Fundamentals of Accounting , Part 2 Multiple Choice: 1.
Which of the following comes first in the accounting process? a. b. c. d.
2.
The closing entry for Rent Expense, with a balance of P180,000 is a. b. c. d.
3.
P180,000 P180,000 P180,000 P180,000 P180,000 P180,000 P180,000
Limited Partnership Unlimited Partnership General Partnership Partnership at will
The allocation of income between the partners The rights and duties of the partners The rights and duties of the partners in the event of partnership dissolution A limitation on a partners’ liability to creditors.
Partner X invested into a partnership a building with a book value of P500,000 and a fair market value of P650,000. The property was mortgaged in a bank for P200,000 which the partnership assumed. Partner X capital in the partnership as a result of this investment is: a. b. c. d.
6.
P180,000
The partnership agreement is contained in the articles of partnership, an express contract among the partners. Such an agreement ordinarily does not include a. b. c. d.
5.
Rent Expense Income Summary Rent Expense Rent Payable Income Summary Rent Expense Rent Payable Rent Expense
A form of partnership wherein all the partners are personally liable for the partnership debts is: a. b. c. d.
4.
Preparation of an unadjusted trial balance Worksheet preparation Journalizing external transactions from source documents Preparation of an adjusted trial balance
P300,000 P650,000 P500,000 P450,000
Refer to assumptions in question # 5, the journal entries in the books of the partnership to record the investment of Partner X is: a.
b.
c.
Building Mortgage Payable X, Capital
P650,000
Building Mortgage Payable X, Capital
P500,000
Building
P450,000
P200,000 450,000
P200,000 300,000
X. Capital d.
7.
8.
Building X. Capital
P450,000 P650,000 P650,000
Partners may invest cash and non-cash assets in the partnership. In the absence of any agreement, the contributions of noncash assets are valued at: a. original cost b. carrying value c. fair market value d. book value Mark and Jess decided to form a partnership by investing the following assets in July 1, 2010: Mark
Cash Equipment Building
75,000 100,000 300,000
Jess 200,000 80,000
The partnership agreed to assume the mortgage on the building amounting to P250,000. What are the capital balances of Mark and Jess on July 1, 2010? a. b. c. d. 9.
P475,000 for Mark and P280,000 for Jess P400,000 for Mark and P80,000 for Jess P75,000 for Mark and P200,000 for Jess P225,000 for Mark and P280,000 for Jess
The profits and losses shall be distributed to partners in conformity with agreement. Which of the following is not a component of the formula to distribute profit and losses: a. b. c. d.
Interest on capital investments Salary to partners managing the business Bonus to partners for achieving the target profit Interest on loans to partners.
10. The partnership must exist for the common benefit or interest of the partners. In the event the partnership incurs losses, these losses shall be: a. b. c. d.
divided according to partner’s agreement prepared prior distribution of losses. distributed to partners according to profit and loss sharing ratio. shared even by purely industrial partners divided to all partners except capitalist partners
11. Eli, Karl and Paul are partners in real estate business. Net profit for the year 2010 was P88,000. Paul is an industrial partner while Eli and Karl are capitalist partners with an average capital of P30,000 and P20,000 respectively. The partners agreed to share profits and losses as follows: 1. 2. 3. 4.
Interest of 10% on average capital balances. Salaries of P2,000 to Eli, P1,000 to Karl and P3,000 to Paul. Bonus of 10% of net income after bonus to Paul, the managing partner Balance is to be divided equally.
Paul being a purely industrial partner: a. b.
is entitled to salaries only despite partnership agreement. will receive salaries, bonus of 10% of net income after bonus and will share in the balance in accordance with agreement.
c. d.
will need to share in the loss in the event there is a loss, as he is allowed to share in the profit when there is profit. will share in profit equally with other partners regardless of partnership agreement.
12. Referring to problem # 11, the partnership profit of P88,000 is divided as follows: a. b. c. d.
Eli, P28,000; Eli, P28,000; Eli, P25,000; Eli, P30,000,
Karl, P20,000; Karl, P26,000; Karl, P23,000; Karl, P30,000;
and Paul, P30,000 and Paul, P34,000 and Paul, P40,000 and Paul, P28,000
13. Which of the following is not the purpose of financial statements: a. b. c. d.
To show the results of management’s stewardship of the resources entrusted to it. To provide information about an entity’s assets, liabilities and equity and changes in financial position. To provide investors about results of operations covering a period. To report the business ability to use its resources regardless of the outcome and without consideration to the effects on owners’ capital.
14. Dong and Kong entered into a partnership as at July 1, 2010 by investing P125,000 and P75,000, respectively. They agreed to share in the profits and losses in the ratio 40:60. On December 31, 2010, normal balances were as follows: Cash Accounts Receivable Equipment Sales Returns Purchases Operating Expenses
P70,000 67,000 45,000 5,000 196,000 60,000
Accounts Payable Dong, Capital Kong, Capital Dong, Drawing Kong, Drawing Sales
P60,000 125,000 75,000 20,000 30,000 233,000
Inventories on December 31, 2010 were as follows: Supplies, P2,500; merchandise, P30,000. Prepaid insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per year. The partners’ capital balances on December 31, 2010, after closing the profit and drawing accounts, were: a. b. c. d.
Dong, Dong, Dong, Dong,
P120,000 and Kong, P104,760 and Kong, P100,760 and Kong, P140,760 and Kong,
P70,000 P44,640 P40,640 P98,600
15. The partnership financial statement that serves as a basis for evaluating the partnership ability to generate cash to be utilized in operating, investing and financing activities of the business is: a. b. c. d.
Statement of Cash Flows Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Partners Equity
16. Assume that in 2009, the reported net income for Lora and Nora was 500,000 and the partners shared in the profits and losses equally. During the year, the following errors in computing the net income were discovered: 1. 2. 3.
Depreciation was understated by 50,000 Prepaid expense of 30,000 was omitted Accrued expense of 10,000 was omitted
What should have been the corrected net income of the partnership Lora and Nora? a. b.
P410,000 P470,000
c. d.
P490,000 P450,000
17. Financial statements are prepared using the accrual basis of accounting except: a. b. c. d.
Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Partners Equity
18. The statement of comprehensive income shall include the following line items except: a. b. c. d.
Revenue Finance Costs Partners Capital and Drawing accounts Operating Expenses
19. As a minimum, the face of the statement of financial position shall include the following line items except: a. b. c. d.
Inventories Provisions Financial Liabilities Profit or Loss
20. Which of the following is an example of cash flows from investing activities: a. b. c. d.
Receipt from investments by owners Receipt from sale of property and equipment Payment to owners in the form of withdrawals Receipt from sale of goods and performance of services
21. The adjusted trial balance of Simon and Richard on December 31, 2010 follows:
Cash Accounts Receivable Merchandise Inventory Accrued Income Prepaid Rent Accounts Payable Notes Payable Accrued Expense Unearned Revenue Simon, Capital Richard, Capital Sales Cost of Sales Salaries Expense Rent Expense Insurance Expense Utilities Expense Totals
Debits Credits -------------------------------P 37,000 80,000 800,000 75,000 20,000 P 50,000 250,000 12,000 25,000 125,000 200.000 2,500,000 1,450,000 450,000 200,000 30,000 20,000 --------------------------------P3,162,000 P3,162,000 ====================
If you prepare a statement of comprehensive income for Simon and Richard for 2010, what is the net profit as of December 31? a. P1,050,000 b. P 300,000 c. P 350,000 d. P1,062,000 22. If partners Simon and Richard share profits in the ratio of 30:70, what is the share of Simon in the profit of the business for 2010? a. b. c. d.
P105,000 P245,000 P 90,000 P 210,000
23. The partnership total assets and total liabilities at December 31, 2010 are as follow: a. b. c. d.
Total assets, P937,000 and total Liabilities, P300,000 Total assets, P1,012,000 and Total Liabilities, P337,000 Total assets, P930,000 and Total Liabilities, P300,000 Total Assets, P1,010,000 and total Liabilities, P330,000
24. Assume partners Simon and Richard share in the profit at the rate of 30:70 and each one withdrew P50,000 during the year, what are the partners’ capital balances as at December 31, 2010? a. b. c. d.
Simon, P180,000 and Richard, Simon, P230,000 and Richard, Simon, P170,000 and Richard, Simon, P 225,000 and Richard,
P395,000 P445,000 P380.000 P440,000
25. The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business of the partnership is called dissolution. Which of the following situation will result to the dissolution of the partnership? a. b. c. d.
The distribution of the loss to the existing partners. The withdrawal of a partner from a partnership. The winding up of the partnership affairs and distribution of assets to remaining partners. The investment of additional assets to the partnership by existing partner.
26. Joann Simpas plans to invest P500,000 for a 20% interest in a partnership that has capital of P2,000,000 after admitting Joan as a new partner. Which of the following is correct? a. b. c. d.
Joann Simpas will receive a bonus of P100,000. Joann Simpas capital in the partnership is P500,000. The old partners will receive a bonus of P100,000. The old partners’ capital in the business was P1,600,000 before admitting Joann Simpas.
27. The effect of the withdrawal of the partner taking assets more than his capital balance in the partnership is: a. b. c. d.
The withdrawing partner will receive a bonus. The remaining partner/s will receive a bonus. The partnership assets will remain the same after withdrawal. No bonus will be given either to the withdrawing or remaining partner/s.
28. The death of a partner is one of the causes of dissolution of the partnership. Which of the following statement is correct if this situation happens: a. b. c. d.
The death of the partner automatically results to liquidation of the assets of the partnership. The deceased partner is considered to have retired from the partnership and his heirs or estate can expect to receive the amount of his interest in the business. The accounting procedure to be followed is absolutely different from the case of the withdrawing partner. If payment to the estate cannot be made immediately, the balance in the capital account of the deceased partner will be transferred to the revenue account of the partnership.
29. Pedro Santos owns 25% interest in a partnership that has total assets of P1,000,000 and liabilities of P200,000 during his death. His estate demands release of his interest as nobody from his heirs would want to be associated in the partnership. How much would his estate get if the partnership liquidates the assets of the business? a. b. c. d.
P200,000 P250,000 P200,000 plus bonus P250,000 less bonus to other partner/s.
30. Incorporation of a partnership is another cause of dissolution of the partnership. What is not true about the incorporation of the partnership? a. b. c. d.
One reason for incorporation is to secure the advantages found in a corporate form of organization including the accumulation of greater amount of capital. If there are less than five partners, the partners will invite other persons to become co-incorporators for there has to be five but not more than ten (10) required incorporators in a corporation. When a charter is granted recognizing a corporation, the assets and liabilities of the partnership shall be transferred to the corporation in exchange for the stocks of the corporation. It is important that the books of the partnership be closed to determine the net income or loss to be allocated to partners before the transfer of assets to the corporation.
31. Assume A, B, C, D and E are partners sharing profits and losses equally. On January 1, 2011, they decided to incorporate the partnership. The books have already been closed on this date. Below is the balance sheet of ABCDE Merchandising as of December 31, 2010: Total Assets Total Liabilities Partners Equity A, Capital B, Capital C, Capital D, Capital E. Capital
P130,000 ======== P 30,000 P20,000 20,000 20,000 20,000 20,000 ----------
100,000 ------------Total Liabilities & Partners Equity P130,000 ========= The ABCDE Corporation has been authorized to issue 10,000 ordinary shares with a par value of P100 each. The partners are issued a total of 1,000 shares for the net assets. The entry to incorporate the partnership is: a.
b.
Liabilities Receivable from ABCDE Corporation Assets
P30,000 100,000
Assets
P130,000
P130,000
Liabilities Ordinary Shares c.
d.
P 30,000 100,000
Assets ABCDE Corporation
P130,000
Receivable from ABCDE Corporation Assets
P130,000
P130,000
P130,000
32. The process of winding up a business which normally consists of conversion of non-cash assets into cash, payment of liabilities and distribution of remaining cash to partners is: a. b. c. d.
Partnership Dissolution Termination and Realization Incorporation Partnership Liquidation
33. Partnership laws provide that in the distribution of cash to creditors and partners, the first priority in the payment is: a. b. c. d.
Partners in respect of capital Partners in respect of loans Outside creditors Inside creditors
34. Stanley and Mike are partners sharing profits and losses in the ratio of 60:40. Recently they made substantial losses in the business and as a result they decided to liquidate. Assets were sold and only P324,000 was realized to pay for liabilities that amounted to P594,000. Their capital balance before liquidation are P414,000 for Stanley and P243,000 for Mike Stanley is personally insolvent after investing cash to pay the unpaid creditors but Mike is solvent and willing to make additional investments to cover his deficiency. In settlement to partners, how much cash should Stanley receive? a. b. c. d.
P127,800 P 19,800 P30,600 P126,000
35. In lump-sum liquidation method, all non-cash assets are realized and all liabilities are settled before a single final distribution is made to partners. Which is not included in the procedures in lump-sum liquidation? a. b. c. d.
Realization of non-cash assets and distribution of gain or loss on realization to partners based on their profit and loss ratio. Payment of liabilities Elimination of partners’ capital deficiencies None of the above.
36. At December 31, 2010, the capital balances of the partners Sera, Hera and Jora are P80,000, P50,000 and P10,000 respectively, sharing profits and losses in the ratio of 3:2:1. The partners decided to liquidate, and sold all non-cash assets for P74,000 cash. After paying all the liabilities amounting to P24,000, they still have P50,000 cash left for distribution. The share of the partners in the final settlement, assuming Jora will invest additional amount to cover his deficiency, are as follows:
a. b. c. d.
Sera, P42,000; Hera, P28,000; Jora, P14,000 Sera, P38,000; Hera, P22,000; Jora, P 0 Sera, P 35,000; Hera, P20,000; Jora, P 0 None of the above
37. Under the installment method of liquidation, realization of non-cash assets is accomplished over an extended period of time. Which is included in the procedures followed in the installment liquidation: a. b. c. d.
Realization of non-cash assets and distribution of gain or loss on realization based on partners profit and loss ratio. Payment of liquidation expenses and adjustment of unrecorded liabilities Payment of liabilities to outsiders All of the above
38. The assets and equities of Mona, Teresa and Lina Partnership at the end of year ended December 31, 2010 are as follows: Assets: Cash Non-cash assets Loans to Teresa
P 15,000 130,000 5,000
Equities: Liabilities Loan from Lina Mona, Capital 30% Teresa, Capital 50% Lina, Capital 20%
----------P150,000 =======
P 50,000 10,000 45,000 30,000 15,000 ----------P150,000 =======
The partner most vulnerable to partnership losses in the event of liquidation is: a. Mona b. Teresa c. Lina d. Mona and Lina equally 39. Which of the following is not an attribute of a corporation as a form of business organization: a. b. c. d.
It is an artificial being with personality separate and distinct from its individual shareholders or members. It is created by mere agreement of its shareholders and therefore it has limited existence. It is created by operation of the law. It has the powers, attributes and properties expressly authorized by law or incident to its existence.
40. A corporation as a business organization has advantages and disadvantages. Which of the following is an advantage of a corporation: a. b. c. d.
Share of stocks can be transferred with consent of the other shareholders. There is greater degree of government control and supervision in its operations. It requires a relatively high cost of formation and operation. Shareholders have limited liability.
41. Section 3 of the Corporation Code classified private corporation into stock and non-stock corporation. Other classifications include: a. b. c. d.
Domestic and Foreign Corporation Corporation Aggregate and Corporation Sole Public and Private Corporation All of the above
42. Section 14 of the Corporation Code provides that all corporations organized under this Code shall file with the Securities and Exchange Commission articles of incorporation duly signed and acknowledged by all incorporators, containing substantially
the following matters except as otherwise prescribed by this Code or by special law, except the following: a. b. c. d.
The name of the corporation The specific purpose or purposes for which the corporation is formed. The manner by which profits and losses are shared among shareholders. The principal place of business and the term of existence.
43. Shares that entitle the holder to certain advantages or benefits over the holders of ordinary shares: a. b. c. d.
Ordinary shares Promotion shares Preference shares Treasury shares
44. Simple Corporation was organized on January 1, 2011 with authorized capital of P2,000,000 divided into 200,000 shares of P10 par common stock . How many share much be subscribed and how much is the minimum amount to be paid? a. b. c. d.
50,000 shares, P500,000 20,000 shares, P200,000 200,000 shares, P2,000,000 60,000 shares, P600,000
45. Five partners decided to incorporate their partnership. Which of the following situation illustrates best the minimum requirement of the law to capital formation?
a. b. c. d.
Authorized Capital
Subscribed Capital
Paid-in Capital
P100,000 P100,000 P 50,000 P 60,000
P20,000 P25,000 P 12,500 P 15,000
P5,000 P6,250 P2,125 P5,000
46. In the basic corporate organization structure, which of the following is the proper officer entrusted with the authority to receive and keep the money of the corporation and to disburse them as he may be authorized. a. b. c. d.
The President of the Corporation The Corporate Secretary The Chairman of the Board The Corporate Treasurer
47. Every private corporation, stock or non-stock , is required to keep books and records at its principal office. Which record contains the minutes of the corporate meetings of the board of directors and stockholders: a. b. c. d.
Minute Book Subscription Book Stock Certificate Book Stock and transfer book
48. It is that portion of share capital or paid-in capital representing amounts paid by shareholders in excess of par. It may result from transactions involving treasury stocks, retirement of shares, donated capital, share dividends and any other “gain” on the
corporation’s own stock transactions. a. b. c. d.
Legal capital Share premium or additional paid-in capital Retained Earnings Authorized capital
49. Share capital includes all types of ownership shares in a corporation. When only one class of share issued, it must be: a. b. c. d.
Treasury Share Ordinary Share Promotion Share Preference Share
50. Bright Star Corporation was incorporated on January 1, 2011 with 100,000 preference shares with par value of P20 and 200,000 ordinary shares with par value of 25.00. What is the entry to record the issuance for cash of 30% of ordinary shares at par and 35% of preference shares at par?
a.
b.
c.
d.
Cash Ordinary shares Preference shares
Debit P2,200,000.
Credit P 1,500,000 700,000
Ordinary shares Preference shares Accounts Payable
P1,500,000 700,000
Ordinary shares Preference shares Cash
P1,500,000 700,000
Accounts Receivable Ordinary shares Preference shares
P2,100,000
P2,200,000
P2,200,000
P1,500,000 600,000
51. Please refer to data item # 50, suppose, 50,000 shares of preference shares were issued at P22 per share, what is the entry to record the issuance of the preference shares on January 2, 2011? a.
Cash
P1,100,000 Preference shares Share Premium
b.
Cash
P1,000,000 100,000 P1,100,000
Preference shares c.
d.
P1,100,000
Preference shares Accounts Payable
P1,100,000
Preference shares Share Premium Cash
P1,000,000 100,000
P1,100,000
P1,100,000
52. Which of the following is not a consideration for the issuance of shares: a.
Actual cash paid to the corporation.
b. c. d.
Previously incurred indebtedness by the corporation Tangible or intangible properties with titles retained by the shareholders Labor or services performed or actually rendered to the corporation.
53. There are two methods of accounting for share capital authorization and issuance, namely: the journal entry method and the memorandum method. The difference between the two methods lies: a. b. c. d.
In the computation of the share premium when the shares are sold at a price higher than the par value. In the entries pertaining to the authorization and issuance of share capital. In the computation of a share discount when the shares are sold at a price lower that the par value. None of the above.
54. Assume Blue Water Corporation was authorized to issue 4,000 shares of ordinary shares with a par value of P100 per share for a total price of P400,000. In the journal entry method of accounting for share capital, the entry to record the authorization for the issuance of share capital is: a.
b.
c.
Unissued Ordinary Shares Authorized Ordinary Shares
P400,000
Subscription Receivable Subscribed Ordinary Shares
P400,000
Cash
P400,000
P400,000
P400,000
Subscription Receivable d.
Subscribed Ordinary Shares Unissued Ordinary Shares
P400,000 P400,000f P400,000
55. Treasury stocks are shares of stocks which have been issued and fully paid for, but subsequently reacquired by the issuing corporation for the following reasons. Which is not the reason for the treasury stock transactions: a. b. c. d.
To support the employee stock compensation plans To improve the stock market price by decreasing the supply of shares To increase the par value of the shares covered by the Treasury stock To avoid takeover by an outside party
56. Treasury stock should be shown on the statement of financial position as: a. b. c. d.
A current asset A current liability An investment asset A reduction of the corporation’s shareholders’ equity
57. The Income Summary account of a partnership is closed to partners’ drawing account or partners capital account, while for a corporation, Income Summary account is closed to a. b. c. d.
Capital stock Additional Paid-In capital Retained Earnings Treasury Stock
58. Treasury Stocks are shares of stocks which have been issued and fully paid but subsequently reacquired by the issuing corporation either by purchase, redemption, donation or through other lawful means. Which is not the reason for the purchase of treasury stocks:
a. b. c. d.
To support employee stock compensation plans. To increase the par value of the ordinary shares as well as the preference shares. To avoid takeover by an outside party. To improve the stock market price by decreasing the supply of shares.
59. A corporation may issue shares in exchange for legal, accounting or other services s related to the formation of the corporation. Which of these cost is not related to the formation of the corporation? a. b. c. d.
Incorporation fees and share issuance fees Legal fees for the preparation of the articles of incorporation Underwriting fees and commissions and cost of underwriting the issue Professional fees of accountant to handle books of accounts when the corporation is already operational.
60. Jetson Company issued 50,000 shares of P20 par value ordinary shares at P24 per share. A year after, Jetson Company reacquired 10,000 shares of its own stock at P30 per share in order to avoid possible corporate takeover by outsiders. Using cost method of accounting for treasury stock, the entry to record the acquisition is a.
Cash
P300,000 Treasury Stock
b.
c.
d.
P300,000
Treasury Stock Cash
P300,000
Treasury Stock Share Premium – Treasury Cash
P200,000 100,000
Treasury Stock Share Premium Cash
P300,000
P300,000 P300,000 - Treasury
P100,000 200,000
61. Contributions from shareholders are recorded at the fair market value of the items received. If the donation is in the form of the shares of the corporation, what particular account is credited once the shares are reissued? a. b. c. d.
Ordinary share account Treasury stock account Donated capital or share premium account Preference share account
62. The donated shares are essentially treasury stock which can be issued at any price. The sale of these donated shares increases assets and shareholders’ equity. Assume that the 1,000 donated shares with par value of P100 were reissued at P80 per share, the entry to record the reissuance of the shares is: a.
Cash
P80,000 Donated Capital
b.
Cash
P80,000 P100,000
Donated Capital c.
Cash
P100,000 P 80,000
Treasury Stock
P80,000
d.
Treasury Stock Donated Capital
P 100,000 P100,000
63. The donated asset increases the total assets and shareholders’ equity of the company by the fair market value of the asset received. If the donated asset is in the form the company’s own shares of stock, the receipt of the donated 500 ordinary shares, P100 par value, is recorded by: a. b. c. d.
A journal entry debiting asset account and crediting the shareholders’ equity account. A journal entry debiting ordinary share account of P50,000 and crediting donated capital, P50,000. A journal entry debiting treasury stock account and crediting donated capital account. A memorandum entry “Received 500 ordinary shares as donation.”
64. Retained earnings represent the component of the shareholder’s equity arising from retention of assets generated from the profit-directed activities of the corporation. The distribution of earnings to shareholders from the unrestricted retained earnings are called dividends which can be in the form of: a. b. c. d.
Cash Properties Shares of stock All of the above
65. A distribution of income to shareholders that is payable in the form of non-cash assets is called property dividends. Property dividends are charged to retained earnings at: a. b. c. d.
Fair market value of the assets declared as property dividends. Cost or book value of non-cash assets distributed. All of the above. None of the above.
66. Corporation reduces the par or stated value of its share capital and issue additional shares to its shareholders through the practice referred to as share split. The par or stated value per share will decrease with the corresponding increase in the number of authorized, issued and outstanding shares. Which is not the reason behind share split: a. b. c. d.
To adjust the market price of the company’s shares to a level where more individuals can afford to invest in the stock. To earn the patronage of shareholders by increasing the number of shares held without necessarily increasing the value of the stocks. To spread the shareholder base by increasing the number of outstanding shares. To benefit existing shareholders by allowing them to take advantage of an imperfect adjustment following the split.
67. A corporation may issue both preference and ordinary shares. Preference shares enjoy preference as to dividends which means that when the board of directors declares cash dividends, preference shares are entitled to dividends before ordinary shares receive any distribution. Which feature of the preference shares entitles the holders only to the payment of current dividends only, if and when dividends are declared, to the extent of the preference rate, before the ordinary shareholders are paid: a. b. c. d.
Cumulative and non-participating Cumulative and participating Non-cumulative and participating Non-cumulative and non-participating
68. UI, a premier educational institution in Iloilo City, has the following selected accounts in its shareholders’ equity: 10% Preference Shares, P500 par, authorized 5,000 shares, 3,000 shares issued and outstanding Ordinary shares, P1,000 par, authorized 10,000 shares,
P1,500,000
5,000 shares issued and outstanding Retained Earnings
5,000,000 1,000,000
The board failed to declare dividends during the first two years of operations and the current year’s performance gave reason to the board to declare dividends of P500,000. What should be the dividends per share if preference shares are non-cumulative and non-participating? a. b. c. d.
P83for Preference Shares; P50 for Ordinary Shares P50 for Preference Shares; P83 for Ordinary Shares P50 for Preference Shares; P70 for Ordinary Shares P70 for Preference Shares; P50 for Ordinary Shares
69. A corporation may be required by law to set aside a portion of the retained earnings for specified purposes or the Board of Directors may voluntarily designate a portion of retained earnings for future contingencies or other purposes. This portion of the retained earnings set aside for future contingencies and not available for dividend declaration is recorded by : a. b. c. d.
Debit to Appropriated Retained Earnings and Credit to Retained Earnings Debit Retained Earnings and Credit to Appropriated Retained Earnings Debit Retained Earnings and Credit Unappropriated Retained Earnings Debit Unappropriated Retained Earnings and Credit Appropriated Retained Earnings
70. A retained earnings statement is normally divided into two sections: the Appropriated section and Unappropriated section. Which of the following items is not included in the appropriated section of the Statement of the Retained Earnings: a. b. c. d.
Beginning balance Any additions or deductions during the period Correction of prior period error Ending balance
71. Retained earnings balance of ABC Corporation at the beginning of the year is P5,000,000. During the year, ABD earned revenues of P10,000,000 and incurred operating expenses of P6,500,000. Also during the year, a dividends of P1,000,000 were declared and paid, leaving the cash balance of P800,000 for the following year’s operations. What is the year-end balance in retained earnings after payment of dividends? a. b. c. d.
P800,000 P7,500,000 P6,700,000 P5,000,000
72. A statement that shows the significant changes in shareholders’ equity and should be reported in the period in which they occur: a. b. c. d.
Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Shareholders’ Equity Statement of Changes in Partners’ Equity
73. Perfect Love Corporation had 500,000 ordinary shares issued and outstanding on January 1, 2010. During the year, Perfect Love took the following actions: June 30
Declared a 3-for-1 share split, when their fair market Value of the share was P50 per share
November 30
Declared a P1 per share cash dividend
If Perfect Love prepares statement of changes in shareholders’ equity for 2010, what amount should Perfect Love report as dividends? a. b. c. d.
P500,000 P1,500,000 P300,000 P450,000
74. Book value per share is the amount that would be paid on each share if the corporation is liquidated. Which of the following statements is not true about the book value per share? a. b. c. d.
When only a single class of share is outstanding, the book value is computed by dividing the total shareholders’ equity by the number of share outstanding. When both preference and ordinary shares are outstanding, ordinary shares have the first priority in the distribution of assets upon corporate liquidation than preference shares. The preference share have the right to receive assets equal to the par value or a larger stated liquidation value per share. The book value per share of the preference share is the sum of its liquidation value, if applicable, plus any current and dividends in arrears divided by the number of ordinary share outstanding.
75. The shareholders’ equity section of the Holy Family Corporation’s statement of financial position shows the following:
10% Cumulative Non-participating Preference shares, P100 par, 20,000 shares authorized, 10,000 shares outstanding Ordinary shares, P1,000 par, 10,000 shares authorized, 5,000 shares outstanding Share Premium – Preference Share Premium – Ordinary Retained Earnings Total Shareholders’ Equity
P1,000,000 5,000,000 50,000 200,000 600,000 --------------P6,850,000 ==========
Assume that preference share has a liquidation value of P120 and dividends are in arrears for two years. The Preference book value per share is: a. b. c. d.
P150 P1,500 P100 P1,000
76. Using the same information in #75, the ordinary book value per share is: a. b. c. d.
P1,000 P2,000 P1,070 P170
77. Merchandising and manufacturing companies earns revenues by selling goods. Merchandising business buys a product that is ready for resale while manufacturing business buys raw materials and process them into finished goods and sells to customers. The main difference between the two is: a. b.
The way inventory is acquired for resale. The manner goods are delivered to customers in the market.
c. d.
The method of pricing the merchandise. None of the above.
78. One of the essential elements of manufacturing costs is the manufacturing overhead. This includes all manufacturing costs that cannot be classified as direct materials or direct labor. Which of the following is not a major classifications of this cost: a. b. c. d.
Indirect materials and supplies. Indirect labor costs. Other indirect manufacturing costs. None of above.
79. This manufacturing inventory account gives the cost of goods that are in the manufacturing process but are not yet complete at the end of the accounting period. It consists of partly finished products at the end of accounting period. a. b. c. d.
Raw materials inventory Factory Supplies inventory Finished goods inventory Work in Process inventory
80. The direct labor account is debited a. b. c. d.
When related labor costs are transferred into the Work in Process Inventory account. At the end of the payroll period when employees are paid. When a new factory employee begins work. When the goods manufactured are completed.
81. Innovation Manufacturing has work in process inventory of 50,000 units at the end of its accounting period. Direct material cost related to the 50,000 units is P465,000 while direct labor cost is P38,900. It also has 20,000 units of finished goods inventory. Direct material applied to the 20,000 units is P247,900 while direct labor cost is P22,850. Total manufacturing costs incurred during the year is: Direct Materials Direct Labor Manufacturing overhead
P2,540,000 228,600 685,800
Assume manufacturing overhead is applied to the inventories based on percentage of direct material costs, how much is the total cost of work in process and finished goods inventory?
a. P617,900 for work in process inventory and P339,300 for finished goods inventory b. P465,000 for work in process inventory and P247,900 for finished goods inventory c. P629,450 for work in process inventory and P337,683 for finished goods inventory d. P125,550 for work in process inventory and P66,933 for finished goods inventory 82. Using the same data as above and assume manufacturing overhead is applied to the inventories based on percentage of direct labor costs, how much is the cost of work in process and finished goods inventory?
a. b. c. d.
Work in Process Inventory P629,450 P620,600 P630,000 P120,000
Finished Goods Inventory P337,683 P339,300 P340,000 P70,000
83. This is one of most important financial statements in manufacturing concern which shows total manufacturing costs related to the products completed during the period. This statement is also called the manufacturing statement. a.
Statement of Comprehensive Income
b. c. d.
Statement of Cost of Goods Sold Statement Changes in Financial Position Statement of Cost of Goods Manufactured
84. In addition to the year-end statement of financial position and statement of comprehensive income, the management of Jaro Iloilo Corporation required the accountant to prepare the statement of cost of goods manufactured. In 2010, P361,920 of raw materials were purchased. Operating cost data and inventory account balances for 2010 follow: Direct Labor (10,430 hours at P9.50 per hour Plant Supervision Indirect Labor (20,280 hours at P6.25 per hour Factory Insurance Factory Utilities Depreciation – Factory Building and Equipment Manufacturing supplies Repairs and Maintenance - Factory Selling and Administrative Expenses Raw Materials Inventory, Jan. 2010 Work in Process Inventory, Jan. 1, 2010 Finished Goods Inventory, Jan. 1, 2010 Raw Materials Inventory, Dec. 31, 2010 Work in Process Inventory, Dec. 31, 2010 Finished Goods Inventory, Dec. 31, 2010
P 99,085 42,500 126,750 8,100 29,220 109,000 9,460 14,980 76,480 26,490 101,640 148,290 24,910 100,400 141,100
How much is the total cost of direct materials used during the year? a. b. c. d.
P360,000 P340,000 P388,400 P363,500
85. How much is total manufacturing cost for the year 2010? a. P802,595 b. P800,000 c. P904,235 d. P803,835 86. How much is the cost of goods manufactured during the year? a. b. c. d.
P803,300 P803,835 P811,025 P810,000
87. How much is the total cost of goods sold? a. b. c. d.
P800,000 P805,000 P811,025 P810,000
88. The worksheet for manufacturing company is basically the same as that for a merchandising company except : a. b. c.
Beginning finished goods inventory being a component of cost of goods sold is extended to the debit side of the income statement columns while the ending finished goods inventory to the credit column. That the worksheet for manufacturing company includes a pair of columns for cost of goods manufactured. All nominal accounts are extended to the income statement columns of the worksheet.
d.
All real accounts are extended to the balance sheet columns of the worksheet.
89. One of the most significant items in the balance sheet is cash. To measure liquidity of the business, there is a need to compare the amount of cash with other financial statement data. This type of analysis compares an item or financial relationship within a company in the current year with the same item or relationship in one or more prior years: a. b. c. d.
Industry averages Intercompany basis Intracompany basis None of the above
90. Various tools are used to evaluate the significance of financial statement data. Which technique evaluates financial statement data that expresses each item in a financial statement in terms of a percent of the base amount? a. b. c. d.
Horizontal analysis Ratio analysis Vertical analysis None of the above
91. This type of ratio analysis measures the company’s ability to collect from credit sales. It indicates the number of times that the average balance of accounts receivable is collected during the period. a. b. c. d.
Average age of receivable Account Receivable Turnover Quick ratio Acid test ratio
92. This tool measures the relationship between profit and ordinary shareholders’ investment in the company. This rate may be higher or lower than the return on total assets, depending on how judiciously management has combined debt and preference share with ordinary share in financing the company’s resources. a. b. c. d.
Price-Earnings Ratio Return on total assets Return on Ordinary Equity Debt to Total Assets Ratio
93. The following information was taken from the books of Crest Merchandising for the year ending December 31, 2010: Cash Marketable Securities Accounts Receivable: January 1 December 31 Merchandise Inventory: January 1 December 31 Current Liabilities Cost of Goods Sold Credit Sales
P130,000 60,000 156,000 214,000 252,000 186,000 240,000 3,000,000 5,000,000
The firm’s creditors are constantly monitoring the liquidity position of the business to ensure that
obligations are paid as they mature. Using the above information, what is the firms working capital that is necessary to finance the firm’s cash conversion cycle? a. b. c. d.
P250,000 P358,000 P360,000 P350,000
94. Another important tool that tells whether the firm could pay all its current obligations even if none of the inventories is sold is the quick ratio. Using above information, what is the firm’s quick ratio in 2010? a. b. c. d.
70% 1.68 0.60:1 None of the above
95. This is a measure of the number of times the firm holds it average level of inventory during the period and a high rate of turnover indicates relative ease in selling inventory. Using the above information in problem # 93, what is the Inventory turnover for the year 2010? a. b. c. d.
13.70 times 10 times 14.2 times 10.5 times
96. Another tool that provides a rough approximation of the average times it takes the firm to collect receivables is the average age of receivables. Still using the same information as above, how long does it take for the firm to collect it receivables? a. b. c. d.
Approximately 10 days Average of 16 days Average of 13 to 14 days Not less than 20 days
97. Juan dela Cruz, the accountant, is analyzing the earnings performance of the Megan Transport Corporation. He has gathered the following data from Megan financial statements and from a report of the closing market prices of shares: Profit for 2010 P743,000 Preference dividends declared in 2010 60,000 Ordinary dividends declared December 31, 2010 620,000 Number of Megan ordinary shares outstanding: January 1, 2010 1,100,000 shares December 31, 2010 1,300,000 shares Market price per ordinary share on December 31, 2010 P15 Because of the reported profit in 2010, the Ordinary shareholders believed they should be well compensated for their investment in the transport business, thus, prompting the Accountant to compute for the basic earnings per ordinary share. Considering the data gathered above, what should be the BEPS as demanded by the ordinary shareholders? a. b. c.
P0.46 P0.57 P1.00
d.
P0
98. Another investor wants to measure how valuable his investment in the transport business. He believes that maintaining his investment in the transport firm would eventually provide him better yield in the future thus he is even willing to pay high price for a given corporate earnings. What is the Price-Earnings Ratio in December 31, 2010 in case an investor would ask for it? a. b. c. d.
P25.00 P20.00 P26.31 P28.32
99. Dividend yield is the ratio of dividends per share to the share’s market price. This ratio measures the percentage of a market value that is returned annually as dividends. This indication of the cash payout rate on an investment allows a shareholders and potential shareholders to compare interest rates on certificates of deposit, corporate bonds, and other securities with this measure of return on ordinary share. Using above information, what is the dividend yield on Megan Transport for 2010? a. b. c. d.
3.18% 3.00% 2.50% 3.50%
100. Another ratio of profitability measures the percentage of the firm’s assets financed by shareholders. The higher this ratio, the smaller the risk that the company will be unable to meet its obligations when due. This ratio is known as: a. b. c. d.
Price-earnings ratio Equity Ratio Debt to total assets ratio Return on total assets
ANSWERS KEY 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.
C C C C D A C D D B B B D B A B C C D B C A B A B
26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.
C A B A B B D C B D C D B B D D C C A B D A B B D
51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75.
A C D A C D C B D B C A D D B B D C B C B C B B A
76. C 77. A 78. D 79. D 80. A 81. C 82. B 83. D 84. D 85. A 86. B 87. C 88. B 89. C 90. C 91. A 92. C 93. D 94. B 95. A 96. C 97. B 98. C 99. A 100. B
