Question 1

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.

Accepted Answer

The tool used to measure profitability from the shareholders' viewpoint is called Return on Equity.

Question 2

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.

Accepted Answer

Reduced return on equity is not a significant advantage of debt finance over share issues.

Question 3

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.

Accepted Answer

Debt finance locks a company into fixed payments of interest and principal regardless of how well the company is performing.

Question 4

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

Accepted Answer

Being a separate legal entity allows a company to own property, incur debts, sue and be sued in its own name, distinct from its owners. This separation provides a layer of protection for the personal assets of the shareholders and is considered an advantage.

Question 5

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

Accepted Answer

Taxable entity is a disadvantage of the company form of business organisation because it means that the company is subject to corporation tax on its profits.

Question 6

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

Accepted Answer

Continuous life is an advantage of the company form of business organization because it means the company can continue to operate beyond the life of its owners or members, providing stability and the potential for long-term planning and investment.

Question 7

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

Accepted Answer

The answer of Identify (by letter) each of the following...

Question 8

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

Accepted Answer

Government regulation is considered a disadvantage of the company form of business organization due to the complexity and cost of compliance with legal requirements.

Question 9

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

Accepted Answer

Separation of ownership and management is considered an advantage because it allows owners to invest in a company without having to be involved in its day-to-day operations, enabling professional managers to run the company more efficiently.

Question 10

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

Accepted Answer

The ability to acquire capital is considered an advantage of the company form of business organization because companies can access various funding sources, such as issuing shares or bonds, which is generally easier compared to other forms of business structures.

Question 11

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

Accepted Answer

Ease of transfer of ownership is considered an advantage of the company form of business organization because shares of the company can be bought and sold without affecting the company's operations, making it easier for investors to enter or exit the business.

Question 12

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

Accepted Answer

The answer of The Everglades Ltd has the following share...

Question 13

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

Accepted Answer

The answer of Topaz Ltd has the following share transactions...

Question 14

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:

Accepted Answer

The answer of The equity section of Starstruck Corporation Ltd...

Question 15

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

Accepted Answer

The answer of Major's Mining Ltd has 500,000 shares issued...

Question 16

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.

Accepted Answer

The answer of At 31 December 2019 Trapezium Ltd has...

Question 17

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.

Accepted Answer

The answer of Cricket Ltd has the following items in...

Question 18

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.

Accepted Answer

The answer of The following data were collected from the...

Question 19

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.

Accepted Answer

The answer of Please complete the following statements:
-The main difference...

Question 20

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

Accepted Answer

The answer of Please complete the following statements:
-Three important dates...

Quiz 10: Reporting and Analysing Equity

Return on equity is a tool that is used to:

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.

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