Question 1

On which of the following dates do dividends become a liability of a company?

Accepted Answer

A) On the date of record 
B) On the declaration date 
C) At the end of the financial year 
D) On the payment date 
A) On the date of record 
B) On the declaration date 
C) At the end of the financial year 
D) On the payment date

Question 2

The total shares issued by a company represent 100% of its ownership.

Accepted Answer

A) True 
 B)False

Question 3

Sheffield Company had $42 000 of net profit in 2013. Equity at the beginning of the year was $1 200 000 and at the end of the year was $1 600 000. Sheffield has no preference shares. Please calculate the rate of return on ordinary shareholders' equity. (Please round to three decimal places.)

Accepted Answer

A) 0.026 
B) 0.032 
C) 0.035 
D) 0.030 
A) 0.026 
B) 0.032 
C) 0.035 
D) 0.030

Question 4

The formation of a company is generally less complicated than the formation of a partnership.

Accepted Answer

A) True 
 B)False

Question 5

If a company's share prices go up from the original issue price, the company will record income for the amount of the gain.

Accepted Answer

A) True 
 B)False

Question 6

Most preference shares are non- cumulative.

Accepted Answer

A) True 
 B)False

Question 7

Hot Tamale Company had $120 000 of revenues and $125 000 of expenses. No dividends were paid. These factors will result in which of the following?

Accepted Answer

A) Share capital will go down. 
B) Retained earnings will go up. 
C) Share capital will go up. 
D) Retained earnings will go down. 
A) Share capital will go down. 
B) Retained earnings will go up. 
C) Share capital will go up. 
D) Retained earnings will go down.

Question 8

Orleans Company was incorporated on 1 January 2013. Orleans issued 4 000 shares of ordinary shares and 500 shares of preference shares on that date. The preference shares are cumulative, $100 par, with an 8% dividend rate. Orleans has not paid any dividends yet. In 2016, Orleans had its first profitable year, and on 1 November 2016, Orleans declared a total dividend of $28 000. What is the total amount that will be paid out to preference shareholders?

Accepted Answer

A) $4 000 
B) $16 000 
C) $28 000 
D) $3 200 
A) $4 000 
B) $16 000 
C) $28 000 
D) $3 200

Question 9

Which of the following represents one of the basic rights of shareholders?

Accepted Answer

A) Shareholders may authorise a business contract on behalf of the company. 
B) Shareholders can maintain their proportionate ownership if the company issues new shares. 
C) Shareholders may sell their shares back to the company if they wish. 
D) Shareholders may determine at what price the company issues shares. 
A) Shareholders may authorise a business contract on behalf of the company. 
B) Shareholders can maintain their proportionate ownership if the company issues new shares. 
C) Shareholders may sell their shares back to the company if they wish. 
D) Shareholders may determine at what price the company issues shares.

Question 10

Which of the following is an advantage of preference shares?

Accepted Answer

A) Preference shareholders are guaranteed that they will not take a loss on their investment. 
B) Preference shareholders may sell their shares for a price higher than that of ordinary shares. 
C) Preference shareholders have the first claim on dividend funds. 
D) Preference shareholders have higher voting rights than ordinary shareholders. 
A) Preference shareholders are guaranteed that they will not take a loss on their investment. 
B) Preference shareholders may sell their shares for a price higher than that of ordinary shares. 
C) Preference shareholders have the first claim on dividend funds. 
D) Preference shareholders have higher voting rights than ordinary shareholders.

Question 11

Which of the following is the price for which a person can buy or sell a share of shares?

Accepted Answer

A) Amortised value 
B) Liquidation value 
C) Book value 
D) Market value 
A) Amortised value 
B) Liquidation value 
C) Book value 
D) Market value

Question 12

Which of the following is a disadvantage of the company form of business?

Accepted Answer

A) Continuous life 
B) No mutual agency 
C) The potential to raise large amounts of capital 
D) Separation of ownership and management 
A) Continuous life 
B) No mutual agency 
C) The potential to raise large amounts of capital 
D) Separation of ownership and management

Question 13

Shareholders of a company have unlimited liability for the company's debt.

Accepted Answer

A) True 
 B)False

Question 14

Pearland Company has 2 000 shares of preference shares outstanding. The preference shares have a value of $100, a 5% dividend rate, and are non- cumulative. If Pearland has sufficient funds to pay dividends, what is the total amount of dividends that will be paid out to preference shareholders?

Accepted Answer

A) $20 000 
B) $10 000 
C) $2 000 
D) $5 000 
A) $20 000 
B) $10 000 
C) $2 000 
D) $5 000

Question 15

The journal entry to record the declaration of a dividend includes a credit to Cash.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would be included in the entry to record the payment of a previously declared dividend of $0.25 per share on 12 500 ordinary shares?

Accepted Answer

A) Dividends payable would be debited for $3 125. 
B) Retained earnings would be debited for $3 125. 
C) Cash would be debited for $3 125. 
D) Dividends payable would be credited for $3 125. 
A) Dividends payable would be debited for $3 125. 
B) Retained earnings would be debited for $3 125. 
C) Cash would be debited for $3 125. 
D) Dividends payable would be credited for $3 125.

Question 17

If preference shares are cumulative, then the company does NOT need to pay dividends that were passed in previous years.

Accepted Answer

A) True 
 B)False

Question 18

On 2 December 2014, Ewell Company purchases a piece of land from the original owner. In payment for the land, Ewell Company issues 8 000 ordinary shares each with a market value of $30. The land has been appraised at a market value of $400 000. The journal entry to record this transaction would include which of the following items?

Accepted Answer

A) Debit Ordinary share capital $160 000 
B) Credit Ordinary share capital $240 000 
C) Debit Cash $400 000 
D) Credit Ordinary share capital $400 000 
A) Debit Ordinary share capital $160 000 
B) Credit Ordinary share capital $240 000 
C) Debit Cash $400 000 
D) Credit Ordinary share capital $400 000

Question 19

Which of the following statements regarding the imputation tax system is INCORRECT?

Accepted Answer

A) Shareholders are given credit against their personal tax for the tax paid by the company. 
B) It minimises double taxation. 
C) It reduces the amount of tax a company must pay. 
D) The imputation system is used in Australia. 
A) Shareholders are given credit against their personal tax for the tax paid by the company. 
B) It minimises double taxation. 
C) It reduces the amount of tax a company must pay. 
D) The imputation system is used in Australia.

Question 20

Which of the following describes the term share capital?

Accepted Answer

A) The shares that have been sold for the highest price. 
B) The total amount of shares that has not been sold yet. 
C) The amounts received from the shareholders. 
D) The total amount of shares that has been authorised by the Corporations Act. 
A) The shares that have been sold for the highest price. 
B) The total amount of shares that has not been sold yet. 
C) The amounts received from the shareholders. 
D) The total amount of shares that has been authorised by the Corporations Act.

Exam 24: Appendix

On which of the following dates do dividends become a liability of a company?

The total shares issued by a company represent 100% of its ownership.

Sheffield Company had $42 000 of net profit in 2013. Equity at the beginning of the year was $1 200 000 and at the end of the year was $1 600 000. Sheffield has no preference shares. Please calculate the rate of return on ordinary shareholders' equity. (Please round to three decimal places.)

The formation of a company is generally less complicated than the formation of a partnership.

If a company's share prices go up from the original issue price, the company will record income for the amount of the gain.

Most preference shares are non- cumulative.

Hot Tamale Company had $120 000 of revenues and $125 000 of expenses. No dividends were paid. These factors will result in which of the following?

Which of the following represents one of the basic rights of shareholders?

Which of the following is an advantage of preference shares?

Which of the following is the price for which a person can buy or sell a share of shares?

Which of the following is a disadvantage of the company form of business?

Shareholders of a company have unlimited liability for the company's debt.

Pearland Company has 2 000 shares of preference shares outstanding. The preference shares have a value of $100, a 5% dividend rate, and are non- cumulative. If Pearland has sufficient funds to pay dividends, what is the total amount of dividends that will be paid out to preference shareholders?

The journal entry to record the declaration of a dividend includes a credit to Cash.

Which of the following would be included in the entry to record the payment of a previously declared dividend of $0.25 per share on 12 500 ordinary shares?

If preference shares are cumulative, then the company does NOT need to pay dividends that were passed in previous years.

Which of the following statements regarding the imputation tax system is INCORRECT?

Which of the following describes the term share capital?

The Role of Accounting in Business

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Retailing Operations

Retail Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Non-Current Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities and Payroll

Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

Partnerships

Companies: Share Capital and the Balance Sheet

Companies: Effects on Retained Earnings, Share Splits and Buy-Backs, and the Income Statement

The Cash Flow Statement

The Framework of Accounting

Financial Statement Analysis

Introduction to Managerial Accounting and the Master Budget

Job Costing

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

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