Deck 10: Reporting and Analysing Equity

Question 1

A public company may have a maximum of:

A) 50 shareholders.
B) 20 shareholders.
C) 10 shareholders.
D) no maximum imposed on the number of shareholders.

Answer 1

no maximum imposed on the number of shareholders.

Question 2

A proprietary company may only have up to:

A) 2 shareholders.
B) 10 shareholders.
C) 25 shareholders.
D) 50 shareholders.

Answer 2

50 shareholders.

Question 3

A corporation has all of the following characteristics except:

A) an existence that is separate and distinct from its owners.
B) limited liability.
C) the right to hold public office.
D) continuous life.

Answer 3

the right to hold public office.

Question 4

Shareholders of a company directly elect:

A) the chairman of the company.
B) the board of directors.
C) the treasurer of the company.
D) all of the employees of the company.

Question 5

The issue of shares to identified investors is known as a:

A) public issue.
B) non-for-profit issue.
C) debt raising.
D) private placement.

Question 6

A report that contains the details of a proposed public share issue is a:

A) prospectus.
B) record.
C) regulation.
D) constitution.

Question 7

When a company issues new shares the impact on the accounting equation is to increase:

A) equity and decrease assets.
B) equity and increase liabilities.
C) liabilities and increase assets.
D) assets and increase equity.

Question 8

When shares are issued by private placement, the journal entry to the event is:

A)
B)
C)
D)

Question 9

An appropriate journal entry to record the receipt of application money is:

A)
B)
C)
D)

Question 10

When recording the application money as share capital on allotment of shares to applicants, the following journal entry is made:

A)
B)
C)
D)

Question 11

When a company issues shares with partial payment required on application and the remainder on allotment, the journal entry to record cash received on allotment of shares is:

A)
B)
C)
D)

Question 12

An event that involves the issue of additional shares to shareholders according to their percentage ownership and a reduction in the stated value of each share is a:

A) share dividend.
B) cash dividend.
C) share split.
D) private placement.

Question 13

A share split has the following impact on total equity:

A) increase.
B) decrease.
C) removal of equity from the statement of financial position.
D) no change in the total of equity.

Question 14

A company with share capital comprising 15,000 $2.50 shares engages in a 5-for-1 share split. After the share split the share capital of the company is:

A) $37,500.
B) $5,000.
C) $6,000.
D) $3,000.

Question 15

The purpose of a share split is to increase the:

A) market price of a company's shares.
B) marketability of the shares by lowering the market price.
C) retained earnings of the company.
D) dividend payout rate of the company.

Question 16

A dividend is a distribution of:

A) liabilities of a company to its shareholders.
B) revenue by a corporation to its owners.
C) accrued expenses to a corporation's shareholders.
D) profit by a company to its shareholders.

Question 17

A dividend may take any one of three forms. These are:

A) cash, liabilities or revenue.
B) cash, property or shares.
C) cash, debt or liabilities.
D) cash, debentures or debt.

Question 18

A characteristic of an interim dividend is that it:

A) is paid during a year.
B) may only be paid on balance date.
C) is paid out after the end of the financial year.
D) may only be paid in the form of cash.

Question 19

The Corporations Act states that a dividend must not be paid by a company:

A) if it would make the company insolvent.
B) unless the company has first obtained the approval of all creditors.
C) until it has been operating for a minimum of five years.
D) before the end of a financial year.

Question 20

An appropriate journal entry to record a cash dividend on declaration date is

A)
B)
C)
D)

Question 21

The board of directors of Westlake Ltd declared a cash dividend of $2.50 per share on 22,000 ordinary shares on 15 July 2019. The dividend is to be paid on 15 August 2019, to shareholders of record on 31 July 2019. The correct entry to be recorded on 15 July 2019 will include a:

A) debit to Dividend payable.
B) credit to Cash.
C) debit to Retained earnings.
D) credit to Retained earnings.

Question 22

The board of directors of Westlake Ltd declared a cash dividend of $2.50 per share on 22,000 ordinary shares on 15 July 2019. The dividend is to be paid on 15 August 2019, to shareholders of record on 31 July 2019. The effects of the journal entry to record the declaration of the dividend on 15 July 2019 are to:

A) decrease equity and decrease assets.
B) increase equity and increase liabilities.
C) increase equity and decrease assets.
D) decrease equity and increase liabilities

Question 23

The board of directors of Westlake Ltd declared a cash dividend of $2.50 per share on 22,000 ordinary shares on 15 July 2019. The dividend is to be paid on 15 August 2019 to shareholders of record on 31 July 2019. The correct entry to be recorded on 15 August 2019 will include a:

A) debit to Dividends payable
B) debit to Retained earnings.
C) credit to Retained earnings.
D) credit to Dividends payable.

Question 24

If a company declares a 10% share dividend on its ordinary shares, the account to be debited on the date of declaration is:

A) Ordinary share dividend payable
B) Ordinary shares.
C) Paid-up capital.
D) Retained earnings.

Question 25

Indicate the respective effects of the declaration of a cash dividend on the following sections of the statement of financial position:

Question 26

The accumulated profits that have not been distributed to shareholders are classified as:

A) retained earnings.
B) non-current liabilities.
C) share capital.
D) dividends payable

Question 27

Disclosures that aid in the determination of earning power or sustainable profit include:

A) errors in prior periods.
B) changes in accounting estimates.
C) changes in accounting policies.
D) errors and changes in accounting estimates and policies.

Question 28

The most likely level of profit to be obtained by a business in the future is known as its:

A) earning power.
B) liquidity.
C) solvency.
D) profitability.

Question 29

Irregular items, which if they occur, are required to be disclosed in the financial statements include all of the following except:

A) errors.
B) changes in accounting estimates.
C) legal fees.
D) discontinuing operations.

Question 30

Prior period errors must be corrected:

A) retrospectively.
B) in the next accounting period.
C) in the subsequent accounting period.
D) when they are detected.

Question 31

Benjamin Limited paid legal fees amounting to $20,000 and added the cost to a non-current asset account. The error was detected in the same accounting period and corrected by:

A) increasing non-current assets and decreasing current assets.
B) increasing expenses and decreasing non-current assets.
C) decreasing expenses and decreasing equity.
D) decreasing revenue and increasing expenses.

Question 32

The effect of changes in accounting estimates must be disclosed if they:

A) affect profit.
B) affect assets.
C) are material.
D) change the amount of cash held in the bank.

Question 33

When a company changes from one acceptable accounting method to another the cumulative effect of the change is disclosed:

A) in the statement of changes in equity.
B) as a note to the financial statements.
C) in the income statement.
D) in the statement of cash flows.

Question 34

A discontinuing operation is a component of an entity that is:

A) held for sale.
B) not profitable.
C) not solvent.
D) different to the other major operations of the entity.

Question 35

When preparing the financial statements of Somersby Ltd, the accountant found the following information: opening balance of Retained earnings $15,000; Interim dividends paid $2,500; Profit earned $20,000; Dividends declared $5,000. The closing balance of Retained earnings for Somersby Ltd is:

A) $7,500.
B) $30 000.
C) $27,500.
D) $15 000.

Question 36

Retained earnings of a company are classified on the statement of financial position as part of:

A) Revenue.
B) Assets.
C) Cash at bank.
D) Shareholders' equity.

Question 37

Which of the following items is not required to be disclosed in the notes explaining movements in the Retained earnings account for a year?

A) Dividends declared.
B) Ordinary Shares issued.
C) Opening balance of Retained earnings.
D) Closing balance of Retained earnings.

Question 38

The ratio of Total Ordinary Cash Dividends declared divided by Profit, is used to measure the:

A) dividend payout.
B) return on cash.
C) return on assets.
D) dividend turnover rate.

Question 39

Pluto Corporation Limited declared and paid a dividend amounting to $550,000 during the year. Profit for the year was $820,000. The dividend payout rate for this company was:

A) 149%.
B) 214%.
C) 67%.
D) 172%.

Question 40

Companies that have high growth rates are often characterised by:

A) high dividend payout rates.
B) low dividend payout rates.
C) large dividend payouts to shareholders.
D) excessive dividends to shareholders.

Question 41

Return on equity is a tool that is used to:

A) gauge the risk of an investment.
B) assess the creditworthiness of shareholders.
C) calculate the rate of return on assets.
D) measure profitability from the shareholders' viewpoint.

Question 42

Which of the following is not a significant advantage of debt financing over the issue of ordinary shares?

A) Shareholder control is not affected.
B) The current owners retain control of the company.
C) Tax savings occur as interest on debt is deductible for tax purposes.
D) Return on equity is likely to be lower.

Question 43

A major disadvantage for shareholders, of using debt financing, is:

A) shareholder control is altered.
B) interest is not deductible for tax purposes.
C) debtholders assume full control of the company.
D) the company is locked in to fixed payments of interest and principal.

Question 44

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Separate legal entity

A)A
B)D

Question 45

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Taxable entity

A)A
B)D

Question 46

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Continuous life

A)A
B)D

Question 47

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage
-Unlimited liability of owners
A.A
B.D

Question 48

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Government regulation

A)A
B)D

Question 49

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Separation of ownership and management

A)A
B)D

Question 50

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Ability to acquire capital

A)A
B)D

Question 51

Identify (by letter) each of the following characteristics as being an advantage (A) or a disadvantage (D) of the company form of business organisation.
A = Advantage
D = Disadvantage

-Ease of transfer of ownership

A)A
B)D

Question 52

The Everglades Ltd has the following share transactions during 2019.
Journalise the transactions for Everglades Ltd.

Question 53

Topaz Ltd has the following share transactions during March.
Record all of these share transactions for Topaz Ltd.

Question 54

The equity section of Starstruck Corporation Ltd at 31 December 2019 included the following:
On November 1 2020 the board of directors declared a $2.00 per share dividend on the ordinary shares, payable 30 November 2020 to shareholders of record on 15 November 2020.
Prepare the journal entries that should be made by Starstruck Corporation Ltd on the dates indicated below:

Question 55

Major's Mining Ltd has 500,000 shares issued and outstanding at 30 June 2019. On 30 June 2019 the company's board of directors declared a $0.40 per share cash dividend to be paid on 1 August 2019 to shareholders on record at 15 July 2019.
Instructions: Prepare the necessary journal entries to be recorded on
(a) the date of declaration
(b) the date of record and
(c) the date of payment

Question 56

At 31 December 2019 Trapezium Ltd has the following components of Equity:
On 31 December 2019, the directors of the company declared a 10% share dividend to be paid out of the balance in the Retained earnings account on 5 January 2020.
Required:
(a) Prepare journal entries to record these share transactions.
(b) Calculate the balance of the Retained earnings after these share transactions have taken place.

Question 57

Cricket Ltd has the following items in its accounting records for the current year:
1. 200,000 $2 issued and paid up ordinary shares
2. Opening Retained earnings $40,000
3. Dividends declared and paid during the year $20,000
4. Transfer from Retained earnings to General reserve $15,000
Required:
(a) Prepare journal entries to record items 3. and 4.
(b) Show the Note to the financial statements providing details of the movements in the Retained earnings account during the year
(c) Prepare an extract from the equity section of Cricket Ltd's statement of financial position at the end of the year.

Question 58

The following data were collected from the financial statements of Jensen Limited:
Required:
(a) Calculate the dividend payout ratio for this company for both years.
(b) State whether the dividend payout rate has improved or deteriorated in 2019.

Question 59

Please complete the following statements:
-The main difference between a public issue and a(n) ____________ placement of shares is that in a public issue the number and identity of the _______________ is not known with certainty in advance.

Question 60

Please complete the following statements:
-Three important dates associated with dividends are the: (1)______________ date; the (2)______________ date; and the (3)__________________ date.

Question 61

Please complete the following statements:
-A debit balance in retained earnings account represents a(n) ________________.

Question 62

Please complete the following statements:
-The earnings performance of a company can be measured by calculating the return on ______________.

Question 63

Please complete the following statements:
-For an item to be classified as a prior period error it must have resulted in the presentation of ______________ information in the financial statements.

Question 64

Match the descriptions with their terms:

-The process of issuing shares to selected applicants.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 65

Match the descriptions with their terms:

-A pro rata distribution of profit paid in cash to shareholders.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 66

Match the descriptions with their terms:

-A form of corporation, evidence of ownership in which is provided by shares.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 67

Match the descriptions with their terms:

-A distribution by a company to its shareholders on a pro rata basis.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 68

Match the descriptions with their terms:

-Amount received on issue of a share, debenture or unsecured note.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 69

Match the descriptions with their terms:

-The limit of liability of owners of a company to any unpaid amount of capital.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 70

Match the descriptions with their terms:

-The date dividends are paid to shareholders.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 71

Match the descriptions with their terms:

-A document issued with an invitation to subscribe for shares, containing information about the offering company.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 72

Match the descriptions with their terms:

-The person with custody of a company's funds and responsibility for maintaining the company's cash position.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 73

Match the descriptions with their terms:

-The amount of profit that has not been distributed by a company to its shareholders.

A) Company
B) Issue price
C) Payment date
D) Allotment
E) Treasurer
F) Limited liability
G) Cash dividend
H) Prospectus
I) Retained earnings
J) Dividend

Question 74

Companies can distribute both cash dividends and share dividends. What are the major differences between these two types of dividends?

Question 75

Companies can only pay a cash dividend in Australia and New Zealand if certain criteria are met. What are the criteria?