QE Questions
ACCOUNTING FOR CORPORATION
Retained Earnings
1. When dividends are declared in one calendar year and paid in the next calendar year, the liability for
the dividend should be recorded as of the:
A. last day of calendar year
B. Date of declaration
C. Date of record
D. Date of payment
2. Retained Earnings represents a company’s:
A. Undistributed net assets
B. Undistributed cash
C. Extra paid-in capital
D. Undistributed net income
3. Which of the following transactions will not affect the total shareholders’ equity?
A. Property Dividend
B. Stock Dividend
C. Cash Dividend
D. Scrip Dividend
4. When a property divided is declared, the reduction in retained earnings is for:
A. The book value of the property on the date of declaration
B. The book value of the property on the date of distribution
C. The fair value of the property on the date of distribution
D. The fair value of the property on the date of declaration
5. If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?
A. Par Value of the shares on the date of declaration
B. Par Value of the shares on the date of distribution C. Fair Market Value of the shares on the date of
declaration
D. Fair Market Value of the shares on the date of distribution 6. Undistributed stock dividends shall be
reported as
A. A current liability
B. An addition to share capital outstanding
C. A reduction to share capital outstanding
D. A reduction in total shareholders’ equity
7. Forte Corporation had 40,000 shares issued and outstanding on January 1, 2020. On January 15, Forte
Corp. declared a 1 for 4 shares split when the market fair value of share was P 40. On December 3, the
Company declared a P 10 per share cash dividend. What amount should be reported as dividends?
A. P 100,000
B. P 400,000
C. P 1,600,000
D. P 800,000
8. The company declared 16,000 stock dividends on 250,000 issued and outstanding shares with P5 par
value per share, which had a fair value of P25 per share at the date the stock dividend was declared. This
stock dividend was distributed 60 days after the declaration date. What amount should be charged to
retained earnings as a result of the stock dividend declaration?
A. P 80,000
B. P 300,000
C. P 400,000
D. P 1,250,000
9. Nancy Co. has only one class of share capital. If Nancy Co. will transfer some of its retained earnings
going to share capital measured at fair value of the shares issued, what type of transaction is this?
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
10. The company has 100,000 authorized shares of P5 par ordinary shares, issued 40,000 shares at P7.
Subsequently, the company declared a 15% share dividend on a date when the market price was P9 per
share. The effect of the declaration and issuance of the share dividend is to: Retained Earnings Common
Stock Paid-in Capital
A. Decrease Increase Increase
B. Increase Decrease Decrease
C. Increase Decrease Increase
D. Decrease Increase No effect
11. The journal entry to record the declaration of a large bonus issue includes:
A. A debit to retained earnings for the market value of the shares to be distributed
B. A credit to share dividends distributable for the fair market value of the share to be distributed
C. A credit to share premium for the difference between the fair market value and the par value of the
share to be distributed
D. A debit to retained earnings for the par value of the shares to be distributed
12. Statement I: When the proportion of the additional shares is large in relation to the total shares
previously outstanding, generally at least 20%, the amount capitalized is equal to the fair market value of
the share capital.
Statement II: A scrip dividend is declared when the corporation has sufficient retained earnings and
sufficient cash balance for the dividends.
A. Statement I is true; Statement II is false
B. Statement I is false; Statement I is true
C. Both statements are true
D. Both statements are false
13. Choose the correct statement in relation to basic earnings per share
A. Earnings per share can never be negative.
B. If the preference share is outstanding, dividend declared on the preference share is always deducted
from the net income in the computation of earnings per share.
C. If the preference share is non-cumulative, the dividend is deducted only when it is declared.
D. All issued ordinary shares should be subject to earnings per share.
14. In the event there is no liquidation value, the preference shares will be based on
A. Liquidation value
B. Fair market value
C. Par Value
D. Book Value
