Answer Key a.

Bookkeeping
b. Accountancy
Basic Accounting - Theories c. Auditing
1. Accounting is a service activity and the d. Taxation
function is to provide quantitative information, 5. The checking of prepared accounts and the
primarily financial in nature, about economic reporting on them
entities, that is intended to be useful in making
economic decision. This definition is given by a. Bookkeeping
b. Accountancy
a. Accounting Standards Council c. Auditing
b. AICPA Committee on Accounting Technology d. Taxation
c. American Accounting Association
d. Board of Accountancy 6. A mechanical task involving the collection of
basic financial data
*Accounting is a service activity… -ASC;
Accounting is the art of recording, classifying a. Bookkeeping
and summarizing in a significant manner and in b. Accountancy
terms of money, transaction and events which c. Auditing
are in part at least of a financial character and d. Taxation
interpreting the results thereof -AICPA;
7. It is the body authorized by law to promulgate
Accounting is the process of identifying,
rules and regulations affecting the practice of
measuring and communicating economic
accountancy profession in the Philippines.
information to permit informed judgment and
decision by users of the information - AAA a. Board of Accountancy
b. Philippine Institute of Certified Public
2. The overall objective of accounting is
Accountants
a. To provide the information that the managers c. Securities and Exchange Commission
of an entity need to control the operations. d. Financial Reporting Standards Council
b. To provide information that the creditors can
*PICPA is the accredited national professional
use in deciding whether to make additional
organization of CPA; SEC regulates
loans.
corporations; DTI regulates partnerships and
c. To measure the periodic income of the entity.
sole proprietors
d. To provide quantitative financial information
about an entity that is useful in making 8. It is the accounting standard setting body in
economic decision. the Philippines at the present time
3. RA 9298 is officially known as a. Accounting Standard Council
b. Auditing and Assurance Standards Council
a. The Revised Accountancy Act
c. Philippine Accounting Standards Board
b. The Revised Accountancy Law
d. Financial Reporting Standards Council
c. The Philippine Accountancy Act of 2004
d. The Accountancy Law of the Philippines, 9. The singularly unique function performed by
2007 Certified Public Accountants is the attest
function which means that CPAs are primarily
4. A profession whose members collect and
responsible for
summarize financial data, and present
information so users may take effective a. Preparing financial statements in conformity
decisions with GAAP
b. Certifying the accuracy of financial
statements 14. Which of the following basic accounting
c. Expressing an opinion as to the fairness of assumptions is threatened by severe inflation in
financial statements the economy?
d. Filing financial statements with the regulatory
a. Economic entity assumption
authority
b. Going concern assumption
10. The preparation and subsequent publication c. Monetary unit assumption
of highly summarized information d. Periodicity assumption
a. Financial Management *Economic entity = separate personality from
b. Financial Accounting owner. Monetary unit = quantifiability and
c. Management Accounting stability of peso.
d. Auditing
15. During the lifetime of an entity, accountants
11. Setting financial objectives, making plans, produce financial statements at arbitrary points
obtaining finance, and safeguarding the financial in time in accordance with which basic
resources of the entity accounting concept?
a. Financial Management a. Cost and benefit constraint
b. Financial Accounting b. Expense recognition principle
c. Management Accounting c. Materiality constraint
d. Auditing d. Periodicity assumption

12. Incorporates cost accounting data and adapts *Periodicity = arbitrary points. Calendar year =
them for management decisions ends on Dec. 31; Business year = not ends on
Dec. 31
a. Cost Accounting
b. Financial Accounting 16. The adjusting entry for depreciation has the
same effect as the adjusting entry for
c. Management Accounting
d. Taxation a. A prepaid expense
b. An accrued expense
13. Which of the following terms best describes c. An accrued revenue
financial statements whose basis of accounting d. An unearned revenue
recognizes transactions and other events when
they occur? 17. Which of the following statements is false
regarding adjusting entries?
a. Accrual basis of accounting
b. Cash basis of accounting a. Adjusting entries involve accruals or deferrals
c. Going concern basis of accounting b. Cash is neither debited nor credited as a result
d. Invoice basis of accounting of adjusting entries.
c. Each adjusting entry affects one revenue
*Accrual accounting means income is account and one expense account.
recognized when earned regardless of when d. Each adjusting entry affects one statement of
received and expense is recognized when financial position and one income statement
incurred regardless of when paid. Cash basis is account.
for tax purposes and small businesses. Going
concern is viewing operations as continuing 18. The failure to properly record an adjusting
indefinitely, Invoice basis is where businesses entry to accrue an expense results in
collect VAT on behalf of revenue on goods or a. Overstatement of expense and an
services they sell and expenses bought. understatement of asset.
b. Understatement of expense and an d. Assets – Liabilities – Preferred Equity =
overstatement of asset. Common Equity
c. Understatement of expense and an
*Choice B is proprietary theory, emphasis is on
overstatement of liability.
proper asset valuation/balance sheet. Choice A is
d. Understatement of expense and an
entity theory, emphasis is on proper income
understatement of liability.
determination/income statement. Choice C is not
*Debit Expense account and Credit Liability an accounting equation. Choice D is residual
account. theory.
19. The failure to properly record an adjusting 23. It is a memorandum of agreement made
entry to accrue a revenue results in between IASB and FASB (US) and signed in
Norwalk Connecticut, USA with the goal of
a. Overstatement of revenue and an achieving comparability in financial reporting
overstatement of asset. standards by eliminating or minimizing
b. Overstatement of revenue and an differences between IFRS and US GAAP.
overstatement of liability.
c. Understatement of revenue and an a. The Convergence Covenant
understatement of asset. b. The IASB-FASB Pact
d. Understatement of revenue and an c. The Norwalk Agreement
understatement of liability. d. The Reporting Standard Treaty
*Debit Asset account and Credit Revenue *Current events: Update, 5 current events in
account CPALE
20. A supporting document prepared by a seller 24. The fundamental qualitative characteristics
that is used as an evidence of a downward are
adjustment in the amount that is due from a
a. Relevance and faithful representation
customer is known as:
b. Relevance, faithful representation and
a. Receiving report materiality
b. Purchase order c. Relevance and reliability
c. Credit memorandum d. Faithful representation and materiality
d. Debit memorandum
*Relevance = influence a decision; Faithful
21. A supporting prepared by a buyer that is used representation = descriptions and figures match
as an evidence of a downward adjustment in the what really existed and happened.
amount that is due to the seller is known as:
25. The ingredients of faithful representation are
a. Receiving report
a. Completeness and neutrality
b. Purchase order
b. Completeness and free from error
c. Credit memorandum
c. Completeness, neutrality and free from error
d. Debit memorandum
d. Completeness, neutrality, free from error, and
22. Which of the following equations best conservatism
exemplifies the PROPRIETARY theory of
*Completeness = full disclosure; neutrality =
accounting?
free from bias; free from error = no
a. Assets = Liabilities + Capital errors/omissions
b. Assets – Liabilities = Capital
26. The enhancing qualitative characteristics of
c. Assets + Liabilities = Capital
financial information are
a. Comparability and understandability c. Immediate recognition
b. Verifiability and timeliness d. Objectivity
c. Comparability, understandability and
*Cause and effect = expense is recognize if the
verifiability
revenue is already recognized (doubtful
d. Comparability, understandability, verifiability,
accounts, warranty expense, sales commissions);
and timeliness
systematic and rational allocation = allocating
* VCUT. Verifiability = consensus; over period benefited; immediate recognition =
Comparability = comparisons (within – expensed outright (salaries, administrative
intracomparability; across entities – expenses. distribution costs, losses)
intercomparability); Understandability –
30. Which of the following is not part of the
comprehensible; Timeliness – information to be
inventory of the business?
relevant
a. Goods in transit to the customer. Term: F.O.B
27. What is the underlying concept governing
Destination
the generally accepted principles pertaining to
b. Goods in transit from the supplier. Term:
recording gain contingencies?
F.O.B Shipping Point
a. Consistency c. Goods that are ready for shipment to the
b. Conservatism customer
c. Substance over form d. Goods held for sale in behalf of Monte
d. Materiality Company, a consignor
*Consistency = uniform application; 31. Which of the following is not a characteristic
Conservatism/Prudence = in case of doubt, of the periodic inventory system?
record loss and don’t record gain; substance over
a. The trial balance shows the balance of the
form = economic substance shall prevail over
inventory at the beginning of the period.
legal form; materiality = relative of size and
b. Sales are recorded both at cost and at selling
nature.
price.
28. It is the amount of cash or cash equivalent c. A count of the inventory on hand is made
that could currently be obtained by selling the before financial statements are prepared.
asset in an orderly disposal. d. Ending inventory is adjusted at the end of the
period
a. Historical cost
b. Current cost 32. Which of the following is not a nominal
c. Realizable value account?
d. Present value
a. Purchases
*Historical cost = time of acquisition; Current b. Sales
cost = if same asset was acquired currently; c. Inventory
Realizable value = cash currently obtained if d. Bad debts
asset is sold; Present value = discounted value of
33. It is an account device for accumulating
future net cash inflows
increases and decreases relating to a particular
29. Depreciation, amortization, and allocation of accounting value such as an asset or a liability.
prepayments are examples of which of the
a. Account
following principles?
b. Journal
a. Cause and effect association c. Trial balance
b. Systematic and rational allocation d. Worksheet
34. The double-entry concept in accounting a. 10 days
means which of the following? b. 60 days
c. 2 days
a. The debit-credit convention must be used. d. 70 days
b. Only two accounts are affected by each
transaction recording. 38. Which of the following is not subject to
c. At least two accounts are affected by each reversal?
transaction recorded.
a. Accrued expenses
d. For every asset increased, a revenue or
b. Accrued revenues
liability must also be increased.
c. Prepaid expenses recorded as assets upon
*Single-entry only affects one account. Double- payments
entry concept = simple journal entry (one debit d. Deferred revenues recorded as revenue upon
and one credit) or compound journal entry (two receipts
or more debits and two or more credits)
*Prepaid expense recorded under asset method
35. FOB shipping point and freight prepaid is not subject to reversing entries but prepaid
means expense recorded under expense method may be
reversed.
a. The seller actually paid the freight charges but
is not responsible for the same. 39. Which of the following statements regarding
b. The buyer actually paid the freight charges reversing entries is incorrect?
but is not responsible for the same.
a. All accruals should be reversed.
c. The seller actually paid for the freight charges
b. Adjusting entries for depreciation and bad
and is responsible for the same.
debts are never reversed.
d. The buyer actually paid for the freight charges
c. Deferrals entered in statement of financial
and is responsible for the same.
position accounts make reversing entries
FOB destination or FOB shipping point = who unnecessary.
owns the goods and who is supposed to pay d. Reversing entries change amounts reported in
freight. (FOB destination = seller; FOB shipping the statement of financial position for the
point = buyer) Freight collect or freight prepaid previous period.
= freight terms/who actually paid (freight collect
40. It is defined as increase in economic
= paid by buyer; freight prepaid = paid by seller)
benefits during the accounting period in the
36. The excess of net sales over cost of goods form of inflows or enhancements of assets or
sold is called decreases in liabilities that result in increases in
equity, other than those relating to contributions
a. Gross Income from equity participants.
b. Operating Income
c. Net Income a. Gain
d. Merchandising Income b. Income
c. Profit
*Excess of gross income over operating d. Revenue
expenses is operating income. Excess of
operating income over other expenses is net *Income = (above); Revenue = arises in the
income. course of ordinary regular activities such as
sales, fees, interest, dividends, royalites, rent;
37. If the term is 2/10; n/60, the length of the Gain = don’t arise in the course of ordinary
credit period is: regular activities such as gain from disposals,
unrealized gain on trading securities
41. Which of the following is not a characteristic 45. It is an error that involves interchanging, or
of the periodic system? switching around, digits during the recording of
a number.
a. Merchandise inventory, beginning is a
nominal account a. Slide
b. Inventory records are always up-to-date b. Transposition
c. Purchases are recorded by debiting purchases c. Transplacement
at cost d. Arithmetic error
d. Cost of goods sold is computed at the end of
*Slide or transplacement error is error in placing
the period
decimal point in a number; mathematical error is
42. When the seller advances the transportation error in addition or subtraction.
cost and the term of sale are FOB Shipping
46. If the storekeeper making count of inventory
Point, the seller records the payment of the
at the end of the year failed to include P10,000
transportation cost by debiting
worth of goods, cost of sales will be:
a. Accounts Receivable
a. Over by P10,000
b. Sales
b. Under by P10,000
c. Transportation-in
c. Over by P5,000
d. Accounts Payable
d. Not Affected
43. The document used to indicate to the
* Beg, Inv + Purchases – End, Inv = COGS
customer the amount of a sale and due date of
payment is the 47. The accountant erroneously recorded a credit
sale as a cash sale. Which of the statements is
a. Sales order
wrong, assuming that the business uses a
b. Bill of lading
periodic inventory system?
c. Shipping document
d. Sales invoice a. The cash balance is overstated.
b. The total of the current assets is understated.
*Sales order = confirmation document; Bill of
c. Net working capital is not affected
lading = type of shipping document that contains
d. The net income is not affected
shipment list of goods; shipping document =
contains shipping list, shipping date, methods, 48. It is a discount given to the buyer for paying
specification et al. within a specified period of time which is
usually earlier than the credit period.
44. A business pays bi-weekly salaries of
P20,000 every other Friday for a ten-day period a. Sales discount
ending on that day. The adjusting entry b. Trade discount
necessary at the end of the fiscal period ending c. Purchase discount
on the second Wednesday of the pay period d. Discount Period
includes a:
49. In determining the cost of goods sold,
a. Debit to Salary Expenses of P8,000
b. Debit to Salary Payable of P8,000 a. Freight-in is deducted from net purchases
c. Credit to Salary Expense of P16,000 b. Freight-out is added to net purchases
d. Credit to Salary Payable of P16,000 c. Purchase returns and allowances is added to
purchases
*Debit Salary Expense 16,000 and credit Salary d. Freight-in is added to purchases
Payable 16,000 (P20,000/10days=P2,000 per
day; 8days times P2,000= P16,000)
*Purchases + Freight-in – Purchase discount – *Nominal partner/ partner by estoppel; secret
Purchase allowances = Net Purchases + Beg, Inv partner = kept from public; ostensible partner =
– End, Inv = COGS active and known to the public whose name is
included in firm name; dormant partner =
50. The present worth of an asset or the amount inactive and unknown to the public; silent
that would be received if the asset were sold to partner = no voice in mgt; managing partner =
an outsider on the open market. manages partnership; liquidating partner = in
a. Realizable value charge of winding up)
b. Carrying value 54. A and B formed a partnership, each
c. Fair market value contributing non-cash assets into the partnership.
d. Net proceeds Partner A contributed inventory with a current
market value in excess of its carrying amount.
Partner B contributed fixed asset with a carrying
Partnership & Corporation - Theories amount in excess of its current market value. At
what amount should the partnership record each
51. Which of the following is not a characteristic
of the assets contributed?
of most partnership?
Inventory Fixed Asset
a. Limited liability
b. Limited life a. Carrying amount Market value
c. Mutual agency b. Market value Carrying amount
d. Ease of formation c. Carrying amount Carrying amount
* In a partnership, each partner is personally and d. Market value Market value
individually liable for all partnership liabilities. * Non-cash assets contributed into the
In other words, the liability of the partners in a partnership should be recorded at its current fair
partnership is unlimited. value. Hierarchy = agreed value – fair
value/market value/appraised value/sound value
52. It is a contract whereby two or more persons - cost
bind themselves to contribute money, property
or industry to a common fund with the intention 55. It is a kind of partnership that operates but
of dividing the profits among themselves. fails to fully comply with the legal requirements
for its existence.
a. Voluntary association
b. Corporation a. Partnership at Will
c. Sole proprietorship b. Partnership for a Fixed Term
d. Partnership c. Particular Partnership
d. Universal Partnership of all Present Property
53. It is a kind of partner who is actually not a e. Universal Partnership of Profits
partner but who may become liable as such to f. De Facto Partnership
third persons. g. De Jure Partnership
a. Secret partner h. Partnership by estoppel
b. Ostensible partner * Partnership at will = can be terminated
c. Nominal partner/ Partner by estoppel anytime; partnership for a fixed term =
d. Dormant partner completion at specified time; particular
e. Silent partner partnership = specific undertaking; universal
f. Managing partner partnership of all present property = property
g. Liquidating partner belonging to each partner; universal partnership
of profits = all partners may acquire by their
work or industry; de jure partnership = fully 60. A partnership agreement calls for allocation
complying; partnership by estoppel = not in of profits and losses by salary allocations, a
reality a partnership. bonus allocation, interest on capital, with any
remainder to be allocated by preset ratios. If a
56. A 1:3:2 ratio is the same as partnership has a loss to allocate, generally
a. 1/6 ½ 1/3 which of the following procedures would be
b. 10% 30% 20% applied?
c. 1/10 3/10 2/10 a. Any loss would be allocated equally to all
d. 20% 50% 30% partners.
57. The following are the characteristics of b. Any salary allocation criteria would not be
admitting a new partner by purchase of interest used.
from one or old partners, except: c. The loss would be allocated using the profit
and loss ratios, only.
a. The cash paid by the buyer is not recorded in d. The bonus criteria would not be used.
the books of the partnership.
b. The gain or loss arising from the sale of 61. Which of the following statements is true
interest is not recorded in the partnership books. concerning the treatment of salaries in
c. There is no increases in total assets and no partnership accounting?
increase in total partners’ equity. a. The salary of a partner is treated in the same
d. It is a transaction between the partnership and manner as salaries of corporate employees.
the incoming partner. b. Partner salaries are equal to the annual partner
58. If the partnership agreement does not specify draw.
how profit is to be allocated, profits or losses c. Partner salaries may be used to allocate profits
should be allocated and losses; they are not considered expenses of
the partnership.
a. Equally d. Partner salaries are directly closed to the
b. In accordance with their capital contributions capital account.
c. In proportion to the average of capital
invested during the period 62. In a partnership, interest on capital
d. Equitably so that partners are well investment is accounted for as a(n)
compensated for their time and effort. a. return on investment
* Hierarchy = arbitrary ratio b. expense
(fraction/percentage/ratio) – given equally – not c. reduction of capital
given (US GAAP – equally ; PH GAAP – upon d. allocation of net income
formation = capital contribution ; subsequent to 63. Under the Revised Uniform Partnership Act
formation = beg cap/end cap/ave.. cap and in the absence of any partnership agreement
<simple/weighted> ) to the contrary, which of the following
59. Which of the following is true? statements is correct regarding sharing of losses?

a. Profit ratio may be different from loss ratio. a. The partners will share equally in any
b. If profit ratio is the only given, loss ratio is partnership losses.
based on profit ratio. b. The partners will share in losses on a pro rata
c. If loss ratio is the only given, profit ratio is basis according to the capital contributions and
based on capital contribution. loans made to the partnership.
d. All of the above. c. The partners will share in losses according to
the allocation of profits specified in the
partnership agreement. withdrawal, admission, or bankruptcy of an
d. The partners will share in losses on a pro rate individual partner (owner).
basis according to the capital contributions.
67. In the Adel-Brick Partnership, Adel and
64. Partnership drawings are Brick had a capital ratio of 3:1 and a profit and
loss ratio of 2:1, respectively. The bonus method
a. Equal to partners’ salaries was used to record Colter’s admittance as a
b. Usually maintained in a separate draw partner. What ratio would be used to allocate, to
account with any excess draws being debited Adel and Brick, the excess of Colter’s
directly to the capital account contribution over the amount credited to Colter’s
c. Not discussed in the specific contract capital account?
provisions of the partnership
d. Always maintained in a separate account from a. Adel and Brick’s new relative capital ratio.
the partner’s capital account. b. Adel and Brick’s new relative profit and loss
ratio.
65. Which of the following is not considered a c. Adel and Brick’s old profit and loss ratio.
legitimate expense of a partnership? d. Adel and Brick’s old capital ratio.
a. Interest paid to partners based on the amount 68. When Mil retired from the partnership of
of invested capital. Mill, Yale, and Lear, the final settlement of
b. Depreciation on assets contributed to the Mill’s interest exceeded Mill’s capital balance.
partnership by partners. Under the bonus method, the excess
c. Salaries for management hired to run the
business. a. Was recorded as goodwill
d. Supplies used in the partners' offices. b. Was recorded as an expense
c. Had no effect on the capital balances of Yale
* Again, the division of partnership income and Lear.
should be based on an analysis of the correlation d. Reduced the capital balances of Yale and Lear.
between capital and labor committed to the firm
by individual partners and the income that 69. The dissolution of partnership occurs
subsequently is generated and therefore includes
a. Only when a partner leaves the partnership
interest paid to partners based on the amount of
b. At the end of each year, when income is
their invested capital.
allocated to the partners.
66. Which of the following results in dissolution c. Only when the partnership sells its assets and
of a partnership? permanently closes its books.
d. Only when a new partner is admitted to the
a. The contribution of additional assets to the partnership.
partnership by an existing partner. e. When there is any change in the individuals
b. The receipt of a draw by an existing partner. who make up the partnership.
c. The winding up of the partnership and the
distribution of remaining assets to the partners. 70. Which partner is considered the most
d. The withdrawal of a partner from a vulnerable as a result of a computation of
partnership vulnerability rankings?
* Dissolution is the change in the relation od the a. The partner who has the lowest loss
partners caused by any partner ceasing to be absorption potential.
associated in the carrying on as distinguished b. The partner who has the highest loss
from the winding up of the business. Generally, absorption potential.
a partnership is dissolved upon the death, c. The partner with the highest capital balance
d. The partner with the lowest capital balance
71. In a partnership liquidation, the final cash 75. If all partners are included in the first
distribution to the partners should be made in installment of an installment liquidation, then in
accordance with the the future installments
a. Partners’ profit and loss sharing ratio a. Cash will be distributed according to the
b. Balances of the partners’ capital accounts residual profit and loss sharing ratios
c. Ratio of capital contributions made by the b. Cash should not be distributed until all non-
partners. cash assets are converted into cash
d. Ratio of capital contributions less withdrawals c. Vulnerability rankings for each partner should
made by the partners. be prepared.
d. A cash distribution plan must be prepared so
72. A schedule prepared each time cash is to be that partners will know when they will be
distributed is called a(n) included in cash distributions.
a. Advance cash distribution schedule 76. An arbitrary amount assigned by the board
b. Safe payment schedule of directors to each share of a given class of no-
c. Loss absorption potential schedule par stock is
d. Marshaling of assets schedule
a. Par Value
73. In an advance plan for installment b. Stated Value
distributions of cash to partners of a liquidating c. Redemption Value
partnership, each partner’s loss absorption d. Liquidation Value
potential is computed by
77. An individual shareholder is entitled to
a. Dividing each partner’s capital account receive any dividends declared on shares owned,
balance by the percentage of that partner’s provided the share is held on the
capital account balance to total partner’s capital.
b. Multiplying each partner’s capital account a. Date of Declaration
balance by the percentage of that partner’s b. Date of Record
capital account balance to total partner’s capital. c. Date of Payment
c. Dividing the total of each partner’s capital d. Last day of fiscal year
account less receivables from the partner plus
78. Treasury stocks may result in
payables to the partner by the partner’s profit
and loss percentage. a. Increase in balance of retained earnings
d. Some other method. b. Decrease in balance of retained earnings
c. Decrease in balance of retained earnings
74. The following is the priority sequence in
authorized to be issued
which liquidation proceeds will be distributed
d. Decrease in the amount of shares
for a partnership:
79. Reissuing treasury stock at a price above
a. Partnership drawings, partnership liabilities,
cost results in
partnership loans, partnership capital balances.
b. Partnership liabilities, partnership loans, a. A gain to be reported as a separate item in the
partnership capital balances. statement of recognized income and expenses
c. Partnership liabilities, partnership loans, b. A restriction of retained earnings
partnership drawings, partnership capital c. An increase in Contributed capital
balances. d. A prior period adjustment to be reported in the
d. Partnership liabilities, partnership capital statement of retained earnings
balances, partnership loans.
80. If share capital is issued for outstanding
liability, the share capital is recorded at
a. Fair value of share capital c. Debited to Share capital
b. Fair Value of liability set off d. Debited to Treasury Shares
c. Par value of shares
86. Subscription receivable callable within one
d. Book Value of liability set off
year should be presented as
81. When preference shareholders have the right
a. Current Asset
to receive a specified dividend and to receive
b. Non-Current Assets
more after a matching dividend percentage is
c. Part of Paid in Capital
given to ordinary shareholders, the preference
d. Deduction from paid in capital
shares are said to be
87. Unissued Share Capital is credited to record
a. Callable
b. Cumulative a. Authorization
c. Convertible b. Issuance
d. Participating c. Collection
d. Subscription
82. The entry to record declaration of share
dividends includes 88. Discount on share capital
a. Debit to Retained Earnings for the market a. May be recorded as either an asset or an
value of the shares to be distributed expense
b. Credit to Shares Distributable to the fair value b. Shall be closed to income summary account
of the shares to be distributed c. May be offset against share premium on the
c. A credit to Share Premium for the difference same class.
between fair market value and par value of the d. None of the above may be done
shares to be distributed
d. Debit to retained earnings for the par value of 89. The par value of an ordinary share represents
the shares to be distributed a. The liquidation value of the share
83. When a par value common stock is b. The book value of the share
exchanged for an asset such as a building, the c. The legal nominal value assigned to the share
common stock should be credited at the d. The amount received by the entity when the
share was originally issued
a. Par Value
b. Fair Value of the asset received 90. If the stock dividend is less than 20%, what
c. Book value of the asset amount of the retained earnings should be
d. Original cost of the asset capitalized?

84. The credit balance of income and expense a. Par value of the shares
summary of a corporation is closed to b. Fair value of the shares on the date of
declaration
a. Owner’s Capital c. Fair value of the shares on the date of record
b. Share Capital d. Fair value of the shares on the date of
c. Paid in Capital issuance
d. Retained Earnings
91. An entity issued what is called a “20% stock
85. A CPA received shares of stock for services dividend”. At what amount per share should
rendered during incorporation. This should be retained earnings be reduced for the transaction?
a. Debited to accounting fees a. Zero
b. Debited to Organization cost b. Par value
c. Fair value at the declaration b. Retained earnings and then share premium
d. Fair value at the date of issuance from treasury shares
c. Share premium from treasury shares and then
92. Which of the following is false? retained earnings
a. The subscription must be at least 25% of the d. Share premium from original issuance, share
authorized capital stock. premium from treasury shares and then retained
b. The amount paid-in must be at least 25% of earnings.
the subscription. 97. At the date of financial statements, shares
c. In no cases the paid-in must be lower than issued would exceed shares outstanding as a
P5,000 result of
d. If the shares are without par value, more than
25% of the authorized shares must be subscribed a. Declaration of share split
b. Declaration of a stock dividend
93. Which of the following would not affect c. Purchase of treasury shares
retained earnings? d. Payment in full of subscribed shares
a. Conversion of preference shares into ordinary 98. Total shareholders’ equity represents
shares
b. Share split a. A claim against specific assets contributed by
c. Reissue of treasury shares the owners
d. Stock dividend b. The maximum amount that can be borrowed
by the entity
94. When shares with par value are sold, the c. A claim against a portion of the total assets of
proceeds shall be credited to an entity
a. Share capital account d. Only the amount of retained earnings
b. Share premium 99. The preemptive right of an ordinary
c. Retained earnings shareholder is the right to
d. Share capital account to the extent of the par
value of the shares issued with any excess being a. Share proportionately in corporate assets upon
reflected in share premium liquidation
b. Share proportionately in any new issue of
95. When shares without par value are sold, the shares of the same class
excess proceeds over stated value shall be c. Receive cash dividends before distribution to
credited to preference shareholders
a. Income d. Exclude preference shareholders from voting
b. Retained earnings rights
c. Share premium 100. When the total shareholders’ equity is
d. Share capital smaller than the amount of contributed capital,
96. Loss from sale of treasury shares hall be the deficiency is called
charged to a. A net loss b. A dividend
a. Loss on sale of treasury shares to be reported c. A liability d. A deficit
as other expense