TOA QUIZZER 1 8.

An ordinary share

Multiple Choice a. Is an equity intsrument that is subordinate to all other classes of

Identify the choice that best completes the statement or answers the question. equity instrument.
b. Is a financial instrument or other contract that may entitle its
____ 1. For an entity that has only ordinary shares outstanding, total holder to ordinary shares.
shareholders’ equity divided by the number of shares outstandinh c. Is a financial instrument that gives the holder the right to
represents the purchase ordinary shares.
d. Is any contract that gives rise both a financial asset of one entity
a. Return on equity c. Book value per share and a financial liability or equity instrument of another entity.
b. Stated value per share d. Price-earnings ratio

9. It is a financial instrument or other contract that may entitle its holder

____ 2. The effect of recording a 100% stock dividend would be to to ordinary shares.

a. Decrease the current ratio, decrease working capital and decrease a. Ordinary share c. Equity instrument
book value per share. b. Preference share d. Potential ordinary share
b. Leave inventory turnover unaffected, increase earnings per share
and increase book value per share.
c. Leave working capital unaffected, decrease earnings per share 10. It is a financial instrument that gives the holder the right to purchase
and decrease book value per share. ordinary shares.
d. Leave working capital unaffected, decrease earnings per share
and decrease the debt to equity ratio. a. Warrant or option
b. Debt or equity instrument convertible into ordinary share
c. Employee plan that allows employees to receive ordinary shares
____ 3. Which of the following shareholder rights is most commonly as part of their remuneration
enhanced in an issue of preference shares? d. Contractual arrangement requiring issuance of ordinary shares
upon the satisfaction of certain conditions
a. The right to vote for the board of directors.
b. The right to maintain one’s proportional interest in the
corporation. 11. Earnings per share shall be computed on the basis of
c. The right to receive a full cash dividend before dividends are paid
to other classes of share capital. a. Ordinary shares outstanding at the end of the year
d. The right to vote on major corporate issues. b. Ordinary shares outstanding at the beginning of the year
c. Ordinary shares outstanding at the middle of the year
d. Average ordinary shares outstanding during the year
____ 4. Which of the following features of preference share would most
likely be opposed by ordinary shareholders?
12. Potential ordinary shares do not include
a. Par or stated value c. Redeemable
b. Callable d. Participating a. Financial liabilities or equity instruments, including preference
shares, that are not convertible into ordinary shares
b. Share warrants
____ 5. An entity has not declared or paid dividends on its cumulative c. Share options or employee plans that allow employees to receive
preference shares in the last three years. These dividends shall be ordinary shares as part of their remuneration
reported d. Shares which would be issued upon the satisfaction of certain
conditions resulting from contractual arrangements, such as
a. In a note to the financial c. As a current liability purchase of a business
statements
b. As a reduction in shareholders’ d. As a noncurrent liability
equity 13. Options and warrants are dilutive if

a. The exercise price is lower than the average market price.

____ 6. The standard requires disclosure on the face value of income b. The exercise price is higher than the average market price.
statement of c. The exercise price is equal to the average market price.
d. The option shares represent 20% of the ordinary shares actually
a. Basic earnings per share only outstanding.
b. Diluted earnings per share only
c. Neither basic nor diluted earnings per share
d. Both basic and diluted earnings per share 14. Under the treasury share method, the number of incremental ordinary
shares is equal to

____ 7. EPS disclosures are a. Option shares

b. Option shares minus assumed treasury shares acquired
a. Required for all public and nonpublic entities c. Assumed treasury shares acquired
b. Required for public entities and encouraged for nonpublic entities d. Option shares actually issued during the year
c. Encouraged for public entities and required for nonpublic entities
d. Encouraged for all entities
15. For employee share options, the exercise price shall include
 a. Fair value of the share options
b. Intinsic value of the share options
c. Carrying amount of the share options 23. If the written put options are “in the money” (choose the incorrect
d. Par value of the share options one)

a. It is assumed that at the beginning of the period sufficient

____ 16. In computing basic earnings per share, the full amount of the required ordinary shares will be issued at the average market price to raise
preference dividends on cumulative preference share for the period the proceeds to satisfy the contract.
shall be b. It is assumed that the proceeds from the issue are used to buy
back the ordinary shares covered by the written put options.
a. Ignored c. The resulting incremental ordinary shares shall be included in
b. Deducted from the net income only when declared computing diluted earnings per share.
c. Deducted from the net income whether declared or not d. The resulting incremental ordinary shares shall be included in
d. Added to net income whether declared or not computing basic earnings per share.

____ 17. In computing basic loss per share, the required annual preference 24. Which statement is incorrect concerning presentation of earnings per
dividend on cumulative preference share shall be share?

a. Ignored I. An entity shall present on the face of the income statement basic
b. Deducted from the net loss whether declared or not and diluted earnings per share for income or loss from
c. Added to the net loss whether declared or not continuing operations.
d. Added to the net loss only when declared
II. An entity that reports a discontinued operation is not required to
disclose the basic and diluted earnings per share for the
____ 18. It is reduction in earnings per share or an increase in loss per share discontinued operation either on the face of the income
resulting from the assumption that convertible instruments are statement or in the notes.
converted, that options or warrants are exercised, or that ordinary
shares are issued upon the satisfaction of specified conditions. a. I only c. Both I and II
b. II only d. Neither I nor II
a. Dilution c. Either dilution or antidilution
b. Antidilution d. Neither dilution or
antidilution 25. An entity has an ordinary “A” class, nonvoting share, which is
entitled to a fixed dividend of 6% per annum. The “A” class ordinary
share shall
____ 19. In computing diluted EPS, interest expense on convertible bond
payable shall be a. Be included in the “per share” calculation after adjustment for the
fixed dividend.
a. Added back to net income at c. Deducted from net income net b. Be included in the “per share” calculation for EPS without
gross of tax adjustment for the fixed dividend.
b. Added back to net income d. Ignored c. Not be included in the “per share” calculation for EPS.
net of tax d. Be included in the calculation of diluted EPS.

____ 20. In computing diluted EPS, dividends on convertible cumulative 26. Earnings per share shall be calculated before accounting for which of
preference share shall be the following items?

a. Ignored a. Preference dividend for the c. Taxation

b. Deducted from net income, whether declared or not period
c. Deducted from net income only when declared b. Ordinary dividend d. Minority interest
d. Added to net income net of tax

27. Ordinary shares issued as part of a business combination are included

____ 21. It is any contract that evidences a residual interest in the assets of an in the EPS calculation in the case of the “purchase” method from
entity after deducting all of its liabilities
a. The biginning of the accounting period.
a. Financial instrument c. Debt instrument b. The date of acquisition.
b. Equity instrument d. Ordinary share c. The end of the accounting period.
d. The midpoint of the accounting year.

____ 22. A written put option is

28. When an entity makes a bonus issue/share split/stock dividend or a
a. A contract that requires an entity to repurchase its own ordinary right issue
shares.
b. A contract that gives the holder the right to sell ordinary shares at a. The previous year’s EPS is not adjusted for the issue.
a specified price for a given period. b. The previous year’s EPS is adjusted for the issue.
c. A financial instrument that gives the holder the right to purchase c. Only a note of the effect on the previous year’s EPS is made.
ordinary shares. d. Only the diluted EPS for the previous year is adjusted.
d. An agreement to issue ordinary shares that is dependent on the
satisfaction of specified conditions.
____ 29. If a share option is converted on March 31 of the current year
36. In certain cases, stock dividends are declared on the basis of a
a. The potential ordinary shares are included in diluted EPS up to proposed increase in authorized share capital, the application for
March 31, and in basic EPS from the date converted to the year- which has been filed but not yet approved by SEC at the end of
end, both weighted accordingly. reporting period. Under these circumtances, which may not be done?
b. The ordinary shares are not included in the diluted EPS
calculation but are included in basic EPS. a. The proposed increase and such dividend declaration generally
c. The ordinary shares are not included in the basic EPS but are shall not be reflected in the statement of financial position prior
included in diluted EPS. to SEC approval.
d. The effects of the share option are included only in previous b. These matters shall be disclosed in the notes to financial
year’s EPS calculation. statements.
c. If the proposed increase is approved by SEC after the end of
reporting period but before the issuance of the statements, the
____ 30. In calculating whether potential ordinary shares are dilutive, the profit new authorized share capital may be presented and the stock
figure used as the ‘control number” is dividend may be shown as part of issued share capital.
d. A note to the financial statements is unnecessary to disclose the
a. Net profit after taxation including discontinued operations fact that the proposed increase and dividend declaration have
b. Net profit from continuing operations been reflected in the financial statements.
c. Net profit before tax including discontinued operations
d. Retained profit for the year after dividends
37. Which is incorrect concerning retained earning?

____ 31. Dividends payable in noncash asset shall be charged to retained a. Appropriated retained earnings shall be clearly distinguished from
earnings at unappropriated retained earnings.
b. A deficit is a debit balance in retained earnings.
a. Carrying amount of the noncash asset c. A deficit in retained earnings shall be presented as an asset.
b. Fair value of the noncash asset d. When the deficit exceeds the total of the other capital account
c. Fair value as determined by Board of Directors balances, the excess is a capital deficiency.
d. Appraised value

38. Appropriations of retained earnings, if reflected in separate account,

____ 32. Treasury shares may be reissued as dividends, in which case what shall be shown as
amount should be charged to retained earnings?
a. Component of equity as part of share premium
a. Cost of the treasury shares b. Component of equity as part as total retained earnings
b. Par value of the treasury shares c. Component of total liabilities as current liability
c. Fair value of the treasury shares on the date of declaration d. Component of total liabilities as noncurrent liability
d. Fair value of the treasury shares on the date of issuance

39. An entity declared a cash dividend on its share capital in December of

____ 33. If the stock dividend is less than 20%, how much of the retained the current year, payable in January of the next year. Retained
earnings should be capitalized? earnings would

a. Par value of the shares a. Increase on the date of declaration

b. Fair value of the shares on the date of declaration b. Not be affected on the date of declaration
c. Fair value of the shares on the date of record c. Not be affected on the date of payment
d. Fair value of the shares on the date of issuance d. Decrease on the date of payments

____ 34. The issuer shall directly charge retained earnings for the par value of 40. The actual total amount of a cash dividend to be paid is determined
the shares issued in on the date of

a. Two for one share split a. Record

b. Share options b. Declaration
c. Twenty percent stock dividend c. Declaration or date of record, whichever is earlier
d. Share appreciation right d. Payment

____ 35. Which statement is incorrect concerning stock dividends? 41. At the beginning of the current year, Sun Company purchased
500,000 shares of Star Company. At year-end, Sun distributed
a. A stock dividend gives rise to any change in either the entity’s 250,000 shares of Star as a dividend to Sun’s shareholders. This is an
assets or its shareholders’ proportionate interest therein. example of
b. Stock dividends are recorded on the date declared.
c. An issuance of additional shares of 20% or more as stock a. Liquidating dividend c. Property dividend
dividend would require capitalization of retained earnings at par b. Investment dividend d. Stock dividend
or stated value.
d. A note to the financial statements is unnecessary to disclose the
fact that the proposed increase and dividend declaration have 42. A dividend which is a return to shareholders of a portion of their
been reflected in the financial statements. original investment is
 a. Liquidating dividend c. Liability dividend
b. Patronage dividend d. Participating dividend
49. An entity issued what is called a “20% stock dividend” on its share
capital. At what amount per share, if any, should retained earnings be
____ 43. How would the declaration of a liquidating dividend by an entity reduced for this transaction?
affect each of the following?
a. Zero because no entry is c. Market value at the declaration
Contributed capital Total shareholders’ made
b. Par value d. Market value at the date of
equity issuance
a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease 50. The issuer should charge retained earnings for the market value of
d. No effect No effect shares issued in a

a. 1 for 5 stock dividend c. 4 for 1 stock dividend

____ 44. An entity declared a dividend, a portion of which was liquidating. b. 1 for 8 syock dividend d. 2 for 1 stock split
How would this declaration affect each of the following?

Contributed Capital Retained earnings 51. How would the declaration of a 15% stock dividend by an entity
a. Decrease No effect affect each of the following?
b. Decrease Decrease
c. No effect Decrease Retained earnings Total shareholders’ equity
d. No effect No effect a. No effect No effect
b. No effect Decrease
c. Decrease No effect
____ 45. Which of the following is most likely to be found in corporate laws d. Decrease Decrease
regarding payment of dividend?

a. Dividends may be paid from legal capital. 52. How would the declaration and subsequent issuance of a 10% stock
b. Retained earnings are available for dividends unless restricted by dividend by the issuer affect each of the following when the market
contract or by statute. value of the shares exceeds tha par value of the shares?
c. Unrealized capital is available for any type of dividend.
d. Capital from donated assets is unavailable for dividends. Share capital Share premium
a. No effect No effect
b. No effect Increase
____ 46. Which of the following would not affect the retained earnings
c. Increase No effect
balance?
d. Increase Increase
a. Conversion of preference shares into ordinary shares
b. Share split
53. The peso amount of total shareholders’ equity remains the same when
c. Reissue of treasury shares
there is
d. Stock dividend
a. Issuance of preference shares in exchange for convertible
debentures
____ 47. For which of the following purposes should an appropriation for
b. Issuance of nonconvertible bonds with share warrants
possible loss contingencies be established?
c. Declaration of a stock dividend
d. Declaration of a cash dividend
a. To match applicable costs with current revenue.
b. To reduce fluctuations in net income in order to lend stability of
the entity.
54. Unlike a share split, a stock dividend requires a formal journal entry
c. To charge operations in periods of rising prices for the losses
in the financial accounting records because
which may otherwise be absorbed in periods of falling prices.
d. To inform shareholders that a portion of retained earnings should
a. Stock dividends increase the relative book value of an
be set aside from amounts available for dividends because of
individual’s shareholdings.
such contingencies.
b. Stock dividends increase the shareholders’ equity in the issuing
firm.
c. Stock dividends are payable on the date they are declared.
____ 48. Which statement is correct concerning appropriation of retained
d. Stock dividends represent a transfer from retained earnings to
earnings?
share capital
a. Appropriation reduce total retained earnings.
b. The only proper way to eliminate an appropriation of retained
55. How would retained earnings be affected by the declaration of each of
earnings after it has served its purpose is to revert to the
the following?
unappropriated retained earnings.
c. An appropriation of retained earnings means that assets are
segregated for a specific purpose. Stock dividend Share Split
d. When treasury shares are purchased, retained earnings must be a. Decrease Decrease
appropriated equal to the par or stated value of the treasury b. No effect Decrease
shares. c. No effect No effect
 d. Decrease No effect

____ 56. Assuming the issuing entity has only one class of share capital, a
transfer from retained earnings to share capital equal to the market
value of the shares issued is ordinary a characteristic of

a. Either a stock dividend or a share split

b. Neither a stock dividend nor a share split
c. A share split but not a stock dividend
d. A stock dividend but not a share split

____ 57. When a dividend is declared and paid in stock?

a. Total shareholders’ equity does not change.

b. Total shareholders’ equity decreases.
c. The current ratio increases.
d. The amount of working capital decreases.

____ 58. Undistributed stock dividends shall be reported as

a. A current liability
b. An addition to share capital outstanding
c. A reduction in total shareholders’ equity
d. A note to the financial statements

____ 59. An appropriation of retained earnings for possible contingencies

should be

a. Charged with all losses related to that contingency

b. Transferred to income as losses are realized
c. Classified in the liability section of the balance sheet
d. Shown within the shareholders’ equity section of the balance
sheet

____ 60. A restriction of retained earnings is most likely to be required by the

a. Exhaustion of potential benefits of the investment credit

b. Purchase of treasury shares
c. Payment of last maturing series of a serial bond issue
d. Amortization of past service cost
TOA QUIZZER 1
Answer Section 34. C

MULTIPLE CHOICE 35. D

1. C 36. D

2. C 37. C

3. C 38. B

4. D 39. C

5. A 40. A

6. D 41. C

7. B 42. A

8. A 43. B

9. D 44. B

10. A 45. B

11. D 46. B

12. A 47. D

13. A 48. B

14. B 49. B

15. A 50. B

16. C 51. C

17. C 52. D

18. A 53. C

19. B 54. D

20. A 55. D

21. B 56. D

22. A 57. A

23. D 58. B

24. B 59. D

25. C 60. B

26. B

27. B

28. B

29. A

30. B

31. A

32. A

33. B