ACC221 - 1ST EXAM

1. If shares are issued for a noncash consideration, the shares issued shall be measured by Fair value of the
consideration received

2. Subscriptions receivable and other receivables from sale of shares which are not collectible currently shall be
presented as Deduction from the related subscribed share capital under shareholders’ equity

3. When shares are issued for services received, the measure is equal to Fair value of the services

4. Plan assets are assets held by a long term benefit fund that satisfies all of the following conditions, except
The assets are not available to the reporting entity’s creditors even in bankruptcy
The fund is legally separate from the reporting entity
     The assets in the fund can be returned to the entity even if the remaining assets of the fund are not sufficient to meet
the plan’s obligation
      The assets of the fund are to be used only to settle the employee benefit obligations

5. “Loss” from sale of treasury shares shall be charged to

6.  Which of the following is not one of the basic rights of a shareholder?

7. Which of the following statements is incorrect concerning the recognition and measurement of a defined contribution
plan?
An entity shall not disclose the amount recognized as expense for a defined contribution plan
Any excess contribution shall be recognized as prepaid expense but only to the extent that the prepayment will lead to a
reduction in future payments or a cash refund.
The contribution shall be recognized as expense in the period it is payable.
Any unpaid contribution at the end of the period shall be recognized as accrued liability

8. The gain or loss on curtailment or settlement shall be

9. When shares with par value are sold, the proceeds shall be credited in the
     Share capital account to the extent of the par of the shares issued with any excess being reflected in share premium

10.Contributed capital does not include

11.A redeemable preference share shall be classified in the statement of financial position as
     Either current liability or noncurrent liability depending on redemption date

12. Short-term employee benefits include all of the following, except

13.These are compensated absences that are carried forward and can be used in future periods and the employees are
entitled to cash payments for unused entitlement on leaving the entity. Accumulating and vesting

14.It is a benefit plan under which an entity pays a fixed contribution into a separate fund and will have no legal or
constructive obligation to pay further contribution if the fund becomes insufficient to pay employee benefits.
Defined contribution plan

PROBLEMS
1. Ruby company has established a defined benefit pension plan for the employees.  Annual payments under the pension
plan equal to 2% of an employee’s highest lifetime salary multiplied by the number of years with the entity.  On December
31, 2019, an employee had worked with the entity for 15 years.  The current annual salary of the employee is P600,000. 
The employee is expected to retire in 10 years and the increase in salary is expected to be 4% per year.  The discount rate
is 10%.  The employee is expected to live 8 years after retirement and shall the first annual pension payment one year
after retirement.
Future value of 1 at 4% for 10 periods                                   1.480
PV of an ordinary annuity of 1 at 10% for 8 periods              5.335
PV of 1 at 10% for 10 periods                                                0.386
Determine the projected benefit obligation on December 31, 2019.

2.       Misty company provided the following information in relation to a defined benefit plan for the current year:
                                                                                                     January 1              December 31
                             Fair value of plan assets                             1,300,000              1,500,000
                             Projected benefit obligation                      1,000,000              1,050,000
                             Prepaid/accrued benefit cost-surplus        300,000              450,000
                             Asset ceiling                                                     100,000              150,000
                             Effect of asset ceiling                                     200,000              300,000
 
                             Current service cost                                                                  50,000
                             Contribution to the plan                                                         175,000
                             Benefits paid                                                                               75,000
                             Discount rate                                                                                 10%
What amount should be reported as employee benefit expense?   

3.       On January 1, 2020, Zia company had a projected benefit obligation of 5,000,000 and a pension fund with a fair
value of 4,600,000.  The entity provided the following information related to the pension plan during the current year:
Current service cost                                                   600,000
Actual return on the pension fund                         125,000
Benefits paid to retirees                                           550,000
Contribution to the pension fund                           525,000
Discount rate                                                                   9%
Expected return on pension fund                               10%
What is the pension asset or liability on December 31, 2020?                           

4.       Sunshine company provided the following information pertaining to a pension plan for the current year:
Actuarial value of projected benefit obligation                                3,600,000
Assumed discount rate                                                                             10%
Service cost                                                                                                 900,000
Pension benefits paid                                                                               750,000
 No change in actuarial estimate occurred during the current year.  What is the projected benefit obligation at year end?  
 
5.       Joy company provided the following information relating to a defined benefit plan during the current year:
Current service cost                                    800,000
Actual return on plant assets                    175,000
Interest income on plan assets                 200,000
Past service cost during the year                25,000
Annual interest on pension liability          250,000
What amount should be reported as defined benefit cost for the current year?

6.       On January 1, 2020, Myla company had a projected benefit obligation of 9,000,000 and a pension fund with a fair
value of 8,280,000.  The entity provided the following information related to the pension plan during the current year:
Current service cost                                                                 1,080,000
Actual return on plan asset                                                       225,000
Benefits paid to retirees                                                         990,000
Contribution to the fund                                                        945,000
Discount rate                                                                                 9%
Expected return on plan asset                                                  10%
What is the remeasurement gain or loss on December 31, 2020?        
 
7.       Alice company gives each of the 50 employees 18 days of vacation a year if they are employed at the end of the
year.  The vacation accumulates and may be taken starting January 1 of the next year.  The employees work 8 hours per
day.  The employees made P70 per hour in 2019 and P80 per hour in 2020.  During 2019, the employees took an
advantage of 14 days of vacation each.  The entity’s policy is to record the liability existing at the end of each year at the
average rate for that year.  What amount of vacation liability should be reported on December 31, 2020?
 
8.       Ciara company reported that employees earned vacation days during the first year of operations as follows:
Employee           Ave. wage/day  vacation days earned this year              vacation days taken this year  
     1                           400                                20                                                     20
     2                           600                                30                                                     20
     3                           800                                40                                                     10
What amount should be reported as accrued vacation pay at year end?
              
9.     The shareholders’ equity section of Macy company revealed the following information on December 31, 20A.
            Preference share capital, P100 par                                                    2,760,000
            Share premium-preference share                                                         966,000
            Ordinary share capital, P10 par                                                          6,300,000
            Share premium-ordinary share                                                          3,300,000
            Subscribed ordinary share capital                                                          120,000
            Retained earnings                                                                               2,280,000
            Note payable                                                                                       4,800,000
            Subscriptions receivable – ordinary share                                            480,000
How much is the legal capital?
 
10.   Stefan company provided the following information at year end:
Share capital                                                                                                                         10,000,000
Subscribed share capital                                                                                                       6,000,000
Subscriptions receivable                                                                                                       4,000,000
Share premium                                                                                                                      3,150,000
Cumulative translation loss                                                                                                 1,000,000
Treasury shares, at cost                                                                                                        1,400,000
Retained earnings                                                                                                                  2,000,000
Cumulative unrealized gain on futures contract designated as cash flow hedge           1,200,000        
What is the contributed capital at year end?
 
11.   Elena company was organized on January 1, 20A, with authorized capital of 150,000 shares of P200 par value. 
During 20A, Alena had the following transactions affecting shareholders’ equity:
January               10          Issued 37,500 shares at P220 per share.
March                 25          Issued 1,500 shares for legal services when the fair value was P240 a share.
September         30          Issued 7,500 shares for a tract of land when the fair value was 260 a share.
October              5            4,000 shares were issued for a subscription price of P220.
What amount should Elena report as legal capital on December 31, 20A?
           
12.   Leslie company issued 60,000 shares with a par value of 100 in exchange for a land with fair value of 1,600,000 and a
building thereon with a fair value of 5,000,000.  What amount of share premium will be credited upon issuance of shares?  
 
13.   Princess company began operations on January 1, 2020 by issuing at 15 per share one-half of the 950,000 ordinary
shares of 10 par value that had been authorized for sale.  In addition, the entity has 500,000 authorized preference shares
of 5 par value.  During 2020, the entity had 1,025,000 of net income and declared 230,000 of dividends.  What is the
shareholders’ equity on December 31, 2020?  

1. RUBY 548,000
2. MISTY 40,000
3. ZIA (800,00) Liability
4. SUNSHINE 4,110,000
5. JOY 700,000
6. MYLA (520,200)LOSS
7. ALICE 704,000
8. LIAM 30,000
9. MACY 9,180,000
10. STEFAN 15,150,000
11. ELENA 1,260,000
12. LESLIE
13. PRINCESS 
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    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.
    As component of other comprehensive income  

b.
    In profit or loss 

c.
     As adjustment of general reserve 

d.
In equity as adjustment to the amount of distribution
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The correct answer is: In equity as adjustment to the amount of distribution
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#13 
On January 1, 2020, Shaina company had a projected benefit obligation of 2,500,000 and a pension fund with a fair value
of 2,300,000.  The entity provided the following information related to the pension plan during the current year: 
Current service cost                                                        300,000 
Actual return on the pension fund                              62,500 
Benefits paid to retirees                                                 275,000 
Contribution to the pension fund                              262,500 
Discount rate                                                                          9% 
Expected return on pension fund                                  10% 
What is the pension expense for the current year?  
 #14 
Stefan company provided the following information in relation to a defined benefit plan for the current year: 
January 1             December 31 
Fair value of plan assets                                 1,300,000             1,500,000 
Projected benefit obligation                        1,000,000             1,050,000 
Prepaid/accrued benefit cost-surplus        300,000                450,000 
Asset ceiling                                                          100,000                150,000 
Effect of asset ceiling                                         200,000                300,000 
 
Current service cost                                                                          50,000 
Contribution to the plan                                                                175,000 
Benefits paid                                                                                        75,000 
Discount rate                                                                                         10% 
 What is the net remeasurement loss for the current year?  
 #15 
 The following data were presented for WENG company on Jan. 1, 2018: 
Ordinary share, par value 20, authorized 400,000 shares 
Issued and outstanding, 240,000 shares                          4,800,000 
Share premium                                                                                                                 960,000 
Retained Earnings                                                                                                        3,080,000 
 The company uses the cost method of accounting for treasury shares and the following transactions took place: 
 The entity acquired 4,000 shares of its shares for 140,000; sold 2,400 treasury shares at 40 per share, then retired the
remaining treasury shares. 
What is the amount of the retained earnings after the retirement of treasury shares?  

13. 318,000
14. (85,000) 
15.
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#16 
On December 1, 2019, Ceniza corporation received a donation of 3,000 shares of its P50 par value ordinary shares from a
shareholder.  On that date, the share’s market value was 350 per share.  The stock was originally issued for P250 per
share.  By what amount would this donation cause total shareholder’s equity to decrease?              
#17 
The following data are presented for Caroline company for the year ended December 31, 2020.  Preference share capital
authorized, 100 par, P15,000,000, Ordinary share capital authorized, 10 par, P6,000,000, Unissued preference share
capital, P5,400,000, Unissued ordinary share capital, P3,000,000, Subscriptions receivable, ordinary, P540,000,
Subscriptions receivable, preference, P570,000, Preference share capital subscribed, P900,000, Ordinary share capital
subscribed, P660,000, Treasury preference shares (700 shares at cost), P2,040,000, Share premium, P2,550,000, Retained
earnings, P6,000,000.  What is the amount of shareholder’s equity on December 31, 2018?  
 #18 
In 2020, Edsel Company issued for P210 per share, 24,000 shares of P100 par value convertible preference share capital. 
One preference share can be converted into three ordinary shares of Eden’s P30 par value at the option of the
shareholder.  In August 2020, all of the preference shares were converted into ordinary shares.  The market value of the
ordinary share on the date of conversion was P60 per share.  What amount will be credited to share premium?  
 #19 
Marla company issued 150,000 ordinary shares.  Of these, 7,500 shares were held as treasury at January 1, 20A.  During
20A, transactions were as follows: 
May      1             1,500 shares of treasury were sold. 
Aug.      1             15,000 unissued shares were sold. 
Nov.      15           A 2-for-1 share split took effect. 
On December 31, 20A, how many shares were and outstanding?    
 #20 
In 20A, Angelu company bought 10,000 shares of Eloisa company at a cost of P360,000.  On December 1, 20A, Angelu
company declared a property dividend of the Eloisa company shares to shareholders of record on February 1, 20B,
payable on February 15, 20B.  Eloisa company shares had the following market value: 
December 1, 20A                                                              450,000 
December 31, 20A                                                           468,000 
February 15, 20B                                                              432,000 
What is the net charge of the property dividend against retained earnings during 20A?     
#21 
During the year, Gilbert company issued 4,000 shares with P100 par value in connection with a share dividend.  The
market value per share on the date of declaration was P150.  The shareholders’ equity before issuance of the share
dividend was as follows: 
Share capital, P100 par, 20,000 shares outstanding                                 2,000,000 
Share premium                                                                                                              3,000,000 
Retained earnings                                                                                                         1,500,0009 
What is the retained earnings balance immediately after the share dividend?            
 

16.
17.
18.
19.320, 000
20. 468,000
21. 1,100,000
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#22 
At the beginning of the current year, Flor company had retained earnings of P4,800,000.  During the year, the entity
reported net income of P2,400,000, sold treasury shares at a “gain” of P864,000, declared a cash dividend of P1,440,000
and declared and issued a small share dividend of 72,000 shares with P10 par value when the fair value of the share was
P20.  What is the amount of retained earnings available for dividends at the end of the current year?  
#23 
Ryan company declared a 5% share dividend on 100,000 issued and outstanding shares of P20 par value, which had a fair
value of P50 per share before the share dividend was declared.  This share dividend was distributed 60 days after the
declaration date.  What is the increase in current liabilities as a result of the share dividend declaration?  
 #24 
At the beginning of current year, AILEEN company was authorized to issue share capital of 120,000 shares with P50 par
value.  The entity had the following share capital transactions during the year: 
Jan        1             Sold 96,000 shares at P60 per share 
May      1             Reacquired 4,000 treasury shares at P65 per share. 
July       1             Approved a share split of 5 for 1. 
Oct.       31           Declared and issued a 10% share dividend when the market value of a share is P25. 
Dec.      31           Reissued all of the treasury shares at P30. 
Dec.      31           Net income for the year was P3,600,000. 
What total amount should be reported as share premium?  
#25 
TYLER company, has sustained heavy losses over a period of time and conditions warrant that TYLER undergo a quasi
reorganization on December 31, 2012. 
*Inventory with cost of P26,000,000 was recorded on December 31, 2012 at its market value of P24,000,000. 
*Property, Plant & Equipment were recorded on December 31, 2012 at P48,000,000, net of accumulated depreciation.  The
sound value was P32,000,000. 
*On December 31, 2012, the share capital is P28,000,000 consisting of 2,800,000 shares with par value of P10, the share
premium is P6,400,000, and the deficit in retained earnings is P3,600,000. 
*The par value of the share is to be reduced from P10 to P5. 
Immediately after the quasi-reorganization, what is the total shareholders’ equity?                
 #26 
ALMIRO company declared and distributed 10% share dividend with fair value of P1,800,000 and par value of P1,200,000,
and 25% share dividend with fair value of P4,800,000 and par value of P4,200,000.  What aggregate amount should be
debited to retained earnings for the share dividends?               
 
 

21.4, 320,000
22. 
23. 
24. 9,700,000
25. 
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    How would a share split in which the par value per share decreases in proportion to the number of additional shares
issued affect each of the following? Share premium              retained earnings 

a.
    Increase                             no effect 

b.
    No effect                           no effect 

c.
    Increase                             decrease 
d.
     No effect                            decrease 
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The correct answer is:     No effect                           no effect 
Question 6
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    Loss on retirement of treasury shares shall be debited to 

a.
    Share premium from original issuance, share premium from treasury shares and then retained earnings 

b.
     Share premium from treasury shares, share premium from original issuance and then retained earnings 

c.
    Retained earnings 

d.
    Share premium from treasury shares and then retained earnings 
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The correct answer is:     Share premium from original issuance, share premium from treasury shares and then retained
earnings 
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    The issuer shall directly charge retained earnings for the par value of the shares issued in 

a.
Twenty percent share dividend

b.
    Two for one share split 

c.
    Share appreciation right  

d.
Share options 
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The correct answer is: Twenty percent share dividend
Question 8
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    Treasury shares may be reissued as dividends, in which case what amount should be charged to retained earnings? 
a.
    Fair value of the treasury shares on the date of the issuance 

b.
     Fair value of the treasury shares on the date of declaration 

c.
    Cost of the treasury shares 

d.
    Par value of the treasury shares  
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The correct answer is:     Cost of the treasury shares 
Question 9
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    When the entity undergoes a quasi-reorganization, the carrying amounts in the statement of financial position are
measured at 

a.
     Replacement value 

b.
    Original book value 

c.
    Fair value  

d.
    Original cost 
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The correct answer is:     Fair value  
Question 10
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    Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a
specified time at a specified price? 

a.
  Share subscription  

b.
    Share option 

c.
Share dividend 

d.
   Share warrant 
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The correct answer is:    Share warrant 
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    Which of the following statements best describes the net effect on retained earnings of the purchase and subsequent
sale of treasury shares? 

a.
    Retained earnings may never be increased but sometimes decreased 

b.
    Retained earnings may never be increased or decreased 

c.
    Retained earnings account is always affected unless the sale price is exactly equal to cost 

d.
     Retained earnings sometimes may be increased but never be decreased 
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The correct answer is:     Retained earnings may never be increased but sometimes decreased 
Question 12
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  An entity with a substantial deficit undertakes a quasi-reorganization.  Certain assets will be written down to their
present fair value.  Liabilities will remain the same.  How would the entries to record the quasi-reorganization affect each
of the following? Share capital                    retained earnings 

a.
    Increase                             decrease  

b.
     Decrease                          increase 

c.
    No effect                            increase 

d.
    Decrease                           no effect 
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The correct answer is:      Decrease                          increase 
Question 13
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  It is issuance by an entity of its own shares to its shareholders without consideration and under conditions indicating
that such action is prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting
a reduction in unit market price. 

a.
   Recapitalization 
b.
    Share dividend 

c.
 Share split 

d.
Reverse share split 
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The correct answer is:  Share split 
Question 14
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  When a dividend is declared and paid in shares 

a.
     The current ratio increases 

b.
    Total shareholders’ equity does not change 

c.
    Total shareholders’ equity decreases 

d.
    The amount of working capital decreases  
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The correct answer is:     Total shareholders’ equity does not change 
Question 15
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 When an entity settles the property dividend payable, it shall recognize the difference between the carrying amount of the
asset distributed and the carrying amount of the dividend payable in 

a.
     Equity 

b.
    Profit or loss