1.Cosmetics Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed and issued) to be able to increase its working capital to undertake business expansions.

The Board of Directors consults with you as the Internal Accountant on the proper answers to the following issues:

(a)If the increase in Authorized capital stock is formally submitted to the stockholders in a meeting duly called for the purpose, what is the vote necessary for the stockholders' ratification?

(b)Once the increase in the Authorized Capital Stock of Cosmetics has been legally effected with the SEC, can the new shares from the unissued shares be offered to a new limited group of investors without having to offer them to the shareholders of record since no-pre-emptive right is provided in the AOI and By-laws of Cosmetics?

2.X Corporation is in need of land on which to construct an additional factory to be used in the expansion of its business. Jose Cruz owns a piece of land in Taytay, Rizal, which is ideal for the purpose, and the corporation offers to buy it at a fair price. Jose is willing to part with the land on condition that he is paid in shares of stocks of the corporation. The Board of Directors decides to accept the terms of Jose, but since the authorized capital stock of the corporation has been fully subscribed, it proposes to increase the capital stock so that it could consummate the sale of the land. The proposal, including the purchase of Jose's land in exchange for the new shares, was submitted to the stockholders in a meeting called for the purpose. Pedro Reyes, who has 100 sharers in the corporation, alleging that he and all other stockholders have a pre-emptive right to the new shares, insists that the corporation issue to him his proportionate quota of the new shares, which he prefers to buy in cash. Holders of 80% of the outstanding capital stock are in favor of proposal to increase of stock. Is Pedro Reyes within his rights in claiming a pre-emptive right? Explain.

Simulations Activities:

1.Consider the following data in the preparation and execution of the Certificate of Increase of Capital Stock:

a)ABC Corporation's present authorized capital stock is P5,000,000 at P1 per share. All its shares are already issued to its stockholders A, B, C, D, E, individual persons.

b)ABC Corporation is actually in need of fresh infusion of capital for its corporate expansion thus, it has to increase its authorized capital to P10,000,000.

c)The Board invited "F" to infuse fresh cash capital as new investor/subscriber to the corporation. F is willing to infuse the fresh cash capital in the amount of P2,500,000.

d)All stockholders of record have waived their preemptive right to subscribe.

e)How will the corporation proceed with its increase of authorized capital stock?

f)Prepare the Certificate of Increase of Capital Stock.Be guided by Section 37 of the Revised Corporation Code of the Philippines on the required contents of the said document.

g)The contents of the Certificate of Increase of Capital stock are laid down in SEC. 37 such as the required votes of the vote and the stockholders; he present outstanding capital stock of the corporation; subscriber to the increase of capital stock; the amount subscribed and paid; the signatories in the certificate of increase of capital among others.

2.Consider the following data in the preparation of the Certificate of Decrease of Capital Stock:

a)The present authorized capital stock of ABC Corporation is TEN BILLION (P10,000,000,000) Pesos at par value of P100 per share.

b)The corporation is over capitalized and it need to return capital amount invested by the incumbent stockholders of the corporation in the amount of ONE BILLION (P1,000,000,000)

c)To return the amount of P1,000,000,000, the corporation has to decrease its capital stock to create reduction surplus in the amount of P1,000,000,000.

d)The corporation is solvent after the decreased of capital stock.

e)The present stockholders of ABC Corporation are individuals A, B, C, D, and E with A, B, C, D having 15% each of the outstanding capital stock and E having 40% of the outstanding capital stock.

MULTIPLE -CHOICE TEST:

1.If ABC Corporation will increase its authorized capital stock, the Revised Corporation Code requires -

a.The approval of the majority of the Board of Directors only;

b.The approval of the majority of the stockholders and the Board of Directors;

c.The approval of 2/3 of the shareholders of the outstanding capital stock as well as the approval of the Securities and Exchange Commission

d.The approval of the majority of the Board of Directors and approval of the shareholders representing 2/3 of the outstanding capital stock and the SEC.

2.X is a minority stockholder of DDD Corporation. D is a member of the Board of Directors of DDD Corporation and at the same time he is the President. X believes that D is mismanaging DDD Corporation hence, as a stockholder and in behalf of the other stockholders, he wanted to sue Y. which statement is most accurate?

a.X can institute a derivative suit in behalf of himself as a stockholder;

b.A derivative suit must be instituted in behalf of the corporation;

c.Derivative suit is an exclusive remedy that X can institute;

d.Derivative suit is not the remedy in this situation.

3.The following statements are correct except:

a.A corporation has the power to sue.

b.A corporation has the power to invest its corporate funds in another business.

c.A corporation has the power to enter into contracts.

d.A corporation cannot enter into a contract of partnership if not expressly empowered to enter into partnership contract in its articles of incorporation.

4.Which of the following refers to the right of a stockholder to subscribe to all issuance of shares by the corporation unless denied in the articles of incorporation?

a.Preemptive right

b.Right of first refusal

c.Appraisal right

d.Right to vote

5.Which of the following dividend declaration needs concurring approval of the Board of directors and the stockholders representing 2/3 of the outstanding capital stock?

a.Cash dividend

b.Stock dividend

c.Property dividend

d.Stock rights offering

6.A dividend may be declared by a corporation to its stockholders of record out of which of the following:

a.Restricted retained earnings

b.Unrestricted retained earnings

c.Additional Paid-in capital

d.Surplus Profits

7.Which of the following is not considered a purpose for decrease of authorized capital stock?

a.Return of capital

b.Cancellation of subscription receivable

c.Retirement of redeemed shares

d.Re-issuance of treasury shares

8.The following statements are incorrect except:

a.When a corporation enters into a management contract, the articles of incorporation must be amended to empower the corporation.

b.When a corporation invest its corporate funds in another business, it shall always be in a business allied to its business activities.

c.Investments of corporate funds always requires the concurring approval of the Board of Directors and stockholders representing 2/3 of the outstanding capital stock.

d.Where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary.

9.Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent (100%) of their paid-in capital stock, except in three of the following instances cited hereunder. Which of the following statements does not fall on the exception?

a.When justified by definite corporate expansion projects or programs approved by the board of directors

b.When the corporation is prohibited under any loan agreement with financial institutions or creditors, whether foreign or local from declaring dividends without their consent

c.When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there s no special reserve for probable contingencies

d.When the corporation's stockholders has not fully paid their subscriptions.

10.The following statements are correct except:

a.A corporation has the power to acquire its own share regardless of the existence of unrestricted retained earnings.

b.A corporation has the power to acquire its own share provided that the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired.

c.Subject to the existence of unrestricted retained earnings, a corporation has the power to purchase its own shares to eliminate fractional shares arising out of stock dividend.

d.Subject to the existence of unrestricted retained earnings, a corporation has the power to purchase its own shares to collect or compromise an indebtedness to the corporation arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale.

11.The following statements pertain to the express powers of a corporation.

I.A corporation may establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and

II.Domestic corporations may give donations in aid of any political partyor candidate or for purposes of partisan political activity.

a.Both statements are true.

b.Both statements are false

c.Statement I is true; Statement II is false

d.Statement I is false; Statement II is true.

12.The right of a stockholder to demand payment of the fair value of his shares when he dissents from certain corporate acts is known as:

a.Preemptive right

b.Appraisal right

c.Redemption right

d.Appreciation right

13.A corporation may acquire its own shares for a legitimate purpose provided it has unrestricted retained earnings. In which of the following acquisitions is the requirement of unrestricted retained earnings not imposed?

a.When the acquisition is made to eliminate fractional shares.

b.When delinquent shares are acquired in a delinquency sale.

c.When redeemable shares are repurchased in in accordance with the terms provided in the articles of incorporation.

d.When shares are acquired from stockholders who exercised their appraisal right.

14.The following statements are correct except:

a.It is a corporate principle that the preemptive right may be waived by the stockholder, either expressly or impliedly or it may be lost by inability or failure to exercise it.

b.If the entire number of shares to which the stockholder is entitled to subscribe is offered to him and he subscribe only to a portion thereof, the stockholder is deemed to have impliedly waived his right to subscribe to the balance.

c.A stockholder who neither desires nor intends to buy any of the stocks may waive such right, in which event, the shares may be offered to any interested persons acceptable to the corporation.

d.Preemptive right is an absolute right of a stockholder which can never be denied in the articles of incorporation.

15.When a corporation performs acts which are within its express powers, the corporation is deemed to have performed:

a.Intra-vires Acts

b.Ultra Vires Acts

c.Incidental Acts

d.Valid Acts