BA 99.2 A. Y.

2016-2017

Assignment 1 on Corporations: General Instructions Write your answers in the answer sheet provided. Attach yellow
sheets for your scratch paper.

Part 1: Theory. Choose the letter of the best answer.

1. A corporation has the following account balances: Common stock, $1 par value, $60,000; Paid-in Capital in Excess
of Par, $1,300,000. Based on this information, the
a. legal capital is $1,360,000.
b. number of shares issued are 60,000.
c. number of shares outstanding are 1,360,000.
d. average price per share issued is $22.50.

2. The term residual claim refers to a stockholders’ right to

a. receive dividends.
b. share in assets upon liquidation.
c. acquire additional shares when offered.

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d. exercise a proxy vote.

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3. If Vickers Company issues 4,000 shares of $5 par value common stock for $140,000,
a. Common Stock will be credited for $140,000.

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b. Paid-In Capital in Excess of Par will be credited for $20,000.
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c. Paid-In Capital in Excess of Par will be credited for $120,000.
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d. Cash will be debited for $120,000.

4. Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $32 per share. The
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company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this
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transaction, Barton Company will

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a. debit Land for $100,000.

b. credit Common Stock for $96,000.
c. debit Land for $96,000.
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d. credit Paid-In Capital in Excess of Par for $98,000.

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5. Crain Company issued 2,000 shares of its $5 par value common stock in payment of its attorney's bill of $40,000.
The bill was for services performed in helping the company incorporate. Crain should record this transaction by
debiting
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a. Legal Expense for $10,000.

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b. Legal Expense for $40,000.

c. Organization Expense for $10,000.
d. Organization Expense for $40,000.

6. Carson Packaging Corporation began business in 2012 by issuing 25,000 shares of $3 par common stock for $8 per
share and 10,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value
of $12. On its December 31, 2012 balance sheet, Carson Packaging would report
a. Common Stock of $300,000.
b. Common Stock of $75,000.
c. Common Stock of $200,000.
d. Paid-In Capital of $75,000.
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 7. Hsu, Inc. issued 7,500 shares of stock at a stated value of $8/share. The total issue of stock sold for $15 per share.
The journal entry to record this transaction would include a
a. debit to Cash for $60,000.
b. credit to Common Stock for $60,000.
c. credit to Paid-in Capital in Excess of Par for $112,500.
d. credit to Common Stock for $112,500.

8. The acquisition of treasury stock by a corporation

a. increases its total assets and total stockholders' equity.
b. decreases its total assets and total stockholders' equity.
c. has no effect on total assets and total stockholders' equity.
d. requires that a gain or loss be recognized on the income statement.

9. A company would not acquire treasury stock

a. in order to reissue shares to officers.
b. as an asset investment.

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c. in order to increase trading of the company's stock.
d. to have additional shares available to use in acquisitions of other companies.

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10. Which of the following is not a right or preference associated with preferred stock?

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a. The right to vote
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b. First claim to dividends
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c. Preference to corporate assets in case of liquidation
d. To receive dividends in arrears before common stockholders receive dividends
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11. The cumulative feature of preferred stock

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a. limits the amount of cumulative dividends to the par value of the preferred stock.
b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to
common shareholders.
c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at
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which time it can be converted into common stock.

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d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the
stock in place of the cash dividends.
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12. If management wishes to "capitalize" part of the earnings, it may issue a

a. cash dividend.
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b. stock dividend.
c. property dividend.
d. liquidating dividend.

13. The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding
a. increases common stock outstanding and increases total stockholders' equity.
b. decreases retained earnings but does not change total stockholders' equity.
c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity.
d. increases retained earnings and increases total stockholders' equity.

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 14. Pryor Corporation issued a 2-for-1 stock split of its common stock which had a par value of P10 before and after the
split. At what amount should retained earnings be capitalized for the additional shares issued?
a. There should be no capitalization of retained earnings
b. Par value
c. Market value on the declaration date
d. Market value on the payment date

15. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings
to contributed capital an amount equal to the
a. market value of the shares issued.
b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued.

16. The balance in Common Stock Dividend Distributable should be reported as a(n)
a. deduction from common stock issued.
b. addition to capital stock.

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c. current liability.

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d. contra current asset.

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17. A feature common to both stock splits and stock dividends is

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a. a transfer to earned capital of a corporation.

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b. that there is no effect on total stockholders' equity.
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c. an increase in total liabilities of a corporation.
d. a reduction in the contributed capital of a corporation.
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18. What effect does the issuance of a 2-for-1 stock split have on each of the following?
Par Value per Share Retained Earnings
a. No effect No effect
b. Increase No effect
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c. Decrease No effect
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d. Decrease Decrease

19. The rate of return on common stock equity is calculated by dividing

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a. net income less preferred dividends by average common stockholders’ equity.

b. net income by average common stockholders’ equity.
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c. net income less preferred dividends by ending common stockholders’ equity.

d. net income by ending common stockholders’ equity.

20. Dividends are not paid on

a. noncumulative preferred stock.
b. nonparticipating preferred stock.
c. treasury common stock.
d. Dividends are paid on all of these.

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 Part 2: Short Problems. Provide the correct answer.

1. The accounts below appear in the December 31, 2015 trial balance of Gabay Company:
Authorized share capital 5,000,000
Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 1,00,000
In the December 31, 2015 statement of financial position, what amount should be reported as shareholder’s
equity?

2. The accounts shown below appear in the December 31, 2015 trial balance of Halo-halo Corporation:
Preference share authorized, P50 par P10,000,000

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Unissued preference share 3,600,000
Ordinary share authorized, P20 par 4,000,000

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Unissued ordinary share 2,000,000
Subscription receivable, preference share 380,000

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Subscription receivable, ordinary share 360,000
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Subscribed preference share 600,000
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Subscribed ordinary share 440,000
Treasury share, preference, at cost 1,360,000
Share premium 1,700,000
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Accumulated profits and losses 2,000,000

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How much is the total shareholder’s equity of Halo-halo Corp?

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3. The shareholders’ equity section of Maria Rosa Company revealed the following information on December 31,
2015.
Preference share capital, P100 par 2,300,000
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Share premium, preference share 805,000

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Ordinary share capital, P10 par 5,250,000

Share premium, ordinary share 2,750,000
Subscribed ordinary share capital 50,000
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Retained earnings 1,900,000

Note payable 4,000,000
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Subscription receivable- ordinary share 400,000

What is the amount of legal capital?

4. Jerell Company issued 20,000 shares of its P10 par value ordinary share and 40,000 shares of its P10 par value
convertible preference share for a total of of P1,800,000. At this date, Jerell’s ordinary share was selling P20 per
share and the converetible preference share was selling for P30 per share. What amount of the proceeds should
be allocated to the ordinary share?

5. Samantha Company issued 6,000 shares of its P100 par ordinary share to Jake V. as compensation for 1,000 hours
of legal services performed. Jake V. usually bills P500 per hour for legal services. On this date of issuance, the

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 share was selling at a public trading at P150 per share. By what amount should the share premium account of
Corridor Company increase as a result of the issuance of those shares?

6. The Max Corporation is authorized to issue 100,000 shares at P20 par ordinary share. At the beginning of 2014,
18,000 ordinary shares were issued and outstanding. These shares had been issued at P27 per share. During
2014, the company entered into the ff transactions:
January 2 Issued 1,300 ordinary shares at P28 per share
Mar 19 Exchanged 12,000 ordinary shares for a machine

The ordinary share was selling at P30 per share.

May 8 Reacquired 500 ordinary shares at P29 per share

July 19 Accepted subscriptions for 1,000 ordinary shares at P31 per share. The contract called
for 10% down payment with the balance due on December 1.
September 1 Sold 500 of treasury share at P32 per share
December 1 Collected the balance due on July 1 subscriptions and issued the stock certififcate.
How much is the total contributed capital for December 31, 2014?

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7. Royce Corporation purchased 10,000 shares of its P10 par value ordinary shares as treasury share for P120,000

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on March 2, 2014. On December 19, 2014, Royce issued all 10,000 treasury shares for P190,000. Under the cost

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method of accounting for treasury share, the reissuance would result in a credit to:

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a. Share Capital of P100,000

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b. Accumulated Profits and Losses of P70,000

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c. Gain on sale of investment of P70,000
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d. Share premium of P70,000

8. The following capital accounts are shown in the balance sheet of Tappa Corp.
Ordinary share, 10,000 shares, par value P100 P100,000,000
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Premium on ordinary share 20,000

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Share premium – treasury share 30,000

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Accumulated profits and losses 750,000

Treasury share, 2000 shares at cost 250,000
The entire 2,000 treasury shares were sold for P200,000.
What would be the balance of the Accumulated Profits and Losses account after this sale?
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9. Avis Company was organized on January 2, 2009 at which date it issued 200,000 shares of P10 par ordinary shares
at P15 per share. During the period January 2, 2012 to December 31, 2014, Avis reported cumulative net income
of P900,000 and paid cash dividends of P460,000. On January 2, 2014, Avis purchased 12,000 of its ordinary share
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at P12 per share. On December 31, 2014, Avis sold 8,000 treasury shares at P8 per share. What is the total of
shareholders’ equity at December 31, 2014?
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10. Lovelyn Company issued 200,000 ordinary shares when it began operations in 2010 and issued an additional
100,000 shares in 2011. Lovelyn also issued 100,000 preference shares. In 2011, Lovelyn purchased 75,000
ordinary shares to be held in treasury. On December 31, 2011, how many ordinary shares were outstanding?

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