ACC 109: Intermediate Accounting 4

Module #9 Teacher’s Guide

1st PERIODICAL EXAM

MULTIPLE CHOICE

1. Legal capital is the portion of contributed capital that cannot be distributed to the owners during
the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are
settled first. For no-par value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.

2. Which of the following is not one of the basic shareholders rights?

a. The right to participate in earnings.
b. The right to maintain one's 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.

3. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of
par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80
percent of the subscription price was collected. Share premium would increase on
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

4. The entry to record the issuance of ordinary shares for fully paid share subscriptions is
a. a memorandum entry.
b. Dr. Common Stock Subscribed; Cr. Common Stock; Cr. Additional Paid-In Capital
c. Dr. Subscribed Share Capital; Cr. Subscriptions Receivable
d. Dr. Subscribed Share Capital; Cr. Share Capital

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 ACC 109: Intermediate Accounting 4
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5. Which of the following is an appropriate presentation of treasury stock?

a. As a marketable security
b. As a deduction at cost from total stockholders' equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders' equity

6. Gains and losses on the purchase and resale of treasury stock may be reflected only in
a. share premium account.
b. share premium and retained earnings accounts.
c. income, paid-in capital, and retaining earnings accounts.
d. income and paid-in capital accounts.

7. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20X2, was
as follows:

Ordinary shares (₱10 par value, authorized 1,000,000

shares, issued and outstanding 900,000 shares) ₱ 9,000,000
Share premium 2,700,000
Retained earnings 1,300,000

On January 2, 20X3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000.
Immediately after retirement of these 100,000 shares, the balances in the share premium and
retained earnings accounts should be
Share premium Retained earnings
a. ₱ 900,000 ₱1,300,000
b. ₱1,400,000 ₱ 800,000
c. ₱1,900,000 ₱1,300,000
d. ₱2,400,000 ₱ 800,000

8. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary
shares. During 20x1 the corporation had the following capital transactions:

Jan. 5 Issued 20,000 shares at ₱15 per share.

July 14 Purchased 5,000 shares at ₱17 per share.

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 ACC 109: Intermediate Accounting 4
Module #9 Teacher’s Guide

Dec. 27 Reissued the 5,000 shares held in treasury at ₱20 per share.

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its
December 31, 20x1, balance sheet, what amount should Asp report as share premium in excess of
par?
a. 100,000
b. 125,000
c. 140,000
d. 115,000

9. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per
share. In 20x1, Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to
account for its treasury stock transactions. What accounts and amounts should Newt credit in
20x1 to record the issuance of the 3,000 shares?
Treasury sh. Sh. premium Retained earnings Ordinary sh.
a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000

10. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par value ordinary
shares from a shareholder. On that date, the stock’s market value was ₱35 per share. The stock
was originally issued for ₱25 per share. By what amount would this donation cause total
stockholders’ equity to decrease?
a. 70,000
b. 50,000
c. 20,000
d. 0

11. Nest Co. issued 100,000 shares of common stock (i.e., ordinary shares). Of these, 5,000 were held
as treasury stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock
were as follows:
May 3 - 1,000 shares of treasury stock were sold.
August 6 - 10,000 shares of previously unissued stock were sold.
November 18 - a 2-for-1 stock split took effect.

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 ACC 109: Intermediate Accounting 4
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Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2,
how many shares of Nest's common stock were issued and outstanding?
Shares Issued Outstanding
a. 220,000 212,000
b. 220,000 216,000
c. 222,000 214,000
d. 222,000 218,000

12. At December 31, 20x0 and 20x1, Carr Corp. had outstanding 4,000 shares of ₱100 par value 6%
cumulative preferred stock and 20,000 shares of ₱10 par value common stock (i.e., ordinary
shares). At December 31, 20x0, dividends in arrears on the preferred stock were ₱12,000. Cash
dividends declared in 20x1 totaled ₱44,000. Of the ₱44,000, what amounts were payable on each
class of stock?
Preference shares Ordinary shares
a. ₱44,000 ₱ 0
b. ₱36,000 ₱ 8,000
c. ₱32,000 ₱12,000
d. ₱24,000 ₱20,000

13. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following:
30,000, 5% cumulative preference shares, par value ₱10 per share, fully participating as to
dividends. No dividends were in arrears.
200,000 ordinary shares, par value ₱1 per share.

On December 15, 20x1, Arp declared dividends of ₱100,000. What was the amount of dividends
payable to Arp’s ordinary stockholders?
a. 10,000
b. 34,000
c. 40,000
d. 47,500

14. The following stock dividends were declared and distributed by Sol Corp.:
Percentage of ordinary shares
outstanding at declaration date Fair value Par value

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 ACC 109: Intermediate Accounting 4
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10 ₱15,000 ₱10,000
28 40,000 30,800

What aggregate amount should be debited to retained earnings for these stock dividends?
a. 40,800
b. 45,800
c. 50,000
d. 55,000

15. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of ₱2 par
value common stock, which had a fair value of ₱5 per share before the stock dividend was
declared. This stock dividend was distributed 60 days after the declaration date. By what amount
did Ray’s current liabilities increase as a result of the stock dividend declaration?
a. 0
b. 500
c. 1,000
d. 2,500

16. A share-based payment transaction is one in which an entity receives goods or services and pays
for them
a. by issuing its own equity instruments.
b. through cash, but the amount is based on the fair value of the entity’s equity instruments.
c. either a or b, as a choice given to either the entity or the supplier of the goods or services
d. any of these

17. Which of the following is excluded from the scope of PFRS 2?

a. Employee share option plans
b. Employee share appreciation rights
c. Purchase of goods from an unrelated party in exchange for an entity’s own shares of stocks
d. Transfer of equity instruments as consideration for a business combination

18. On February 1, 20x1, Entity A offered its employees share options subject to the offer being
ratified in the shareholders’ general meeting. The share option offer was approved in the
shareholders’ general meeting held on March 1, 20x1. Entity A issued the share options on April 1,

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 ACC 109: Intermediate Accounting 4
Module #9 Teacher’s Guide

20x1. The fair value of the share options vary between these dates. For purposes of PFRS 2, the
share options should be valued at the fair value determined on
a. February 1, 20x1. c. April 1, 20x1.
b. March 1, 20x1. d. any of these

19. On January 1, 20x4, Entity A has granted 600 share options to each of its 100 employees. The
options vest in three years’ time. Each share option has a fair value of ₱100 on grant date.
Information on employee departure is as follows:
January 1, 20x4: estimate of employees leaving the entity during the vesting period – 4%
December 31, 20x4: revision of estimate of employees leaving to 5% before vesting date
December 31, 20x5: revision of estimate of employees leaving to 6% before vesting date
December 31, 20x6: actual employees leaving 5%

How much is the salaries expense in 20x5?

a. 2,000,000
b. 1,900,000
c. 1,860,000
d. 1,840,000

Use the following information for the next two questions:

On January 1, 20x1, Entity A grants 100 share options to each of its 100 key employees conditional upon
each employee remaining in Entity A’s employ over the next 3 years. The fair value of each share option is
₱15.

On the basis of a weighted average probability, Entity A estimates on January 1, 20x1 that about 20
employees (i.e., 20% or 20 out of the 100 employees) will leave during the three-year period and
therefore forfeit their rights to the share options.

During 20x1, 7 employees left. Entity A revises its estimate to a total of 25% employee departure over the
vesting period.

During 20x2, 9 employees left. Entity A revises its estimate to a total of 28% employee departure over the
vesting period.

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 ACC 109: Intermediate Accounting 4
Module #9 Teacher’s Guide

During 20x3, 8 employees left. Therefore, the actual employee departure over the past three years is 24%
[(7 + 9 + 8) ÷ 100].

20. How much is the salaries expense in 20x2?

a. 33,700
b. 37,500
c. 34,500
d. 42,000

21. How much is the salaries expense in 20x3?

a. 33,700
b. 37,500
c. 34,500
d. 42,000

Use the following information for the next three questions:

Caroline Co.’s equity structure at December 31, 20x1 is shown below:

10% Preference sh., ₱100 par (liquidation value ₱120 per share) 1,000,000
Ordinary shares, ₱100 par 3,000,000
Subscribed share capital - ordinary shares 100,000
Subscription receivable (60,000)
Retained earnings 900,000
Treasury shares (at cost) - 2,000 ordinary shares. (260,000)
Total shareholders' equity 4,680,000

22. The preference shares are cumulative. Dividends are in arrears for three years. How much is the
book value per ordinary share?
a. 150
b. 111.72
c. 112.37
d. 141.38

23. The preference shares are noncumulative. Dividends are in arrears for three years. How much is
the book value per ordinary share?
a. 118.62
b. 112.62

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c. 98.87
d. 122.39

24. The preference shares are cumulative. All dividends are paid up to end of the current year. How
much is the book value per ordinary share?
a. 120.00
b. 119.82
c. 118.62
d. 122.07

25. The shareholders' equity of ABC Construction, Inc. on December 31, 20x1 includes the following:

8% Preference shares, 20,000 shares, ₱100 par value 3,000,000

10% Preference shares, 10,000 shares, ₱300 par value 4,500,000
Ordinary shares, 50,000 shares, ₱100 par value 7,500,000
Share premium in excess of par 2,250,000
Retained earnings 3,350,000
Total shareholders' equity 20,600,000

The 8% stock is cumulative and fully participating. The 10% stock is noncumulative and fully
participating. Dividends have not yet been paid for 3 years.

How much is the book value per ordinary share?

a. 192.30
b. 200.30
c. 202.30
d. 205.30

26. A share-based payment transaction may be

a. equity-settled
b. cash-settled
c. the entity or the counterparty is given the choice of settlement between equity or cash
payment.
d. any of these

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 ACC 109: Intermediate Accounting 4
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27. Intrinsic value is

a. Subscription price minus fair value of shares
b. Fair value of share minus subscription price
c. Subscription price minus fair value of share options
d. Fair value of share options minus subscription price

28. According to PFRS 2, when the intrinsic value is used,

a. the equity instruments granted are initially and subsequently measured at their intrinsic
value. Changes in intrinsic value are recognized in profit or loss.
b. the equity instruments granted are initially measured at their intrinsic value. Changes in
intrinsic value are not recognized.
c. the equity instruments granted are initially and subsequently measured at their intrinsic
value. Changes in intrinsic value are recognized in equity.
d. the entity cannot use intrinsic value in measuring equity instruments granted under share
option plans
29. According to PFRS 2, if an entity used the intrinsic value, after vesting date,
a. any change in intrinsic value is ignored.
b. the change in intrinsic value is recognized as an expense until the share options are fully
exercised or otherwise forfeited.
c. the change in intrinsic value is recognized directly in equity until the share options are fully
exercised or otherwise forfeited.
d. the entity cannot use intrinsic value in measuring equity instruments granted under share
option plans.

30. On February 1, 20x1, Entity A offered its employees share options subject to the offer being
ratified in the shareholders’ general meeting. The share option offer was approved in the
shareholders’ general meeting held on March 1, 20x1. Entity A issued the share options on April 1,
20x1. The fair value of the share options vary between these dates. For purposes of PFRS 2, the
share options should be valued at the fair value determined on
a. February 1, 20x1. c. April 1, 20x1.
b. March 1, 20x1. d. any of these

31. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other share
transactions occurred until March 31, 20x1, when Fogg acquired some of the issued shares for

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 ACC 109: Intermediate Accounting 4
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₱20 per share and retired them. Which of the following statements correctly states an effect of
this acquisition and retirement?
a. 20x1 profit is decreased.
b. 20x1 profit is increased.
c. Share premium is decreased.
d. Retained earnings is increased.

32. On September 20x1, West Corp. made a dividend distribution of one right for each of its 120,000
shares of outstanding common stock. Each right was exercisable for the purchase of 1/100 of a
share of West's ₱50 variable rate preference share at an exercise price of ₱80 per share. On
March 20, 20x3, none of the rights had been exercised, and West redeemed them by paying each
stockholder ₱0.10 per right. As a result of this redemption, West's stockholders' equity was
reduced by
a. 120 b. 2,400 c. 12,000 d. 36,000

33. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par value ordinary
shares from a shareholder. On that date, the stock’s market value was ₱35 per share. The stock
was originally issued for ₱25 per share. By what amount would this donation cause total
stockholders’ equity to decrease?
a. 70,000 b. 50,000 c. 20,000 d. 0
34. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par value ordinary
shares from a shareholder. On that date, the stock’s market value was ₱35 per share. The stock
was originally issued for ₱25 per share. By what amount would this donation cause total
stockholders’ equity to decrease?
a. 70,000
b. 50,000
c. 20,000
d. 0

35. Non-current assets declared as property dividends are

a. reclassified as “non-current assets held for distribution to owners” if the conditions under
PFRS 5 are met.
b. reclassified as current assets.
c. not reclassified but presented separately from the other assets.
d. not reclassified but disclosed only.

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 ACC 109: Intermediate Accounting 4
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36. Which of the following may cause a change in the total shareholders’ equity?
a. “small” share dividends d. “large” share dividends
b. share splits e. none of these
c. recapitalization

37. Effective April 27, 20x1, the stockholders of Bennett Corporation approved a two-for-one split of
the company's common stock, and an increase in authorized common shares from 100,000 shares
(par value ₱20 per share) to 200,000 shares (par value ₱10 per share). Bennett's stockholders'
equity accounts immediately before issuance of the stock split shares were as follows:

Common stock, par value ₱20; 100,000 shares authorized;

50,000 shares outstanding ₱1,000,000
Share premium (₱3 per share on issuance of ordinary shares) 150,000
Retained earnings 1,350,000

What should be the balances in Bennett's additional paid-in capital and retained earnings
accounts immediately after the stock split is effected?
Share premium Retained earnings
a. ₱ 0 ₱ 500,000
b. ₱ 150,000 ₱ 350,000
c. ₱ 150,000 ₱1,350,000
d. ₱ 1,150,000 ₱ 350,000

38. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following:
30,000, 5% cumulative preference shares, par value ₱10 per share, fully participating as to
dividends. No dividends were in arrears.
200,000 ordinary shares, par value ₱1 per share.

On December 15, 20x1, Arp declared dividends of ₱100,000. What was the amount of dividends
payable to Arp’s ordinary stockholders?
a. 10,000
b. 34,000
c. 40,000
d. 47,500

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 ACC 109: Intermediate Accounting 4
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39. Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2013 for P240,000. On December
15, 2016, Palmer declared a property dividend of all of its Dixon Corp. shares on the basis of one
share of Dixon for every 10 shares of Palmer common stock held by its stockholders. The property
dividend was distributed on January 15, 2017. On the declaration date, the aggregate market price
of the Dixon shares held by Palmer was P400,000. The entry to record the declaration of the
dividend would include a debit to Retained Earnings of
a. P0.
b. P160,000.
c. P240,000.
d. P400,000.

40. In January 2017, Castro Corporation, a newly formed company, issued 10,000 shares of its P10 par
common stock for P15 per share. On July 1, 2017, Castro Corporation reacquired 1,000 shares of
its outstanding stock for P12 per share. The acquisition of these treasury shares
a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.

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ADDITIONAL NOTES FOR TEACHERS

In this portion, you may include:

● Additional exercises that teachers may give to students during face-to-face classes or during
remote coaching sessions
● Additional reading materials or references that teachers may use
● Instructions for activities during face-to-face classes
● Answer Keys for quizzes and exams

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