Question 1

Noncumulative preferred dividends in arrears

Accepted Answer

Noncumulative preferred dividends in arrears are not required to be paid or disclosed because they do not accumulate if not declared in a given year.

Question 2

The balance in Ordinary Share Dividend Distributable should be reported as a(n)

Accepted Answer

The balance in Ordinary Share Dividend Distributable is reported as an addition to share capital-ordinary because it represents dividends that have been declared but not yet distributed, effectively increasing the equity until paid out.

Question 3

Trading on the equity is:

Accepted Answer

Trading on the equity refers to the practice of using borrowed funds or debt to increase the potential return on equity. This occurs when the return on assets is higher than the cost of financing these assets, thereby benefiting equity holders.

Question 4

The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to contributed capital an amount equal to the

Accepted Answer

When a company issues a stock dividend, it transfers the par or stated value of the shares from retained earnings to contributed capital.

Question 5

At the date of declaration of an ordinary share dividend, the entry should not include

Accepted Answer

The entry should not include a credit to Share Capital-Ordinary at the date of declaration; instead, it should include a credit to Ordinary Share Dividend Distributable and a debit to Retained Earnings.

Question 6

Quirk Corporation issued a 100% share dividend of its ordinary shares which had a par value of $10 before and after the dividend.At what amount should retained earnings be capitalized for the additional shares issued?

Accepted Answer

In a 100% share dividend, retained earnings are capitalized at the par value of the additional shares issued.

Question 7

The payout ratio can be calculated by dividing

Accepted Answer

The answer of The payout ratio can be calculated by...

Question 8

Which one of the following disclosures should be made in the equity section of the statement of financial position, rather than in the notes to the financial statements?

Accepted Answer

Liquidation preferences are typically disclosed in the equity section of the statement of financial position as they directly affect the equity holders' claims on the company's assets.

Question 9

The return on ordinary share equity is calculated by dividing

Accepted Answer

The return on ordinary share equity is calculated by dividing net income less preference dividends by average ordinary shareholders' equity, as it reflects the return attributable to ordinary shareholders over the period.

Question 10

The declaration and issuance of a share dividend

Accepted Answer

A share dividend decreases retained earnings as it is a distribution of earnings to shareholders, but it does not change total equity because it is a reclassification within equity from retained earnings to share capital.

Question 11

A feature common to both share splits and share dividends is

Accepted Answer

Both share splits and share dividends do not affect the total equity of a corporation; they only change the composition of equity.

Question 12

How should cumulative preference dividends in arrears be shown in a corporation's statement of financial position?

Accepted Answer

Cumulative preference dividends in arrears are not recognized as liabilities until they are declared. Therefore, they should be disclosed in the notes to the financial statements rather than being included in the liabilities section.

Question 13

Which dividends do not reduce equity?

Accepted Answer

Share dividends do not reduce equity because they involve the distribution of additional shares to shareholders, which reallocates equity within the shareholders' equity section but does not decrease the total equity.

Question 14

Dividends are not paid on

Accepted Answer

Treasury shares are shares that have been repurchased by the company and are not entitled to dividends.

Question 15

Younger Company has outstanding both ordinary shares and nonparticipating, non-cumulative preference shares.The liquidation value of the preference shares is equal to its par value.The book value per share of the ordinary shares is unaffected by

Accepted Answer

The answer of Younger Company has outstanding both ordinary shares...

Question 16

Ordinary shareholders' equity divided by the number of ordinary shares outstanding is called

Accepted Answer

Book value per share is calculated by dividing ordinary shareholders' equity by the number of ordinary shares outstanding.

Question 17

What effect does the issuance of a 2-for-1 share split have on each of the following?

Accepted Answer

The answer of What effect does the issuance of a...

Question 18

Which of the following is a required statement under IFRS?

Accepted Answer

The answer of Which of the following is a required...

Quiz 15: Equity