Stockholders Equity

J. Gonzales

1.

Philip Corporation was organized in January 2012 with authorized capital of P10 par value
common stock. On February 1, 2015, shares were issued at par for cash. On March 1,
2015, the corporation's attorney accepted 7,000 shares of common stock in settlement for
legal services with a fair value of P90,000. Additional paid-in capital would increase on
February 1, 2015 March 1, 2015
a.
Yes
No
b.
Yes
Yes
c.
No
No
d.
No
Yes

2.

On July 1, 2015, Diamond Co. issued 2,500 shares of its P10 par common stock and
5,000 shares of its P10 par convertible preferred stock for a lump sum of P140,000. At this
date Diamond's common stock was selling for P24 per share and the convertible preferred
stock for P18 per share. The amount of the proceeds allocated to Diamond's preferred
stock should be
a. P70,000.
b. P84,000.
c. P90,000.
d. P77,000.

3.

Jumel Co. was organized on January 2, 2015, with 500,000 authorized shares of P10 par
value common stock. During 2015, Horton had the following capital transactions:
January 5issued 375,000 shares at P14 per share.
July 27purchased 25,000 shares at P11 per share.
November 25sold 20,000 shares of treasury stock at P13 per share.
Jumel used the cost method to record the purchase of the treasury shares. What would
be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2015?
a. P0.
b. P20,000.
c. P40,000.
d. P60,000.

4.

In 2015, Gerard Corp. acquired 9,000 shares of its own P1 par value common stock at
P18 per share. In 2016, Gerard issued 6,000 of these shares at P25 per share. Gerard
uses the cost method to account for its treasury stock transactions. What accounts and
what amounts should Gerard credit in 2016 to record the issuance of the 6,000 shares?

a.
b.
c.
d.
5.

Treasury
Stock
P108,000
P108,000

Additional
Paid-in Capital
P42,000
P144,000
P102,000

Retained
Earnings
P105,000

P42,000

Common
Stock

P6,000
P6,000

At its date of incorporation, Lee, Inc. issued 100,000 shares of its P10 par common stock
at P11 per share. During the current year, Lee acquired 20,000 shares of its common
stock at a price of P16 per share and accounted for them by the cost method.
Subsequently, these shares were reissued at a price of P12 per share. There have been
no other issuances or acquisitions of its own common stock. What effect does the
reissuance of the stock have on the following accounts?

Stockholders Equity

a.
b.
c.
d.

Retained Earnings
Decrease
No effect
Decrease
No effect

J. Gonzales
Additional Paid-in Capital
Decrease
Decrease
No effect
No effect

6.

KC Corp. owned 20,000 shares of Editha Corp. purchased in 2012 for P300,000. On
December 15, 2015, KC declared a property dividend of all of its Editha Corp. shares on
the basis of one share of Editha for every 10 shares of KC common stock held by its
stockholders. The property dividend was distributed on January 15, 2016. On the
declaration date, the aggregate market price of the Editha shares held by KC was
P500,000. The entry to record the declaration of the dividend would include a debit to
Retained Earnings of
a. P0.
b. P200,000.
c. P300,000.
d. P500,000.

7.

John Corporation declared a dividend, a portion of which was liquidating. How would this
distribution affect each of the following?

a.
b.
c.
d.

Additional
Paid-in Capital
Decrease
Decrease
No effect
No effect

Retained Earnings
No effect
Decrease
Decrease
No effect

8.

On May 1, 2015, Jean Corp. declared and issued a 10% common stock dividend. Prior to
this dividend, Jean had 100,000 shares of P1 par value common stock issued and
outstanding. The fair value of Jean 's common stock was P20 per share on May 1, 2015.
As a result of this stock dividend, Jean's total stockholders' equity
a. increased by P200,000.
b. decreased by P200,000.
c. decreased by P10,000.
d. did not change.

9.

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer
affect each of the following when the fair value of the shares exceeds the par value of the
stock?
Additional
Common Stock
Paid-in Capital
a.
No effect
No effect
b.
No effect
Increase
c.
Increase
No effect
d.
Increase
Increase

Stockholders Equity
10.

J. Gonzales

On December 31, 2015, the stockholders' equity section of Revin, Inc., was as follows:
Common stock, par value P10; authorized 30,000 shares;
issued and outstanding 9,000 shares
Additional paid-in capital
Retained earnings
Total stockholders' equity

P 90,000
116,000
154,000
P360,000

On March 31, 2016, Revin declared a 10% stock dividend, and accordingly 900 additional
shares were issued, when the fair value of the stock was P18 per share. For the three
months ended March 31, 2016, Revin sustained a net loss of P32,000. The balance of
Revins retained earnings as of March 31, 2016, should be
a. P105,800.
b. P113,000.
c. P114,800.
d. P122,000.
11.

At December 31, 2015 and 2016, Samuel Corp. had outstanding 3,000 shares of P100
par value 8% cumulative preferred stock and 15,000 shares of P10 par value common
stock. At December 31, 2015, dividends in arrears on the preferred stock were P12,000.
Cash dividends declared in 2016 totaled P45,000. What amounts were payable on each
class of stock?
a.
b.
c.
d.

Preferred Stock
P24,000
P33,000
P36,000
P45,000

Common Stock
P21,000
P12,000
P9,000
P0

Alyssa, Inc. has outstanding 500,000 shares of P2 par common stock and 100,000 shares of nopar 8% preferred stock with a stated value of P5. The preferred stock is cumulative and
nonparticipating. Dividends have been paid in every year except the past two years and the
current year.
12.

Assuming that P250,000 will be distributed as a dividend in the current year, how much
will the common stockholders receive?
a. Zero.
b. P130,000.
c. P170,000.
d. P210,000.

13.

Assuming that P105,000 will be distributed as a dividend in the current year, how much
will the preferred stockholders receive?
a. P35,000.
b. P40,000.
c. P80,000.
d. P105,000.

14.

Assuming that P305,000 will be distributed, and the preferred stock is also participating,
how much will the common stockholders receive?
a. P185,000.
b. P150,000.

Stockholders Equity

J. Gonzales

c. P155,000.
d. P80,000.
15.

Jude, Inc. has 100,000 shares of P10 par value common stock and 50,000 shares of P10
par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the
preferred stock are one year in arrears. Assuming that Jude wishes to distribute P270,000
as dividends, the common stockholders will receive
a. P60,000.
b. P110,000.
c. P160,000.
d. P210,000.

16.

Patricia Co. has outstanding 60,000 shares of 8% preferred stock with a P10 par value
and 150,000 shares of P3 par value common stock. Dividends have been paid every year
except last year and the current year. If the preferred stock is cumulative and
nonparticipating and P300,000 is distributed, the common stockholders will receive
a. P0.
b. P204,000.
c. P252,000.
d. P300,000.

17.

At the beginning of 2015, Charie Company had retained earnings of P180,000. During
the year Charie reported net income of P75,000, sold treasury stock at a gain of
P27,000, declared a cash dividend of P45,000, and declared and issued a small stock
dividend of 1,500 shares (P10 par value) when the fair value of the stock was P30 per
share. The amount of retained earnings available for dividends at the end of 2015 was:
a. P214,500.
b. P192,000.
c. P187,500.
d. P165,000.

18.

Kim Company has 560,000 shares of P10 par value common stock outstanding. During
the year Kim declared a 10% stock dividend when the market price of the stock was P48
per share. Two months later Kim declared a P.60 per share cash dividend. As a result of
the dividends declared during the year, retained earnings decreased by:
a. P352,000.
b. P369,600.
c. P2,688,000.
d. P3,057,600.

19.

Patricia, Inc. had net income for 2015 of P3,180,000 and earnings per share on common
stock of P5. Included in the net income was P450,000 of bond interest expense related to
its long-term debt. The income tax rate for 2015 was 30%. Dividends on preferred stock
were P600,000. The payout ratio on common stock was 25%. What were the dividends
on common stock in 2015?
a. P645,000.
b. P795,000.
c. P723,750.
d. P967,500.

Stockholders Equity
20.

J. Gonzales

The stockholders' equity section of Camille Corporation as of December 31, 2015, was as
follows:
Common stock, par value P2; authorized 20,000 shares;
issued and outstanding 10,000 shares
P 20,000
Paid-in capital in excess of par
30,000
Retained earnings
95,000
P145,000
On March 1, 2016, the board of directors declared a 15% stock dividend, and accordingly
1,500 additional shares were issued. On March 1, 2014, the fair value of the stock was P6
per share. For the two months ended February 28, 2016, Camille sustained a net loss of
P10,000.
What amount should Camille report as retained earnings as of March 1, 2016?
a. P76,000.
b. P82,000.
c. P86,000.
d. P92,000.

21.

The stockholders' equity of Glazel Company at July 31, 2015 is presented below:
Common stock, par value P20, authorized 400,000 shares;
issued and outstanding 160,000 shares
Paid-in capital in excess of par
Retained earnings

P3,200,000
160,000
650,000
P4,010,000

On August 1, 2015, the board of directors of Glazel declared a 10% stock dividend on
common stock, to be distributed on September 15th. The market price of Glazel's common
stock was P35 on August 1, 2015, and P38 on September 15, 2015. What is the amount
of the debit to retained earnings as a result of the declaration and distribution of this stock
dividend?
a. P320,000.
b. P560,000.
c. P608,000.
d. P400,000.
22.

On January 1, 2015, Rei Lene, Inc., declared a 15% stock dividend on its common stock
when the fair value of the common stock was P20 per share. Stockholders' equity before
the stock dividend was declared consisted of:
Common stock, P10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares
Additional paid-in capital on common stock
Retained earnings
Total stockholders' equity

P1,200,000
150,000
700,000
P2,050,000

What was the effect on Rei Lenes retained earnings as a result of the above transaction?
a. P180,000 decrease
b. P360,000 decrease
c. P600,000 decrease
d. P300,000 decrease

Stockholders Equity
23.

J. Gonzales

Janellah Corporation owned 300,000 shares of Veronica Corporation stock. On December

31, 2015, when Janellah's account "Equity Investment (Veronica Corporation") had a
carrying value of P5 per share, Janellah distributed these shares to its stockholders as a
dividend. Janellah originally paid P8 for each share. Veronica has 1,000,000 shares
issued and outstanding, which are traded on a national stock exchange. The quoted
market price for a Veronica share was P7 on the declaration date and P9 on the
distribution date.
What would be the reduction in Janellah's stockholders' equity as a result of the above
transactions?
a. P1,200,000.
b. P1,500,000.
c. P2,400,000.
d. P2,700,000.

24.

Marias Corporation has an investment in 10,000 shares of Denise Company common

stock with a cost of P436,000. These shares are used in a property dividend to
stockholders of Marias. The property dividend is declared on May 25 and scheduled to
be distributed on July 31 to stockholders of record on June 15. The fair value per share of
Denise stock is P63 on May 25, P66 on June 15, and P68 on July 31. The net effect of
this property dividend on retained earnings is a reduction of
a. P680,000.
b. P660,000.
c. P630,000.
d. P436,000.

25.

Donielle Corporation owned 30,000 shares of Baby Corporation. These shares were
purchased in 2011 for P270,000. On November 15, 2015, Donielle declared a property
dividend of one share of Baby for every ten shares of Donielle held by a stockholder. On
that date, when the market price of Baby was P21 per share, there were 270,000 shares
of Donielle outstanding. What gain and net reduction in retained earnings would result
from this property dividend?
Gain
Net Reduction in
Retained Earnings
a. P0
P243,000
b. P0
P567,000
c. P324,000
P81,000
d. P324,000
P243,000

26.

Marex Company issues 4,000 shares of its P5 par value common stock having a fair value
of P25 per share and 6,000 shares of its P15 par value preferred stock having a fair value
of P20 per share for a lump sum of P204,000. What amount of the proceeds should be
allocated to the preferred stock?
a. P182,750
b. P127,500
c. P111,273
d. P95,625

27.

Zhaira Corporation has 50,000 shares of P10 par common stock authorized. The following
transactions took place during 2015, the first year of the corporations existence:

Stockholders Equity

J. Gonzales

Sold 10,000 shares of common stock for P18 per share.

Issued 10,000 shares of common stock in exchange for a patent valued at P200,000.
At the end of the Zhairas first year, total paid-in capital amounted to
a. P80,000.
b. P180,000.
c. P200,000.
d. P380,000.
28.

Vincent Corporation started business in 2010 by issuing 200,000 shares of P20 par
common stock for P36 each. In 2015, 30,000 of these shares were purchased for P52 per
share by Vincent Corporation and held as treasury stock. On June 15, 2016, these 30,000
shares were exchanged for a piece of property that had an assessed value of P810,000.
Vincents stock is actively traded and had a market price of P60 on June 15, 2016. The
cost method is used to account for treasury stock. The amount of paid-in capital from
treasury stock transactions resulting from the above events would be
a. P1,200,000.
b. P720,000.
c. P585,000.
d. P240,000.

29.

On September 1, 2015, Joseph Company reacquired 16,000 shares of its P10 par value
common stock for P15 per share. Joseph uses the cost method to account for treasury
stock. The journal entry to record the reacquisition of the stock should debit
a. Treasury Stock for P160,000.
b. Common Stock for P160,000.
c. Common Stock for P160,000 and Paid-in Capital in Excess of Par for P60,000.
d. Treasury Stock for P240,000.

30.

On December 1, 2015, Christine Corporation exchanged 30,000 shares of its P10 par
value common stock held in treasury for a used machine. The treasury shares were
acquired by Christine at a cost of P40 per share, and are accounted for under the cost
method. On the date of the exchange, the common stock had a fair value of P55 per share
(the shares were originally issued at P30 per share). As a result of this exchange,
Christine's total stockholders' equity will increase by
a. P300,000.
b. P1,200,000.
c. P1,650,000.
d. P1,350,000.

31.

Kayselle Inc., has 3,000 shares of 6%, P50 par value, cumulative preferred stock and
100,000 shares of P1 par value common stock outstanding at December 31, 2015, and
December 31, 2014. The board of directors declared and paid a P7,500 dividend in 2014.
In 2015, P36,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2015?
a. P25,500
b. P18,000
c. P 10,500
d. P 9,000