Exam 9: Liabilities and Sources of Financing

Given a situation in which a company depreciates an asset using the straight-line method, but the tax rules stipulate that the asset should be depreciated using the reducing-balance method, this will, under normal circumstances, initially give rise to a future tax benefit to the entity.

Blue Nose Cold Storage Company was incorporated two years ago on 1 January. Since then, the following shares have been issued: On 31 December this year, the company declared and paid a total of $50 000 in dividends. This was the first dividend declared by the firm. That is, until this date no dividends had been declared or paid during the first two years of operations. If the preference shares are cumulative, what is the most that will be available out of the $50 000 dividend for payment to the ordinary shareholders?

If taxable income is $120 000, accounting profit is $130 000, interest receivable is $10 000, interest is recognised for tax when received and the tax rate is 30%, then we know that tax payable is $36 000, tax expense is $39 000 and a deferred tax liability of $3000 will be recorded in the balance sheet.

Explain the concept of leverage. Why is this concept important for management?

Sporter Enterprises has incurred a tax loss in the current period. Under tax law, which of the following statements is not correct?

Describe the nature and major sources of equity finance.

The term 'retained profits':

Trade credit is widely used as a source of finance but the importance and use of trade credit varies from industry to industry and within industries.

If a lessee enters into a finance lease agreement, it will record:

Which of the following represent capital that has been earned by the profitable operation of a company? Paid-in capital Retained profits

Where preference shares are redeemable at the discretion of the issuer, and shareholders have not been advised of the company's intention to redeem the shares they:

When a holder of preference shares has the right to receive all previously omitted dividends before ordinary shareholders receive any dividends, the preferred share is known as:

Financing through accounts payable can result in opportunity costs where discounts are not taken up by the entity.

The following information applies to questions 23 and 24. Kucinta Manufacturing Company started operations with the following capital: -What is the amount of debt financing for this partnership?

An entity that can only raise equity finance through a single owner's contributions and retained profits is a sole proprietorship.

As the effect that the collapse of an airline has on the tourist industry is seen to be industry-specific, it is a business risk.

Where an overdraft facility has been offered, the bank sees this as a semi-permanent source of finance, and prefers to see the account consistently overdrawn, as it will receive more fees through overdraft charges, thus reducing the risk of the finance.

What is the total working capital for the following company?

Which of the following is not a characteristic of a finance lease?

Business risk is industry-specific, whereas financial risk is more firm-specific.