividends Distribution showing the dividends per share
assuming that preference shares are:
a) Non-cumulative and Non-participating
b) Cumulative and Non-participating
c) Non-cumulative and Fully Participating
d) Cumulative and Fully Participating

a. Non-Cumulative and Non-Participating

Preferen Ordinar
ce y Total
P100,00 P300,00 P400,00
Outstanding Share Capital 0 0 0
Current Preference Dividends
P100,000 x 7 % P7,000 P7,000
Remainder to Ordinary:
P80,000 – P7,000 = P73,000   P73,000 73,000
Total P7,000 P73,000 P80,000
Dividends per Share P3.50 P24.33

Computation for Dividends per share:

Preference:
P7,000/2,000 shares issued= P3.50
Ordinary:
P73,000/3,000 shares issued= P24.33

b. Cumulative and Non-Participating

Preferenc Ordinar
Total
e y
Outstanding Share Capital P100,000 P300,00 P400,00
 0 0
Current Preference Dividends
P100,000 x 7 % x 2 years P14,000 P14,000
Current Ordinary Dividends
P100,000 x 7 % 7,000 7,000
Remainder to Participation
[P80,000 – P14,000 – P7,000 =
  P59,000 59,000
P59,000]
Total P21,000 P59,000 P80,000
Dividends per Share P10.50 P19.67

Computation for Dividends

per share:

Preference:
P21,000/2,000 shares issued=
P10.50
Ordinary:
P59,000/3,000 shares issued= P19.67

c. Non-Cumulative and Fully Participating

Preferenc Ordinar
Total
e y
P300,00 P400,00
Outstanding Share Capital P100,000
0 0
Current Preference Dividends
P100,000 x 7 % P7,000 P7,000
Current Ordinary Dividends at
Preference Rate
P300,000 x 7 % P21,000 21,000
Remainder to Participation
[P80,000 – P7,000 - P21,000 =
52,000
P52,000]
Preference: 1/4 x P52,000 13,000
Ordinary: 3/4 x P52,000   39,000  
Total P20,000 P60,000 P80,000
Dividends per Share P10.00 P20.00

Computation for Dividends per share:

Preference:
P20,000/2,000 shares issued= P10.00
Ordinary:
P60,000/3,000 shares issued= P20.00

d. Cumulative and Fully Participating

Preferenc Ordinar
Total
e y
P300,00 P400,00
Outstanding Share Capital P100,000
0 0
Preference Dividends in Arrears:
P100,000 x 7 % x 2 years P14,000 P14,000
Current Preference Dividends
P100,000 x 7 % 7,000 7,000
Current Ordinary Dividends at
Preference Rate
P300,000 x 7 % P21,000 21,000
Remainder to Participation
[P80,000 – P14,000 – P7,000 - P21,000
38,000
= P38,000]
Preference: 1/4 x P38,000 9,500
Ordinary: 3/4 x P38,000   28,500  
Total P30,500 P49,500 P80,000
Dividends per Share P15.25 P16.50

Computation for Dividends per share:

Preference:
P30,500/2,000 shares issued= P15.25
Ordinary:
P49,500/3,000 shares issued= P16.50
 8-6
Partial data taken from the Shareholders' Equity section of the Statement of Financial
Position Of Cagayan de Oro Motorama, showed among others the following:

10% Preference Share, par P30, authorized

5,000 shares, issued 3,000 shares P90,000
Ordinary Share, par P50, authorized
4,000 shares, issued 2,500 125,000
Treasury Shares — 500 shares (ordinary) 25,000
Accumulated Profits (Losses), Free 100,000

No Dividend was declared last year, Dividends declared this year is P70,000

Required:
1. Determine how much dividends the preference and ordinary shareholders will
receive assuming the preference shares have the following characteristics:
a) Non-cumulative and Non-participating
b) Cumulative and Non-participating
c) Non-cumulative and Fully Participating
d) Cumulative and Fully Participating

a. Non-Cumulative and Non-Participating Preference Shares

Preferenc Ordinar
Total
e y
P100,00 P190,00
Outstanding Share Capital P90,000
0 0
Current Preference Dividends
P90,000 x 10 % P9,000 P9,000
 Remainder to Ordinary:
P70,000 - P9,000 = P61,000   P61,000 61,000
Total P9,000 P61,000 P70,000
Dividends per Share P3.00 P30.50

Computation for Dividends per share:

Preference:
P9,000/3,000 shares issued= P3.00
Ordinary:
P61,000/2,000 shares issued= P30.50

Preference Shareholders = P9,000

Ordinary Shareholders = P61,000
Total Dividends Received = P70,000

b. Cumulative and Non-Participating Preference Shares

Preferenc Ordinar
Total
e y
P100,00 P190,00
Outstanding Share Capital P90,000
0 0
Preference Dividends in Arrears:
P90,000 x 10 % x 1 year P9,000 P9,000
Current Preference Dividends
P90,000 x 10 % 9,000 9,000
Remainder to Ordinary:
P70,000 - P9,000 - P9,000 = P52,000   P52,000 52,000
Total P18,000 P52,000 P70,000
Dividends per Share P6.00 P26.00

Computation for Dividends per share:

Preference:
P18,000/3,000 shares issued= P6.00
Ordinary:
P52,000/2,000 shares issued= P26.00

Preference Shareholders = P18,000

Ordinary Shareholders = P52,000
Total Dividends Received = P70,000

c. Non-Cumulative and Fully Participating

Preferenc
Ordinary Total
e
P190,00
Outstanding Share Capital P90,000 P100,000
0
Current Preference Dividends
P90,000 x 10 % P9,000 P9,000
Current Ordinary Dividends at
Preference Rate
P100,000 x 10 % P10,000 10,000
Remainder to Participation
[P70,000 - P9,000 - P10,000 =
P51,000] 51,000
Preference: 9/19 x P51,000 24,157.89
Ordinary: 10/19 x P51,000   26,842.11  
P33,157.8 P36,842.1
Total
9 1 P70,000
Dividends per Share P11.05 P18.42

Computation for Dividends per share:

Preference:
P33,157.89/3,000 shares issued= P11.05263 or P11.05
Ordinary:
P36,842.11/2,000 shares issued= P18.421055 or P18.42

Preference Shareholders = P33,157.89

Ordinary Shareholders = P36,842.11
Total Dividends Received = P70,000

d. Cumulative and Fully Participating

Preferenc
Ordinary Total
e
 P190,00
Outstanding Share Capital P90,000 P100,000
0
Preference Dividends in Arrears:
P90,000 x 10 % x 1 year P9,000 P9,000
Current Preference Dividends
P90,000 x 10 % 9,000 9,000
Current Ordinary Dividends at
Preference Rate
P100,000 x 10 % P10,000 10,000
Remainder to Participation
[P70,000 - P9,000 - P9,000 - P10,000
42,000
= P42,000]
Preference: 9/19 x P42,000 19,894.74
Ordinary: 10/19 x P42,000   22,105.26  
P37,894.7 P32,105.2
Total P70,000
4 6
Dividends per Share P12.63 P16.05

Computation for Dividends per share:

Preference:
P37,894.74 /3,000 shares issued= P12.63158 or P12.63
Ordinary:
P32,105.26/2,000 shares issued= P16.05263 or P16.05

Preference Shareholders = P37,894.74

Ordinary Shareholders = P32,105.26
Total Dividends Received = P70,000

Multiple Choice Problems

The Cabana Corporation's Income and Expense Summary and Accumulated Profits (Losses)
accounts prior to final closing showed the following postings:

Income & Expense Summary

Dec. 31, 20A P1,800,000 - Dec 31, 20A
-P1,050,000

Accumulated Profits (Losses)

 P100,000 Jan. 1, 20A

Q - 1 How much is the Cabana Corporation's Profit or loss during 20A operations?
a) (P750,000)
b) P750,000
c) P850,000
d) none of these

Q - 2 How will profit or Loss be closed to Accumulated Profits and Losses account?
a. Accumulated Profits and Losses P750,000
Income & Expense Summary
P750,000
b. Income& Expense Summary P750,000
Accumulated Profits and Losses P750,000
c. Income & Expense Summary P850,000
Accumulated Profits and Losses P850,000
d. some other answer

Q - 3 How much is the balance of Accumulated profits (Losses) account as of December

31, 20A?

a) P650,000 c) P850,000
b) P750,000 d) none of these

8-II
The Board of Directors of Misamis Oriental Ferries, incorporated at their meeting on May
19, 20A declared a 10% cash dividend payable on Sept. 17, 20A to shareholders of record
on July 31, 20A. The number of shares issued and outstanding were 5,000 shares with par
value of PI00 per share.

Q - 4 How much amount of cash dividend should be declared?

a) P40,000 c) P50,000
b) P45,000 d) none of these
Q- 5 What is the entry to record the declaration of cash dividend on May 19, 20A?

a) Accumulated Profits and Losses P45,000

Cash Dividends Payable P45,000
b) Cash Dividend Payable P50,000
Accumulated Profits and Losses P50,000
c) Accumulated Profits and Losses P50,000
Cash Dividend Payable P50,000
d) none of these

Q- 6 What should be done on July 31,20A?

a) Prepare a list of shareholders of record
b) Prepare adjusting entries
c) Prepare a statement of financial position for the corporation
d) None of these
Q- 7 What is the entry to record the payment of cash dividend on September 17, 20A?
a) Cash Dividend Payable P45,000
Cash P45,000
b) Cash Dividend Payable P50,000
Cash P50,000
c) Accumulated Profits and Losses P50,000
Cash P50,000
Q- 8 Assuming that cash dividend per share is not yet paid to shareholders as of the date
Statement of financial position was prepared, it is shown as a-
a) Current asset c) a shareholder’s equity
 b) Current Liability d) none of these
Q- 9 How much is the cash dividend per share?
a) P5.00 c) P15.00
b) P10.00 d) none of these
Q- 10 If Julius Aleman owns 1,000 shares how much cash dividend will he receive?
a) P5,000 c) P15,000
b) P10,000 d) none of these

8-III
The Shareholders’ Equity of Metro cebu Central Chemicals, incorporated on December
31,20A appeared as follows:

Ordinary Share, authorized 3,000 par value P100.

Issued 1,000 shares of which 200 shares are in the treasury P100,000
Appropriated for Accumulated Profits and Losses P20,000
Free or Unappropriated 60,000 80,000
Total Contributed Capital and Retained Earnings P180,000
Less: Cost of Treasury Share
20,000
Total Stockholders’ Equity P160,000

Q- 11 How many shares are still unused?

a) 800 shares c) 2,000 shares
b) 1,000 shares d) 3,000 shares

Q- 12 How many shares are outstanding?

a) 800 shares c) 2,000 shares
b) 1,000 shares d) 3,000 shares
Q- 13 How much amount of Accumulated profits and Losses that can be available for
dividend declaration?
a) P20,000 c) P80,000
b) P60,000 d) none of these

Q- 14 If 10% share dividend is declared, how many shares will be taken out from the
Unissued Share Capital?
a) 80 shares c) 200 shares
b) 100 shares d) none of these

Q- 15 How much amount of the Accumulated Profits and Losses account will be
capitalized on a 10% share dividends declared?
a) P 8,000 c) P80,000
b) P10,000 d) none of these

Q- 16 After the declaration of share dividends, the total shareholders’ equity will show
and amount of:
a) P 152,000 c) P168,000
b) P160,000 d) none of these

Q- 17 Assuming that the 200 shares in the treasury will be sold at P105 per share, how
much amount will be credited to “Share Premium” Treasury Share account?
a) P1,000 c) P21,000
b) P20,000 d) none of these

8-IV

The balance of Accumulated Profits and Losses account of Dapitan Motors Corporation at
the beginning of the year was P650,000. During the year, Dapitan Motors earned revenue
of P4,500,000 and incurred expenses of P3,800,000. Dividends of P1,500,000 were
declared and paid and the balance of the amount increased by P220,000.

Q-18 Dapitan Motors Corporation's profit and the year-end balance of the Accumulated
Profits and
Losses account respectively are:
a) P700,000 Profit and P850,000 Accumulated Profits and Losses
b) P200,000 Profit and P850,000 Accumulated Profits and Losses
c) P700,000 Profit and P1,070,000 Accumulated Profits and Losses
d) P200,000 Profit and P1,070,000 Accumulated Profits and Losses

8-V

Visayan Corporation holds 10,000 Of its P10 par value Ordinary share as treasury shares
reacquired in 20A for P120,000. On December 31, 20B, the company issued all 10,000
shares for P19,000.

Q-19 Under cost method of accounting for treasury share, the reissuance would result in a
credit
to -

a) Share capital of P100,000

b) Accumulated profits and Losses of P70,000
c) Gain on Sale of investments of P70,000
d) Share Premium of P70,000

8-VI

Gazebo Corporation’s shareholders' equity comprise of 8,000 shares of P200 par ordinary
shares, 4,000 of share premium and Accumulated Profits and Losses of P900,000. Share
dividends of 6% was declared when the stock was selling for P500 per share.

Q-20 What amount of Accumulated Profits and Losses Account should be transferred to
Share
Capital?
 a) P1,920,000 c) P240,000
b) P4,800,000 d) P96,000

8-VIII

On September 30, 20A, Dreamboy Corporation issued 4,000 shares of P100 par ordinary
share in connection with a share dividend. Dreamboy’s shareholders' equity accounts
immediately before issuance of the share dividend Were as follows:

Ordinary Share P100 par, 50,000 shares authorized,

20,000 shares outstanding P2,000,000
Additional Paid-In Capital 3,000,000
Accumulated Profits and Losses 1,500,000

Q-21 What should be the accumulated profits and losses balance immediate after the
share
dividend?

a) P1,100,000 c) P2,100,000
b) P1,500,000 d) P900,000

8-VIII

Global Mining Corporation with listed shares at Philippine Stock Exchange declared a 15%
share dividends. The Company has 30,000 shares issued and outstanding with par value of
P100. On the date of declaration, the market value per share is P120.

Q-22 What amount of Accumulated Profits and Losses that should be capitalized?

a) P450,000 c) P600,000
b) P540,000 d) P750,000

Q-23 Assuming, the corporation declares 25% share dividend, and the market value per
share is P110. What amount of Accumulated Profits and Losses that should be capitalized?

a) P750,000 c) P900,000
b) P825,000 d) P950,000