1.

When shares with par value are sold, the proceeds shall be credited to the
a. Share capital
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. When shares without par value are sold, the excess proceeds over stated value shall be credited to
a. Income
b. Retained earnings
c. Share premium
d. Share capital
3. If shares are issued for a noncash consideration, the shares issued shall be measured by
a. Fair value of the shares issued
b. Par values of the shares issued
c. Fair value of the noncash consideration received
d. Carrying amount of the noncash consideration received
4. 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 the liability extinguished
d. Book value of the shares issued
5. When shares are issued in payment for the services, what is the least appropriate basis for recording
the transaction?
a. Fair value of the services received
b. Par value of the shares issued
c. Fair value of the shares issued
d. Any of these provides an appropriate basis for recording the transaction
6. The cost of treasury shares acquired for noncash consideration is usually measured by
a. Fair value of the noncash consideration
b. Carrying amount of the noncash asset surrendered
c. Par value of the shares
d. Book value of the shares
7. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by
a. Fair value of the treasury shares
b. Fair value of the noncash consideration
c. Carrying amount of noncash consideration
d. Cost of the treasury shares
8. Which statement is incorrect concerning 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 shareholder’s equity.
c. Treasury shares may be recognized as financial asset.
d. Gain or loss on sale of treasury shares shall not be included in profit or loss.
9. “Loss” from sale of treasury shares shall be charged to
a. Loss on sale of treasury shares to be reported as other expense
b. Retained earnings and then share premium from treasury shares
c. Share premium from treasury shares and then retained earnings
d. Share premium from original issuance, share premium from treasury shares and then
retained earnings
10. Gain and loss on retirement of treasury shares shall not be included in profit or loss. F the retirement
results in a gain, such gain shall be credited to
a. Share premium
b. Retained earnings
c. Share capital
d. Income
11. Loss on retirement of treasury shares shall be debited to
a. Retained earnings
b. Share premium from treasury shares and then retained earnings
c. Share premium from treasury shares, share premium from original issuance and then
retained earnings
d. Share premium from original issuance, share premium from treasury shares and then
retained earnings
12. Which statement best describes a possible result of treasury share transactions?
a. May increase but not decrease retained earnings
b. May increase net income if the cost method is used
c. May decrease but not increase retained earnings
d. May decrease but increase net income
13. Which statement is true concerning share capital transactions?
a. Deposits on subscription to proposed increase in share capital should be reported as part of
shareholder’s equity
b. Subscriptions receivable from sale of share capital not currently collectible should be
reflected as deduction from the related subscribed share capital
c. Discount on share capital should be shown as deduction from total shareholder’s equity
d. All of these statements are true concerning share capital transactions
14. Transaction costs directly attributable to the issuance of new shares should be
a. Expensed immediately
b. Charged to retained earnings
c. Deducted from other comprehensive income
d. Deducted from share premium arising from the share issuance
15. Costs of public offering of shares or costs that relate to “stock market listing of shares” should be
a. Expensed immediately
b. Considered as component of other comprehensive income
c. Deducted from retained earnings
d. Deducted from share premium arising from the share issuance
16. Transaction costs directly attributable to the issuance of new shares include all of the following,
except
a. Documentary stamp tax
b. Underwriting fee
c. SEC registration fee for new shares
d. Road show presentation
17. What is the treatment of “joint costs” that relate to the concurrent listing and issuance of new
shares, and listing of old existing shares?
a. The joint costs should be expensed immediately
b. The joint costs should be deducted from equity
c. The joint costs should be deducted from retained earnings
d. The joint costs should be allocated between the newly issued and listed shares and the
newly listed old existing shares prorate based on the number of shares outstanding
18. When collectability 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
19. When treasury shares are purchased for more than par value, what account or accounts shall be
debited?
a. Treasury shares for the par value and share premium for the excess of purchase price over
the par value
b. Share premium for the purchase price
c. Treasury shares for the purchase price
d. Treasury shares for the par value and retained earnings for the excess of the purchase price
over the par value
20. The purchase of treasury shares
a. Decreases shares authorized
b. Decreases shares issued
c. Decreases shares outstanding
d. Has no effect on shares outstanding
21. At the date of the financial statements, shares issued would excess shares outstanding as a result of
a. Declaration of share split
b. Declaration of a share dividend
c. Purchase of treasury shares
d. Payment in full of subscribed shares
22. The issuance of preference shares
a. Increases preference shares outstanding
b. Has no effect on preference shares outstanding
c. Increases preference shares authorized
d. Decreases preference shares authorized
23. When an entity calls in all of the preference shares for more than the original issue price, the excess
paid above the original issue price should be
a. Accounted for as loss on exchange
b. Charged against share premium of ordinary shares
c. Charged to discount on preference shares
d. Charged against retained earnings
24. When preference shares are purchased and retired by the issuing entity for less than original price,
proper accounting for the retirement
a. Increases amount of dividends to ordinary shareholders
b. Increases the contributed capital of the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury shares
25. Convertible preference shares
a. Are compound financial instrument
b. Include an option for the holder to convert preference shares into a fixed number ordinary
shares
c. Are accounted for a financial liability
d. All of the choices are correct
26. How would a share split affect asset and shareholders’ equity, respectively?
a. Increase and increase
b. No effect and no effect
c. No effect and increase
d. Increase and no effect
27. How would a share split affect share premium and retained earnings, respectively?
a. Increase and no effect
b. No effect and no effect
c. No effect and decrease
d. Increase and decrease
28. In accounting for shareholder’s equity, the accountant is primarily concerned with which of the
following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings
29. Contributed capital does not include
a. Share premium on ordinary and preference shares
b. Preference share capital
c. Capital resulting from reissuance of treasury shares at a price above acquisition price
d. Capital accumulated by retention of earnings
30. 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 retained earnings
31. The par value of an ordinary share represents
a. The liquidation values of the share
b. The book value of the share
c. The legal nominal value assigned to the share
d. The amount received by the entity when the share was originally issued
32. The term residual owner means that shareholders
a. Are entitled to a dividend every year in which the entity earns an income
b. Have the rights to specific asset of the entity
c. Bear the ultimate risks and receive the benefits of ownership
d. Can negotiate individual contracts in behalf of the entity
33. The residual interest in a corporation belongs to
a. Management
b. Creditors
c. Ordinary shareholders
d. Preference shareholders
34. Treasury shares are
a. Shares held as an investment by the treasurer
b. Shares held as an investment by the corporation
c. Issued and outstanding shares
d. Issued but not outstanding
35. Which of the following is not a method that may be used to account for treasury shares?
a. Cost method
b. Par value method
c. Retained earnings method
d. Constructive retirement method
36. Only a memorandum entry is made when
a. Entities grant share warrants to executives and employees as a form of compensation
b. Entities include share warrants to make a security more attractive
c. Entities issue rights to existing shareholders
d. All of the choices are correct
37. When an entity issued rights to existing shareholders to purchase unissued ordinary shares at more
than par values, share premium would be recorded when the rights
a. Lapsed
b. Are exercised
c. Become exercisable
d. Are issued
38. An ordinary shareholder does not possess which of the following?
a. The right to share in the earnings of the corporation when dividends are declared
b. The right to vote in the election of the board of directors of the corporation
c. The right to direct ownership of the corporate assets
d. The right to share proportionately in corporate assets in case of liquidation if such assets
exceed the claims of creditors
39. Which of the following is not one of the basic rights of a shareholder?
a. The right to participate in earnings
b. The right to maintain proportional interest in the corporation
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of
the corporation
d. The right to inspect the accounting records of the corporation
40. The preemptive right of an ordinary shareholder is the right to
a. Share proportionately in corporate assets upon liquidation
b. Share proportionately in any new shares of the same class
c. Receive cash dividends before distribution to preference shareholders
d. Exclude [reference shareholders from voting rights
41. Discount on share capital
a. May be recorded as either an asset or an expense
b. Shall be closed to income summary account
c. May be offset against share premium on the same class of share capital
 d. None of the above may be done
42. When the total shareholders’ equity is smaller than the amount of contributed capital, the
deficiency is called
a. A net loss
b. A dividend
c. A liability
d. A deficit
43. Nonstock dividends shall be recognized as liability on the
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of issuing check
44. When shareholders may elect to receive cash in lieu of share dividend, the amount to be charged to
retained earnings is equal to
a. Optional cash dividend
b. Fair value of the shares
c. Par value of the shares
d. Book value of the shares
45. Treasury shares may be reissued as dividends, in which case what amount should be charged to
retained earnings?
a. Cost of the treasury shares
b. Par value of the treasury shares
c. Fair value of the treasury shares of the date of declaration
d. Fair value of the treasury shares on the date of issuance
46. If the share dividend is less than 20%, what amount of the retained earnings should be capitalized?
a. Par value of the shares
b. Fair value of the shares on the date of declaration
c. Fair value of the shares on the date of record
d. Fair value of the shares on the date or issuance
47. An entity issued what is called a “20% share dividend”. At what amount should retained earnings be
reduced for the transaction?
a. Zero
b. Par value
c. Fair value at the declaration
d. Fair value at the date of issuance
48. The declaration and the issuance of a 25% share dividend
a. Increases ordinary shares outstanding and total equity
b. Decreases retained earnings but does not change total equity
c. May increase or decrease share premium but does not change total equity
d. Increases retained earnings and total equity
49. In closely held entities, if share dividends are declared, retained earnings shall be capitalized at
a. Par or stated value
b. Book value
c. Fair value on the date of declaration
d. Fair value on the date of issue
50. Which statement is incorrect concerning retained earnings?
a. Appropriated retained earnings shall be clearly distinguished from unappropriated retained
earnings
b. A deficit is a debit balance in retained earnings
c. A deficit in retained earnings shall be presented as an asset
d. When the deficit exceeds the total of the other capital account balances, the excess is a
capital deficiency.
51. Appropriated retained earnings should be reported as
a. Component of equity as part of share premium
b. Component of equity as part as total retained earnings
c. Component of total liabilities as current liability
d. Component of total liabilities as noncurrent liability
52. An entity shall measure a liability to distribute noncash asset as dividend to the owners at
a. Carrying amount of the asset distributed
b. Fair value of the asset distributed
c. Either the carrying amount or fair value of the asset
d. Neither the carrying amount nor the fair value
53. An entity shall review and adjust the carrying amount of the dividend payable at the end of each
reporting period and at the date of settlement with any changes in the carrying amount of the
dividend payable recognized
a. In equity as adjustment to the amount of distribution
b. In profit or loss
c. As adjustment of share premium
d. As component of other comprehensive income
54. When an entity settles the property dividend payable, it shall recognize the difference between the
carrying amount of the dividend payable in
a. Profit or loss
b. Other comprehensive income
c. Equity
d. Retained earnings
55. An entity shall measure a noncurrent asset classified as held for distribution to owners at
a. Carrying amount
b. Fair value less cost to distribute
c. Lower of carrying amount and fair value less cost to distribute
d. Fair value
56. In entity declared cash dividend on a certain date payable on another date, retained earnings would
a. Increase on the date of declaration
b. Not be affected on the date of declaration
c. Not be affected on the date of payment
d. Decrease on the date of payment
57. The actual total amount of a cash dividend to be paid is determined on the date of
a. Record
b. Declaration
c. Declaration or date of record, whichever is earlier
d. Payment
58. A dividend which is a return to shareholders of a portion of their original investment is
a. Liquidating dividend
b. Patronage dividend
c. Liability dividend
d. Participating dividend
59. When the entity declared and paid a liquidating dividend, the distribution resulted in a decrease in
a. Neither paid in capital nor retained earnings
b. Both paid in capital and retained earnings
c. Retained earnings and no effects on paid in capital
d. Paid in capital and no effect on retained earnings
60. An entity declared a dividend, a portion of which was liquidating. How would this declaration affect
contributed capital and retained earnings, respectively?
a. Decrease and no effect
b. Decrease and decrease
c. No effect and decrease
d. No effect and no effect
61. The issuer should charge retained earnings for the fair value of the shares issued in a
a. 1 for 5 share dividend
b. 1 for 8 share dividend
c. 4 for 1 share split
d. 2 for 1 share split
62. If the issuing entity has only one class of share capital, a transfer from retained earnings to share
capital equal to the fair value of the shares issued is ordinarily a characteristic of
a. Either a share dividend or a share split
b. Neither a share dividend nor a share split
 c. A share split but not a share dividend
d. A share dividend but not a share spilt
63. Total shareholders’ equity remains the same when there is
a. Issuance of preference shares in exchange for convertible debentures
b. Issuance of nonconvertible bonds with share warrants
c. Declaration of a share dividend
d. Declaration of a cash dividend
64. How would the declaration and subsequent issuance of a small share dividend affect share capital
and share premium respectively when the fair value of the shares exceeds the par value of the
shares?
a. No effect and no effect
b. No effect and increase
c. Increase and no effect
d. Increase and increase
65. Unlike a share split, a share dividend requires a formal journal entry in the accounting records
because
a. Share dividends increase the relative book value of an individual’s shareholdings
b. Share dividends increase the shareholder’s equity in the issuing entity
c. Share dividends are payable on the date declared
d. Share dividends represent a transfer from retained earnings to share capital
66. Which of the following would not affect retained earnings?
a. Conversion of preference shares into ordinary shares
b. Share split
c. Reissue of treasury shares
d. Share dividend
67. How would retained earnings be affected by the declaration of share dividend and the share split,
respectively?
a. Decrease and decrease
b. No effect and decrease
c. No effect and no effect
d. Decrease and no effect
68. When a share dividend is declared and issued
a. Total shareholders’ equity does not change
b. Total shareholders’ equity decreases
c. The current ratio increases
d. The amount of working capital decreases
69. Undistributed share dividends should be reported as
a. A current liability
b. An addition to share capital outstanding
c. A reduction to share capital outstanding
d. A note to financial statements
70. An entry is not made on the
a. Date of declaration
b. Date of record
c. Date of payment
d. An entry is made on all of these dates
71. Cash dividends are paid on the basis of the number of shares
a. Authorized
b. Issued
c. Outstanding
d. Outstanding less the number of treasury shares
72. If an entity wishes to “capitalize” retained earnings, it may issue
a. Cash dividend
b. Share dividend
c. Property dividend
d. Liquidating dividend
73. Liquidating dividends
a. Are prohibited under IFRS
b. Require a credit to share capital
c. Reduce amounts paid in by shareholders
d. All of the choices are correct
74. A retained earnings appropriation is used to
a. Absorb a fire loss when an entity is self-insured
b. Provide for a contingent loss that is probable and measurable
c. Smooth periodic income
d. Restrict earnings available for dividends
75. An appropriation of retained earnings for future plant expansion will result in
a. The establishment of a fund to help finance future plant expansion
b. The setting aside of cash to be used for future plant expansion
c. A decrease in cash with an equal increase in the investment in fund
d. The disclosure that management does not intend to distribute in the form of dividends
assets equal to the amount of the appropriation
76. A restriction of retained earnings is most likely to be required by
a. A purchase of property, plant, and equipment
b. Purchase of treasury shares
c. Payment of last maturing series of a serial bond issue
d. Funding of past service cost
77. Retained earnings appropriated account is created for the purpose of
a. Earmarking cash to be used for particular purposes
b. Insuring the payment of dividends
c. Protecting the working capital position
d. Preventing losses from contingencies
78. Which statement is incorrect concerning appropriations of retained earnings?
a. Appropriations of retained earnings do not change the total amount of shareholders’ equity
b. Appropriations of retained earnings reflect funds set aside for a designated purpose, such
as plant expansion
c. Appropriations of retained earnings can be made as a result of contractual requirements
d. Appropriations of retained earnings can be made at the discretion of the board of directors
79. For which of the following purposes should an appropriation for possible loss contingencies be
established?
a. To match applicable costs with current revenue
b. To reduce fluctuations in net income in order to lend stability of the entity
c. To charge operations in periods of rising prices for the losses which may otherwise be
absorbed in periods of falling prices
d. To inform shareholders that a portion of retained earnings should be set aside from
amounts available for dividends because of such contingencies
80. Which statement is true concerning appropriations of retained earnings?
a. Appropriations do not reduce total retained earnings
b. The only proper way to eliminate an appropriation of retained earnings after it has serve its
purpose is to revert to the unappropriated retained earnings
c. When treasury shares are purchased, retained earnings must be appropriated equal to the
cost of the treasury shares
d. All of these statements are true concerning appropriations of retained earnings.
81. Which of the following is most likely to be found in corporate laws regarding payment of dividends?
a. Dividends may be paid from legal capital
b. Retained earnings are available for dividends unless restricted by contractor by statute
c. Legal capital is available for any type of dividend
d. Capital from donated asset is available for dividends
82. Which of the following is not a legal restriction related to profit distribution?
a. The amount distributed must be in compliance with the laws governing corporations
b. The amount distributed can never exceed the net incomes reported for the last year
c. Profit distribution must be formally approved by the board of directors
d. Dividends must be in full agreement with the capital contracts as to preferences