Question 1

Use the information below to answer the following questions:
An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October.
-The journal entry to record the amount due on application would include:
A) DR Share capital,$110 000
B) CR Application,$110 000
C) CR Share capital,$150 000
D) DR Share capital,$110 000.

Accepted Answer

The answer of Use the information below to answer the...

Question 2

LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares)and paid it on 3 March 2012.The journal entry on 12 February 2012 would include:
A) DR Interim dividend declared,$25 000
B) CR Cash,$25 000
C) CR Retained profits,$25 000
D) none of the above.

Accepted Answer

The declaration of an interim dividend results in a debit to the Interim dividend declared account and a credit to the Retained profits account.

Question 3

Which of the following is NOT omitted from the consolidated accounts?
A) debt owing to parent company by subsidiary company
B) intercompany sales
C) management fees charged to the subsidiary by the parent company
D) credit sales of the subsidiary.

Accepted Answer

Intercompany sales, debt owing to parent company by subsidiary company, and management fees charged to the subsidiary by the parent company are all eliminated in the consolidation process, while credit sales of the subsidiary are included in the consolidated accounts.

Question 4

Investor P has control over another entity,Q.Q is referred to as the:
A) subsidiary entity
B) economic entity
C) associate entity
D) minority interest.

Accepted Answer

When an investor has control over another entity, it is referred to as a subsidiary entity.

Question 5

The entry to create a general reserve is usually:
A) DR General reserve
CR Retained profits
B) DR Retained profits
CR General reserve
C) DR Profit and loss
CR General reserve
D) DR Expense
CR General reserve

Accepted Answer

The creation of a general reserve involves transferring profits from the retained profits account to the general reserve account. The proper entry for this transfer is to debit retained profits and credit general reserve. Option B is the only choice that reflects this entry.

Question 6

Use the information below to answer the following questions:
An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October.
-The journal entry to record the cash received on application would include:
A) DR Cash at bank,$110 000
B) CR Share capital,$110 000
C) CR Application,$110 000
D) DR Application,$110 000.

Accepted Answer

When money is received on application, it is recorded as a liability under the account "Application". Therefore, the appropriate entry would be to credit the "Application" account for the full amount of $110,000. The entry would be:

DR Cash at bank $110,000
CR Application $110,000

Question 7

Alby Ltd paid $1 800 000 for 80% of the voting shares of Bunter Ltd and evaluated Bunter's assets to be worth $2 700 000 and its liabilities $500 000.What was the goodwill on consolidation at date of acquisition?
A) $40 000
B) $400 000
C) $430 000
D) $360 000.

Accepted Answer

The answer of Alby Ltd paid $1 800 000 for...

Question 8

LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares)and paid it on 3 March 2012.The journal entry on 3 March 2012 would include:
A) DR Interim dividend declared,$25 000
B) CR Cash,$25 000
C) CR Interim dividend payable,$25 000
D) CR Retained profits,$25 000.

Accepted Answer

The journal entry on 3 March 2012 would include a credit to Cash for the amount of the dividend paid ($25,000). Since the dividend had already been declared and there was no longer an obligation to pay it, there would be no credit to Interim dividend payable (C). Also, since the dividend had been paid out of retained earnings, there would be no credit to Retained profits (D). The only appropriate debit would have been to Interim dividend declared (A), but since there is no option for this, the best choice is B.

Question 9

The directors of Behrens Ltd decided to issue 300 000 ordinary shares at $1 each.25 cents per share was payable on application,25 cents per share on allotment and the balance through two equal calls.Applications were received for 250 000 shares,which were duly issued and allotment money was paid in full.The journal entries to record the allotment would include a:
A) credit to allotment,$75 000
B) credit to cash,$62 500
C) debit to share capital,$62 500
D) debit to allotment,$75 000.

Accepted Answer

The answer of The directors of Behrens Ltd decided to...

Question 10

Which of the following are NOT eliminated in the preparation of consolidated financial statements?
A) intercompany payables
B) the account for the parent company's investment in the subsidiary
C) intercompany sales and expenses
D) assets of the subsidiary.

Accepted Answer

Assets of the subsidiary are included in the consolidated financial statements.

Question 11

Gargantua Ltd paid $1 000 000 for 75% of the voting shares of Dwarf Ltd,and evaluated Dwarf's assets to be worth $1 500 000 and its liabilities $300 000.What was the goodwill on consolidation at the date of acquisition?
A) $100 000
B) $300 000
C) it cannot be determined from the above information
D) $75 000.

Accepted Answer

The net assets of Dwarf Ltd are $1,200,000 ($1,500,000 assets - $300,000 liabilities). Gargantua Ltd acquired 75% of these net assets, which is $900,000. The purchase price was $1,000,000, so the goodwill is $1,000,000 - $900,000 = $100,000.

Question 12

Which of the following statements about bonus issues is NOT true?
A) Bonus issues can be a useful takeover defence.
B) Bonus issues reduce shareholders' equity as well as assets.
C) Bonus issues do not affect cash.
D) Bonus issues are also referred to as share dividends.

Accepted Answer

Bonus issues do not reduce shareholders' equity as it is a capitalization of profits or reserves which increases the number of shares outstanding without reducing the value of each share.

Question 13

A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period
B) made a loss in at least one period
C) never made a profit
D) paid a dividend.

Accepted Answer

A debit balance in the retained profits account indicates that the company has made a loss in at least one period. Retained profits are the accumulated profits of a company after dividends have been paid out. If the company has made a loss in one period, it means that the amount of profit that could have been retained has been reduced, leading to a debit balance in the account.

Question 14

Cash dividends may NOT be paid out of:
A) share capital
B) general reserve
C) this year's profit
D) previous years' profits.

Accepted Answer

Cash dividends cannot be paid out of share capital as it represents the amount invested by shareholders in the company and returning it as dividends would be equivalent to returning the shareholders' own investment.

Question 15

Use the information below to answer the following questions:
An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October.
-What was the balance of share capital at 11 October?
A) $25 000
B) $125 000
C) $150 000
D) $110 000.

Accepted Answer

The amount received for each share:
Application = $2.20
Allotment = $0.30
Call = $0.50

Total amount received per share = $3.00

Amount received for 50 000 shares: 
Application = 50 000 x $2.20 = $110 000
Allotment = 50 000 x $0.30 = $15 000
Call = 50 000 x $0.50 = $25 000

Total share capital = $3 x 50 000 = $150 000

Therefore, the balance of share capital at 11 October is $150 000.

Question 16

Investor P has control over another entity,Q.P is referred to as:
A) an associate entity
B) a parent entity
C) a consolidated entity
D) a minority shareholder.

Accepted Answer

Investor P is referred to as a parent entity because it has control over another entity, Q. As a parent entity, P consolidates the financial statements of Q with its own. A is incorrect because an associate entity is one in which the investor has significant influence but not control. C is incorrect because a consolidated entity is the result of combining the financial statements of a parent entity and its subsidiaries. D is incorrect because being a minority shareholder means owning less than 50% of the shares in a company, which is not the case with Investor P.

Question 17

Which of the following statements about the general reserve account is NOT true?
A) A transfer to this account may be used to indicate to shareholders that it is unlikely to be paid out in dividends.
B) Funds can be transferred back from it to retained profits.
C) The general reserve account provides an indication of where funds are invested.
D) The general reserve account appears under shareholders' equity in the balance sheet.

Accepted Answer

The general reserve account does not provide an indication of where funds are invested. It is simply an account where profits are allocated for general or unspecified purposes and can be used to cover future losses or to fund capital investments.

Question 18

A credit balance in retained profits:
A) equals the balance of cash available for dividends
B) indicates that a profit was earned in the last financial period
C) represents the profits earned and retained in the business
D) indicates that a loss was earned in the last financial period.

Accepted Answer

A credit balance in retained profits represents the profits earned and retained in the business, which means that the company made a profit in the last financial period and chose to keep a portion of it rather than distributing it to shareholders as dividends. It does not necessarily equal the balance of cash available for dividends, nor does it indicate that a profit or loss was earned in the last period.

Question 19

Springtown Ltd issued 10 000 ordinary shares for $2.50 each,payable $1 on application,50 cents on allotment and $1 in calls as required.The journal entries to record the allotment of 10 000 shares would include a:
A) credit to cash,$5000
B) debit to allotment,$10 000
C) credit to share capital,$25 000
D) credit to share capital,$5000.

Accepted Answer

The allotment of shares involves the transfer of ownership from the company to the shareholders. The shareholders have agreed to pay the allotment price of 50 cents per share. Therefore, the journal entry to record the allotment of 10,000 shares would include a credit to share capital for the total value of shares allotted, which is $25,000. Since no cash is received at the time of allotment, there would be no debit to cash or allotment account. Hence, option D, credit to share capital for $25,000, is the correct answer.

Question 20

Where a subsidiary has shareholders other than the parent company,the item outside equity interests will appear in the:
A) consolidated balance sheet
B) balance sheet of the parent company
C) balance sheet of the subsidiary company
D) balance sheet of both the parent and subsidiary company.

Accepted Answer

The consolidated balance sheet combines the financial statements of the parent company and its subsidiaries, including any outside equity interests in the subsidiary. Therefore, the item outside equity interests will appear in the consolidated balance sheet.

Quiz 12: Completing the Balance Sheet

LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares) and paid it on 3 March 2012.The journal entry on 12 February 2012 would include:

Which of the following is NOT omitted from the consolidated accounts?

Investor P has control over another entity,Q.Q is referred to as the:

The entry to create a general reserve is usually:

Alby Ltd paid $1 800 000 for 80% of the voting shares of Bunter Ltd and evaluated Bunter's assets to be worth $2 700 000 and its liabilities $500 000.What was the goodwill on consolidation at date of acquisition?

LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares) and paid it on 3 March 2012.The journal entry on 3 March 2012 would include:

Which of the following are NOT eliminated in the preparation of consolidated financial statements?

Gargantua Ltd paid $1 000 000 for 75% of the voting shares of Dwarf Ltd,and evaluated Dwarf's assets to be worth $1 500 000 and its liabilities $300 000.What was the goodwill on consolidation at the date of acquisition?

Which of the following statements about bonus issues is NOT true?

A debit balance in the retained profits account indicates that the company has:

Cash dividends may NOT be paid out of:

Investor P has control over another entity,Q.P is referred to as:

Which of the following statements about the general reserve account is NOT true?

A credit balance in retained profits:

Springtown Ltd issued 10 000 ordinary shares for $2.50 each,payable $1 on application,50 cents on allotment and $1 in calls as required.The journal entries to record the allotment of 10 000 shares would include a:

Where a subsidiary has shareholders other than the parent company,the item outside equity interests will appear in the: