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PRACTICAL ACCOUNTING 1 – REVIEW

RE/BVPS/EPS

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. East Company, a calendar year company, had sufficient retained earnings in 2018 as a basis for dividends but was temporarily
short of cash. East declared a dividend of P1,000,000 on April 1, 2018, and issued promissory notes to its stockholders in lieu
of cash. The notes, which were dated April 1, 2018, had a maturity date of March 31, 2019 and a 10% interest rate.

How should East account for the scrip dividend and related interest?
a. Debit retained earnings for P1,100,000 on April 1, 2018
b. Debit retained earnings for P1,100,000 on March 31, 2019.
c. Debit retained earnings for P1,000,000 on April 1, 2018 and debit interest expense for P100,000 on March 31, 2019.
d. Debit retained earnings for P1,000,000 on April 1, 2018 and debit interest expense for P75,000 on December 31,
2018.

2. Bossing Vic co. paid dividends of P200,000 and P300,000 at the end of 2018 and 2019, respectively. The corporation has not
paid any other dividends since its organization on January 4, 2018. The outstanding shares are 20,000, 12% preference
shares, par P100 and 30,000 ordinary shares, par P100.

If a preference share is non-cumulative and nonparticipating, how much would be received in 2018 by the preference and
ordinary shareholders, respectively?
a. 100,000 and 100,000
b. 150,000 and 50,000
c. 160,000 and 40,000
d. 200,000 and 0

If preference shares were cumulative and nonparticipating, how much would the preference and ordinary shareholders,
respectively, receive in 2019?
a. 150,000 and 150,000
b. 240,000 and 60,000
c. 280,000 and 20,000
d. 300,000 and 0

3. The shareholder’s equity of Jerome co. on January 1, 2019 is as follows:

Ordinary shares, P20 par, 60,000 shares authorized,

30,000 shares issued and outstanding 600,000
Share premium 100,000
Accumulated profits 325,000

On June 1, 2019 the company declared and issued a 15% share dividend. The market value of the share on June 1 is P26 per
share. No additional shares of ordinary were issued between January 1 and June 1, 2019.

How much is the total contributed capital after the share dividend?
a. 780,000
b. 790,000
c. 817,000
d. 924,000

4. Jeffrey Company’s stockholders’ equity is comprised of 100,000 shares of P20 par ordinary share, P4,000,000 of Share
premium on ordinary share, and retained earnings of P6,000,000. If a 40% stock dividend is declared when the stock is selling
for P50 per share. What amount should be transferred from the retained earnings account to Share premium account?
a. 2,000,000
b. 1,200,000
c. 800,000
d. 0
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5. Dix Company's stockholders' equity at December 31, 2019, consisted of the following:
8% cumulative preferred stock, P50 par; liquidating value P55 per share; authorized, 1,000,000
issued and outstanding 20,000 shares
Common stock, 25 par; 200,000 shares authorized; 100,00 share issued and 2,500,000
outstanding
Retained earnings 400,000
Dividend on preferred stock have been paid through 2017 but have not been declared for 2018 and 2019.

At December 31, 2019, Dix's book value per common share was
a. 25.00
b. 27.20
c. 26.40
d. 29.00

6. Jerome Company's stockholders' equity at December 31, 2019 consisted of the following:
Preferred stock - 12%, P50 par, 20,000 shares issued 1,000,000
Common stock, P25par, 100,000 shares issued 2,500,000
Additional paid in capital 200,000
Retained earnings 400,000
Retained earnings appropriated 100,000
Revaluation surplus 300,000
Dividends on preferred stock have not been paid since 2017. The preferred stock has a liquidating value of P55 per share and
a call price of P58 per share.
What is the book value per share of preferred stock?
a. 61
b. 56
c. 55
d. 58

7. You are auditing the financial statements of Toronto Raptors franchise as of December
31, 2019. The company’s general ledger shows the following liability and equity
accounts at the balance sheet date.

Accounts payable P530,000

Accrued expenses 41,600
Reserve for bond retirement 320,000
Preferred stock, 6% cumulative, P100 par;
6,000 shares authorized; 4,000 shares issued;
3,700 shares outstanding
(P110 liquidation value per share) 400,000
Common stock, P10 par; 200,000 shares
authorized; 80,000 shares issued and outstanding 800,000
Additional paid in capital 154,600
Retained earnings 262,520
Treasury preferred stock, at cost 36,000

What is book value of the preferred stock on December 31, 2019?

a. 116
b. 115
c. 110
d. 122

What is the book value of the common stock on December 31, 2019?
a. 18.47
b. 18.68
c. 18.36
d. 18.40

8. Ozz Company had the following capital structure during 2018 and 2019:
Preferred stock, P10 par, 4% cumulative, 25,000 shares issued and outstanding
250,000
Common stock, P5par, 200,000 shares issued and outstanding 1,000,000
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Ozz reported net income of P500,000 for the year ended December 31, 2019. Ozz paid no preferred dividends during 2018
and paid P16,000 in preferred dividends during 2019. In its 2019 income statement,

What amount should Ozz report as basic earnings per share?

a. 2.42
b. 2.45
c. 2.48
d. 2.50

9. Mc Donald had 120,000 of ordinary shares issued and outstanding at January 1,2019. On January 2 of the same year, the
company issued 80,000 preference shares. During the year, the company declared and paid P420,000 cash dividend on the
ordinary shares and P240,000 on the preference shares. Net income for the year was P1,500,000. What should be the basic
earnings per share on 2019?

a. P9.00
b. P10.50
c. P12.50
d. P15.75

10. On January 1, 2019, ABS Corporation had 187,500 shares of its P2 par value common stock outstanding. On March 1, ABS
sold an additional 375,000 shares on the open market at P20 per share. ABS issued a 20% stock dividend on May 1. On
August 1, ABS purchased 210,000 shares and immediately retired the stock. On November 1, 300,000 shares were sold for
P25 per share. What is the weighted-average number of shares outstanding for 2019?
a. 765,000
b. 562,500
c. 358,333
d. 258,333

11. Cool Co. had 2,000,000 shares of common stock outstanding on January 1 and December 31, 2019. In connection with the
acquisition of a subsidiary company in June 2018, Royce is required to issue 200,000 additional shares of its common stock on
July 1, 2019, to the former owners of the subsidiary. Royce paid 240,000 in preferred stock dividends in 2019, and reported net
income of 2,800,000 for the year. Royce's diluted earnings per share for 2019 should be

a. 1.38.
b. 1.32.
c. 1.26.
d. 1.22.

12. Helen Inc., had 620,000 shares of common stock issued and outstanding at December 31, 2018. On July 1, 2019, an additional
50,000 shares of common stock were issued for cash. Helen also had unexercised stock options to purchase 32,000 shares of
common stock at P15 per share outstanding at the beginning and end of 2019. The average market price of Helen's common
stock was P20 during 2019. What is the number of shares that should be used in computing diluted earnings per share for the
year ended December 31, 2019?

a. 578,000
b. 589,000
c. 653,000
d. 658,000

13. Norkis Co. has 4,000,000 shares of common stock outstanding on December 31, 2018. An additional 200,000 shares are issued
on April 1, 2019, and 480,000 more on September 1. On October 1, Lemke issued 6,000,000 of 9% convertible bonds. Each P1,
000 bonds are convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in
computing basic earnings per share and diluted earnings per share on December 31, 2019 is

a. 4,310,000 and 4,310,000.

b. 4,310,000 and 4,370,000.
c. 4,310,000 and 4,550,000.
d. 5,080,000 and 5,320,000.
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14. At December 31, 2018, Quirk Company had 3,000,000 shares of common stock outstanding. On January 1, 2019, Quirk issued
500,000 shares of preferred stock which were convertible into 500,000 shares of common stock. During 2019, Quirk declared
and paid 1,500,000 cash dividends on the common stock and 500,000 cash dividends on the preferred stock. Net income for the
year ended December 31, 2019, was 5,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per
share for the year ended December 31, 2019? (Round to the nearest penny)

a. 1.43
b. 1.50
c. 2.67
d. 2.80