Practice Exam (Concepts)

Question 1

The initial owners of shares of a newly formed corporation are called directors. True or False?

Answer 1

False. The initial owners are called incorporators

Question 2

The term “authorized shares” is the total number of shares outstanding. True or False?

Answer 2

False. Authorized shares is the total number of shares that can be issued by a corporation

Question 3

Share Dividends Distributable is an equity account. True or False?

Answer 3

True

Question 4

If there are no bidders, all the delinquent shares will be re-acquired by the corporation as treasury shares. True or False?

Answer 4

True

Question 5

The Articles of Incorporation govern the internal administration of the organization. True or False?

Answer 5

False. It is the By-laws, not the Articles of Incorporation

Question 6

Upon payment of the highest bidder of the total amount due, the highest bidder will be given all
the delinquent shares. True or False?

Answer 6

False. They will NOT be given the DELINQUENT SHARES but THE NUMBER OF SHARES OFFERED

Question 7

Share premium is always part of legal capital. True or False?

Answer 7

False. Share premium is part of legal capital ONLY IF the shares are NO-PAR ORDINARY SHARES

Question 8

The journal entry to record appropriations of accumulated profits does not affect total
shareholders’ equity. True or False?

Answer 8

True

Question 9

Dividends in arrears will always be received by the preference shareholders. True or False?

Answer 9

False. It will ONLY be received by preference shareholders IF PREFERENCE SHARES ARE CUMULATIVE

Question 10

Sale of treasury shares below cost will decrease the total shareholders’ equity. True or False?

Answer 10

False. It will INCREASE the total shareholders’ equity NOT DECREASE

Question 11

A type of corporation in which ownership is distributed through free trade of shares of stock on
exchanges:

A. Multi-national corporation
B. Quasi-public corporation
C. Publicly-listed corporation
D. De jure corporation

Answer 11

C. Publicly-listed corporation

Question 12

The corporate by-laws include all of the following, EXCEPT:

A. The specific purpose or purpose for which the corporation is being incorporated
B. The manner of issuing stock certificates
C. The manner of amending by-laws
D. The time, place, manner of calling and rules for meetings of shareholders and directors

Answer 12

A. The specific purpose or purpose for which the corporation is being incorporated

Question 13

Shareholders’ equity includes the following, EXCEPT
A. Cash Dividends Payable
B. Share Capital
C. Accumulated Profits
D. Treasury Shares

Answer 13

A. Cash Dividends Payable

Question 14

Which of the following shareholder rights is MOST applicable in a usual issue of preference shares?

A. The right to receive a full cash dividend before dividends are paid to other classes of
shares
B. The right to vote for the board of directors
C. The right to maintain one’s proportional interest in the corporation (pre-emptive rights)
D. The right to vote on major corporate issues

Answer 14

A. The right to receive a full cash dividend before dividends are paid to other classes of
shares

Question 15

Contributed capital DOES NOT include

A. Capital accumulated by retention of earnings
B. Share premium on ordinary shares
C. Share premium on preference shares
D. Share capital

Answer 15

A. Capital accumulated by retention of earnings

Question 16

If acquisition of treasury shares is done through donation,

A. A memo entry is prepared with an information on the number of shares donated

B. A memo entry is prepared and posted to the Share Capital ledger

C. A journal entry is prepared debiting the Treasury Shares account

D. A journal entry is prepared crediting the Share Capital account

Answer 16

A. A memo entry is prepared with an information on the number of shares donated

Question 17

In case there are no bidders for the delinquent shares,

A. The defaulting subscriber will not get any number of shares.
B. The corporation will issue a proportionate number of shares to the defaulting subscriber.
C. The shares will be issued to the original subscriber.
D. The shares will be issued to the highest bidder of another delinquent subscription.

Answer 17

A. The defaulting subscriber will not get any number of shares.

Question 18

On June 1, the company’s shares were sold on a subscription basis at a price in excess of par
value and 40% of the subscription price was collected. On August 1, the remaining 60% of the
subscription price was collected. Share Premium is credited on

A. June 1 = Yes; August 1 = No
B. June 1 = No; August 1 = Yes
C. June 1 = No; August 1 = No
D. June 1 = Yes; August 1 = Yes

Answer 18

A. June 1 = Yes; August 1 = No

Question 19

Which of the following is NOT true about treasury shares?

A. Treasury shares are entitled to dividends.
B. Treasury shares are issued shares.
C. Treasury shares are not outstanding shares.
D. Treasury shares reduce total shareholders’ equity.

Answer 19

A. Treasury shares are entitled to dividends.

Question 20

Cash dividends are paid based on the number of shares

A. Outstanding
B. Outstanding less the number of treasury shares
C. Authorized
D. Issued

Answer 20

A. Outstanding