TOA1

TOA QUIZZER 1

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1.     For an entity that has only ordinary shares outstanding, total shareholders’ equity divided by the number of shares outstanding represents the

a.	Return on equity	c.	Book value per share
b.	Stated value per share	d.	Price-earnings ratio

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

a.	Decrease the current ratio, decrease working capital and decrease book value per 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 and decrease book value per share.
d.	Leave working capital unaffected, decrease earnings per share and decrease the debt to equity ratio.

____ 3.     Which of the following shareholder rights is most commonly enhanced in an issue of preference shares?

a.	The right to vote for the board of directors.
b.	The right to maintain one’s proportional interest in the corporation.
c.	The right to receive a full cash dividend before dividends are paid to other classes of share capital.
d.	The right to vote on major corporate issues.

____ 4.     Which of the following features of preference share would most likely be opposed by ordinary shareholders?

a.	Par or stated value	c.	Redeemable
b.	Callable	d.	Participating

____ 5.     An entity has not declared or paid dividends on its cumulative preference shares in the last three years. These dividends shall be reported

a.	In a note to the financial statements	c.	As a current liability
b.	As a reduction in shareholders’ equity	d.	As a noncurrent liability

____ 6.     The standard requires disclosure on the face value of income statement of

a.	Basic earnings per share only
b.	Diluted earnings per share only
c.	Neither basic nor diluted earnings per share
d.	Both basic and diluted earnings per share

____ 7.     EPS disclosures are

a.	Required for all public and nonpublic entities
b.	Required for public entities and encouraged for nonpublic entities
c.	Encouraged for public entities and required for nonpublic entities
d.	Encouraged for all entities

____ 8.     An ordinary share

a.	Is an equity intsrument that is subordinate to all other classes of equity instrument.
b.	Is a financial instrument or other contract that may entitle its holder to ordinary shares.
c.	Is a financial instrument that gives the holder the right to purchase ordinary shares.
d.	Is any contract that gives rise both a financial asset of one entity and a financial liability or equity instrument of another entity.

____ 9.     It is a financial instrument or other contract that may entitle its holder to ordinary shares.

a.	Ordinary share	c.	Equity instrument
b.	Preference share	d.	Potential ordinary share

____ 10.   It is a financial instrument that gives the holder the right to purchase ordinary shares.

a.	Warrant or option
b.	Debt or equity instrument convertible into ordinary share
c.	Employee plan that allows employees to receive ordinary shares as part of their remuneration
d.	Contractual arrangement requiring issuance of ordinary shares upon the satisfaction of certain conditions

____ 11.   Earnings per share shall be computed on the basis of

a.	Ordinary shares outstanding at the end of the year
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

____ 12.   Potential ordinary shares do not include

a.	Financial liabilities or equity instruments, including preference shares, that are not convertible into ordinary shares
b.	Share warrants
c.	Share options or employee plans that allow employees to receive ordinary shares as part of their remuneration
d.	Shares which would be issued upon the satisfaction of certain conditions resulting from contractual arrangements, such as purchase of a business

____ 13.   Options and warrants are dilutive if

a.	The exercise price is lower than the average market price.
b.	The exercise price is higher than the average market price.
c.	The exercise price is equal to the average market price.
d.	The option shares represent 20% of the ordinary shares actually outstanding.

____ 14.   Under the treasury share method, the number of incremental ordinary shares is equal to

a.	Option shares
b.	Option shares minus assumed treasury shares acquired
c.	Assumed treasury shares acquired
d.	Option shares actually issued during the year

____ 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
d.	Par value of the share options

____ 16.   In computing basic earnings per share, the full amount of the required preference dividends on cumulative preference share for the period shall be

a.	Ignored
b.	Deducted from the net income only when declared
c.	Deducted from the net income whether declared or not
d.	Added to net income whether declared or not

____ 17.   In computing basic loss per share, the required annual preference dividend on cumulative preference share shall be

a.	Ignored
b.	Deducted from the net loss whether declared or not
c.	Added to the net loss whether declared or not
d.	Added to the net loss only when declared

____ 18.   It is reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

a.	Dilution	c.	Either dilution or antidilution
b.	Antidilution	d.	Neither dilution or antidilution

____ 19.   In computing diluted EPS, interest expense on convertible bond payable shall be

a.	Added back to net income at gross	c.	Deducted from net income net of tax
b.	Added back to net income net of tax	d.	Ignored

____ 20.   In computing diluted EPS, dividends on convertible cumulative preference share shall be

a.	Ignored
b.	Deducted from net income, whether declared or not
c.	Deducted from net income only when declared
d.	Added to net income net of tax

____ 21.   It is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities

a.	Financial instrument	c.	Debt instrument
b.	Equity instrument	d.	Ordinary share

____ 22.   A written put option is

a.	A contract that requires an entity to repurchase its own ordinary shares.
b.	A contract that gives the holder the right to sell ordinary shares at a specified price for a given period.
c.	A financial instrument that gives the holder the right to purchase ordinary shares.
d.	An agreement to issue ordinary shares that is dependent on the satisfaction of specified conditions.

____ 23.   If the written put options are “in the money” (choose the incorrect one)

a.	It is assumed that at the beginning of the period sufficient ordinary shares will be issued at the average market price to raise the proceeds to satisfy the contract.
b.	It is assumed that the proceeds from the issue are used to buy back the ordinary shares covered by the written put options.
c.	The resulting incremental ordinary shares shall be included in computing diluted earnings per share.
d.	The resulting incremental ordinary shares shall be included in computing basic earnings per share.

____ 24.  Which statement is incorrect concerning presentation of earnings per share?

I.    An entity shall present on the face of the income statement basic and diluted earnings per share for income or loss from continuing operations.

II.   An entity that reports a discontinued operation is not required to disclose the basic and diluted earnings per share for the discontinued operation either on the face of the income statement or in the notes.

a.	I only	c.	Both I and II
b.	II only	d.	Neither I nor II

____ 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

a.	Be included in the “per share” calculation after adjustment for the fixed dividend.
b.	Be included in the “per share” calculation for EPS without adjustment for the fixed dividend.
c.	Not be included in the “per share” calculation for EPS.
d.	Be included in the calculation of diluted EPS.

____ 26.   Earnings per share shall be calculated before accounting for which of the following items?

a.	Preference dividend for the period	c.	Taxation
b.	Ordinary dividend	d.	Minority interest

____ 27.   Ordinary shares issued as part of a business combination are included in the EPS calculation in the case of the “purchase” method from

a.	The biginning of the accounting period.
b.	The date of acquisition.
c.	The end of the accounting period.
d.	The midpoint of the accounting year.

____ 28.   When an entity makes a bonus issue/share split/stock dividend or a right issue

a.	The previous year’s EPS is not adjusted for the issue.
b.	The previous year’s EPS is adjusted for the issue.
c.	Only a note of the effect on the previous year’s EPS is made.
d.	Only the diluted EPS for the previous year is adjusted.

____ 29.   If a share option is converted on March 31 of the current year

a.	The potential ordinary shares are included in diluted EPS up to March 31, and in basic EPS from the date converted to the year-end, both weighted accordingly.
b.	The ordinary shares are not included in the diluted EPS calculation but are included in basic EPS.
c.	The ordinary shares are not included in the basic EPS but are included in diluted EPS.
d.	The effects of the share option are included only in previous year’s EPS calculation.

____ 30.   In calculating whether potential ordinary shares are dilutive, the profit figure used as the ‘control number” is

a.	Net profit after taxation including discontinued operations
b.	Net profit from continuing operations
c.	Net profit before tax including discontinued operations
d.	Retained profit for the year after dividends

____ 31.   Dividends payable in noncash asset shall be charged to retained earnings at

a.	Carrying amount of the noncash asset
b.	Fair value of the noncash asset
c.	Fair value as determined by Board of Directors
d.	Appraised value

____ 32.   Treasury shares may be reissued as dividends, in which case what amount should be charged to retained earnings?

a.	Cost of the treasury shares
b.	Par value of the treasury shares
c.	Fair value of the treasury shares on the date of declaration
d.	Fair value of the treasury shares on the date of issuance

____ 33.   If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?

a.	Par value of the shares
b.	Fair value of the shares on the date of declaration
c.	Fair value of the shares on the date of record
d.	Fair value of the shares on the date of issuance

____ 34.   The issuer shall directly charge retained earnings for the par value of the shares issued in

a.	Two for one share split
b.	Share options
c.	Twenty percent stock dividend
d.	Share appreciation right

____ 35.   Which statement is incorrect concerning stock dividends?

a.	A stock dividend gives rise to any change in either the entity’s assets or its shareholders’ proportionate interest therein.
b.	Stock dividends are recorded on the date declared.
c.	An issuance of additional shares of 20% or more as stock dividend would require capitalization of retained earnings at par or stated value.
d.	A note to the financial statements is unnecessary to disclose the fact that the proposed increase and dividend declaration have been reflected in the financial statements.

____ 36.   In certain cases, stock dividends are declared on the basis of a proposed increase in authorized share capital, the application for which has been filed but not yet approved by SEC at the end of reporting period. Under these circumtances, which may not be done?

a.	The proposed increase and such dividend declaration generally shall not be reflected in the statement of financial position prior to SEC approval.
b.	These matters shall be disclosed in the notes to financial statements.
c.	If the proposed increase is approved by SEC after the end of reporting period but before the issuance of the statements, the new authorized share capital may be presented and the stock dividend may be shown as part of issued share capital.
d.	A note to the financial statements is unnecessary to disclose the fact that the proposed increase and dividend declaration have been reflected in the financial statements.

____ 37.   Which is incorrect concerning retained earning?

a.	Appropriated retained earnings shall be clearly distinguished from unappropriated retained earnings.
b.	A deficit is a debit balance in retained earnings.
c.	A deficit in retained earnings shall be presented as an asset.
d.	When the deficit exceeds the total of the other capital account balances, the excess is a capital deficiency.

____ 38.   Appropriations of retained earnings, if reflected in separate account, shall be shown as

a.	Component of equity as part of share premium
b.	Component of equity as part as total retained earnings
c.	Component of total liabilities as current liability
d.	Component of total liabilities as noncurrent liability

____ 39.   An entity declared a cash dividend on its share capital in December of the current year, payable in January of the next year. Retained earnings would

a.	Increase on the date of declaration
b.	Not be affected on the date of declaration
c.	Not be affected on the date of payment
d.	Decrease on the date of payments

____ 40.   The actual total amount of a cash dividend to be paid is determined on the date of

a.	Record
b.	Declaration
c.	Declaration or date of record, whichever is earlier
d.	Payment

____ 41.   At the beginning of the current year, Sun Company purchased 500,000 shares of Star Company. At year-end, Sun distributed 250,000 shares of Star as a dividend to Sun’s shareholders. This is an example of

a.	Liquidating dividend	c.	Property dividend
b.	Investment dividend	d.	Stock dividend

____ 42.   A dividend which is a return to shareholders of a portion of their original investment is

a.	Liquidating dividend	c.	Liability dividend
b.	Patronage dividend	d.	Participating dividend

____ 43.   How would the declaration of a liquidating dividend by an entity affect each of the following?

     Contributed capital              Total shareholders’ equity

a.	Decrease                           No effect
b.	Decrease                           Decrease
c.	No effect                           Decrease
d.	No effect                           No effect

____ 44.   An entity declared a dividend, a portion of which was liquidating. How would this declaration affect each of the following?

     Contributed Capital            Retained earnings

a.	Decrease                         No effect
b.	Decrease                         Decrease
c.	No effect                         Decrease
d.	No effect                         No effect

____ 45.   Which of the following is most likely to be found in corporate laws regarding payment of dividend?

a.	Dividends may be paid from legal capital.
b.	Retained earnings are available for dividends unless restricted by contract or by statute.
c.	Unrealized capital is available for any type of dividend.
d.	Capital from donated assets is unavailable for dividends.

____ 46.   Which of the following would not affect the retained earnings balance?

a.	Conversion of preference shares into ordinary shares
b.	Share split
c.	Reissue of treasury shares
d.	Stock dividend

____ 47.   For which of the following purposes should an appropriation for possible loss contingencies be established?

a.	To match applicable costs with current revenue.
b.	To reduce fluctuations in net income in order to lend stability of the entity.
c.	To charge operations in periods of rising prices for the losses which may otherwise be absorbed in periods of falling prices.
d.	To inform shareholders that a portion of retained earnings should be set aside from amounts available for dividends because of such contingencies.

____ 48.   Which statement is correct concerning appropriation of retained earnings?

a.	Appropriation reduce total retained earnings.
b.	The only proper way to eliminate an appropriation of retained earnings after it has served its purpose is to revert to the unappropriated retained earnings.
c.	An appropriation of retained earnings means that assets are segregated for a specific purpose.
d.	When treasury shares are purchased, retained earnings must be appropriated equal to the par or stated value of the treasury shares.

____ 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 reduced for this transaction?

a.	Zero because no entry is made	c.	Market value at the declaration
b.	Par value	d.	Market value at the date of issuance

____ 50.   The issuer should charge retained earnings for the market value of shares issued in a

a.	1 for 5 stock dividend	c.	4 for 1 stock dividend
b.	1 for 8 syock dividend	d.	2 for 1 stock split

____ 51.   How would the declaration of a 15% stock dividend by an entity affect each of the following?

     Retained earnings      Total shareholders’ equity

a.	No effect                 No effect
b.	No effect                 Decrease
c.	Decrease                 No effect
d.	Decrease                 Decrease

____ 52.   How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds tha par value of the shares?

     Share capital       Share premium

a.	No effect         No effect
b.	No effect         Increase
c.	Increase          No effect
d.	Increase          Increase

____ 53.   The peso amount of total shareholders’ equity remains the same when there is

a.	Issuance of preference shares in exchange for convertible debentures
b.	Issuance of nonconvertible bonds with share warrants
c.	Declaration of a stock dividend
d.	Declaration of a cash dividend

____ 54.   Unlike a share split, a stock dividend requires a formal journal entry in the financial accounting records because

a.	Stock dividends increase the relative book value of an individual’s shareholdings.
b.	Stock dividends increase the shareholders’ equity in the issuing firm.
c.	Stock dividends are payable on the date they are declared.
d.	Stock dividends represent a transfer from retained earnings to share capital

____ 55.   How would retained earnings be affected by the declaration of each of the following?

     Stock dividend         Share Split

a.	Decrease               Decrease
b.	No effect               Decrease
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

MULTIPLE CHOICE

   1.   C

   2.   C

   3.   C

   4.   D

   5.   A

   6.   D

   7.   B

   8.   A

   9.   D

10.   A

11.   D

12.   A

13.   A

14.   B

15.   A

16.   C

17.   C

18.   A

19.   B

20.   A

21.   B

22.   A

23.   D

24.   B

25.   C

26.   B

27.   B

28.   B

29.   A

30.   B

31.   A

32.   A

33.   B

34.   C

35.   D

36.   D

37.   C

38.   B

39.   C

40.   A

41.   C

42.   A

43.   B

44.   B

45.   B

46.   B

47.   D

48.   B

49.   B

50.   B

51.   C

52.   D

53.   C

54.   D

55.   D

56.   D

57.   A

58.   B

59.   D

60.   B