Question 1

Under current accounting standards preliminary expenses of forming a company must be treated as a(n):

Accepted Answer

A)  asset. 
B)  expense. 
C)  deduction from the proceeds of the share issue. 
D)  liability. 
A)  asset. 
B)  expense. 
C)  deduction from the proceeds of the share issue. 
D)  liability. B

Question 2

Two accounting entries are required for income tax: one to provide for the tax; and one to pay the tax. On 28 October 2020, Stevens Ltd pays the tax authorities the $54 000 provided as a liability on 30 June 2020. The correct journal entry to record this payment is:

Accepted Answer

A)  DR Bank $54 000; CR Income tax expense $54 000 
B)  DR Income tax expense $54 000; CR Bank $54 000 
C)  DR Current tax liability $54 000; CR Bank $54 000 
D)  DR Income tax expense $54 000; CR Current tax liability $54 000 
A)  DR Bank $54 000; CR Income tax expense $54 000 
B)  DR Income tax expense $54 000; CR Bank $54 000 
C)  DR Current tax liability $54 000; CR Bank $54 000 
D)  DR Income tax expense $54 000; CR Current tax liability $54 000 C

Question 3

The correct accounting entry to create a reserve is:

Accepted Answer

A)  DR Retained earnings; CR Reserve. 
B)  DR Reserve; CR Retained earnings. 
C)  DR Profit and loss summary account; CR Reserve. 
D)  DR Expense; CR Reserve. 
A)  DR Retained earnings; CR Reserve. 
B)  DR Reserve; CR Retained earnings. 
C)  DR Profit and loss summary account; CR Reserve. 
D)  DR Expense; CR Reserve. A

Question 4

A dividend declared and paid part-way through the financial year is called a/an:

Accepted Answer

A)  preference dividend. 
B)  part-payment dividend. 
C)  interim dividend. 
D)  dividend in arrears. 
A)  preference dividend. 
B)  part-payment dividend. 
C)  interim dividend. 
D)  dividend in arrears.

Question 5

Which of the following accounts used to record the issue of shares is a permanent account?

Accepted Answer

A)  Application 
B)  Call 
C)  Share capital 
D)  Allotment 
A)  Application 
B)  Call 
C)  Share capital 
D)  Allotment

Question 6

Minstrel Ltd decided to issue 200 000 ordinary shares for $2.50 each, payable in instalments, $1 on application, $1 on allotment and the balance payable at the discretion of the company. Applications were received for 220 000 shares. The shares were allotted by the directors at a meeting held a week after the close of applications. After refunding applications for 20 000 shares, which of the following is the correct journal entry to transfer the application money to the share capital account?

Accepted Answer

A)  DR Application $220 000; CR Cash trust account $220 000 
B)  DR Cash trust account $200 000; CR Share capital account $200 000 
C)  DR Application $220 000; CR Share capital $220 000 
D)  DR Application $200 000; CR Share capital $200 000 
A)  DR Application $220 000; CR Cash trust account $220 000 
B)  DR Cash trust account $200 000; CR Share capital account $200 000 
C)  DR Application $220 000; CR Share capital $220 000 
D)  DR Application $200 000; CR Share capital $200 000

Question 7

Which of the following is a reason for declaring a share dividend?

Accepted Answer

A)  To stave off a takeover. 
B)  To conserve the company's cash instead of declaring a cash dividend. 
C)  To decrease the market price of the shares. 
D)  All of these options are reasons for declaring a share dividend. 
A)  To stave off a takeover. 
B)  To conserve the company's cash instead of declaring a cash dividend. 
C)  To decrease the market price of the shares. 
D)  All of these options are reasons for declaring a share dividend.

Question 8

Simone Ltd issued 20 000 shares with an issue price of $2.00 per share. The full price has been paid to the company. What is the maximum additional amount the shareholders can be asked to contribute if Simone Ltd cannot pay its debts?

Accepted Answer

A)  $Nil. 
B)  $2.00 per share or $40 000. 
C)  $1.00 per share or $10 000. 
D)  There is no limit on the amount the shareholders can be asked to contribute. 
A)  $Nil. 
B)  $2.00 per share or $40 000. 
C)  $1.00 per share or $10 000. 
D)  There is no limit on the amount the shareholders can be asked to contribute.

Question 9

A legal document accompanying an invitation to purchase shares, containing information about the issuing company, is called a(n):

Accepted Answer

A)  offering. 
B)  affidavit. 
C)  prospectus. 
D)  company report. 
A)  offering. 
B)  affidavit. 
C)  prospectus. 
D)  company report.

Question 10

A no cost, pro rata distribution of a company's shares to its shareholders is known as a:

Accepted Answer

A)  special dividend. 
B)  share dividend. 
C)  preference dividend. 
D)  dividend in arrears. 
A)  special dividend. 
B)  share dividend. 
C)  preference dividend. 
D)  dividend in arrears.

Question 11

Which of the following is not a reason for declaring a share dividend?

Accepted Answer

A)  To decrease the market price of the shares. 
B)  To raise extra capital for the company. 
C)  To give shareholders extra shares. 
D)  To conserve the company's cash instead of declaring a cash dividend. 
A)  To decrease the market price of the shares. 
B)  To raise extra capital for the company. 
C)  To give shareholders extra shares. 
D)  To conserve the company's cash instead of declaring a cash dividend.

Question 12

What type of account is a reserve?

Accepted Answer

A)  Asset 
B)  Liability 
C)  Expense 
D)  Equity 
A)  Asset 
B)  Liability 
C)  Expense 
D)  Equity

Question 13

Under the Corporations Act, a Proprietary company is classified as 'small' if it can satisfy two out of three conditions. Which of the following are two of those conditions?

Accepted Answer

A)  Consolidated gross assets less than $12.5 million and fewer than 200 employees. 
B)  Consolidated gross revenue less than $25 million and less than 200 employees. 
C)  Consolidated gross assets less than $5 million and less than 50 employees. 
D)  Consolidated gross assets less than $12.5 million and consolidated gross revenue less than $25 million. 
A)  Consolidated gross assets less than $12.5 million and fewer than 200 employees. 
B)  Consolidated gross revenue less than $25 million and less than 200 employees. 
C)  Consolidated gross assets less than $5 million and less than 50 employees. 
D)  Consolidated gross assets less than $12.5 million and consolidated gross revenue less than $25 million.

Question 14

Buster and Foster each own 30 000 shares in Rebound Company Ltd. If Buster sells his shares directly to Foster:

Accepted Answer

A)  the share capital for Rebound Company decreases. 
B)  the share capital for Rebound Company increases. 
C)  the share capital for Rebound Company remains the same. 
D)  the bank account for Rebound Company increases. 
A)  the share capital for Rebound Company decreases. 
B)  the share capital for Rebound Company increases. 
C)  the share capital for Rebound Company remains the same. 
D)  the bank account for Rebound Company increases.

Question 15

If total liabilities are $135 000, total assets are $420 000 and total paid-up capital is $180 000, the amount of retained earnings is:

Accepted Answer

A)  $ 105 000. 
B)  $ 135 000. 
C)  $ 240 000. 
D)  $ 285 000. 
A)  $ 105 000. 
B)  $ 135 000. 
C)  $ 240 000. 
D)  $ 285 000.

Question 16

The board of directors has which of the following responsibilities?
I. Recommendation of dividend payments
II. Collection of bad debts
III. Preparation of the company budget
IV. Preparation of the company tax return

Accepted Answer

A)  I. 
B)  I and II 
C)  I, II and III 
D)  I, II, III and IV 
A)  I. 
B)  I and II 
C)  I, II and III 
D)  I, II, III and IV

Question 17

Which of the following statements concerning preference shares is correct?

Accepted Answer

A)  Preference shares normally have voting rights attached. 
B)  Preference shares cannot be listed on the stock exchange. 
C)  Preference shares normally receive a fixed rate of dividend. 
D)  Preference shareholders face a greater risk of loss than ordinary shareholders. 
A)  Preference shares normally have voting rights attached. 
B)  Preference shares cannot be listed on the stock exchange. 
C)  Preference shares normally receive a fixed rate of dividend. 
D)  Preference shareholders face a greater risk of loss than ordinary shareholders.

Question 18

Which of the following financial statements is required to be completed by a company?
I. Statement of cash flows
II. Statement of profit or loss and other comprehensive income
III. Statement of changes in equity
IV. Statement of financial position

Accepted Answer

A)  II and IV only. 
B)  II, III and IV only. 
C)  I and III only 
D)  I, II, III and IV. 
A)  II and IV only. 
B)  II, III and IV only. 
C)  I and III only 
D)  I, II, III and IV.

Question 19

Which of the following statements about a private company is correct?

Accepted Answer

A)  It is permitted to raise funds from the public. 
B)  The company name must include 'Proprietary' or 'Pty'. 
C)  There is no restriction for the maximum number of shareholders. 
D)  The company's shareholders can only be family members. 
A)  It is permitted to raise funds from the public. 
B)  The company name must include 'Proprietary' or 'Pty'. 
C)  There is no restriction for the maximum number of shareholders. 
D)  The company's shareholders can only be family members.

Question 20

The rules for governing the internal affairs of a company that have been built into the Corporations Law are known as:

Accepted Answer

A)  replaceable rules. 
B)  the constitution. 
C)  the prospectus. 
D)  the memorandum of association. 
A)  replaceable rules. 
B)  the constitution. 
C)  the prospectus. 
D)  the memorandum of association.

Exam 9: Companies: Formation and Operations

Under current accounting standards preliminary expenses of forming a company must be treated as a(n):

Two accounting entries are required for income tax: one to provide for the tax; and one to pay the tax. On 28 October 2020, Stevens Ltd pays the tax authorities the $54 000 provided as a liability on 30 June 2020. The correct journal entry to record this payment is:

The correct accounting entry to create a reserve is:

A dividend declared and paid part-way through the financial year is called a/an:

Which of the following accounts used to record the issue of shares is a permanent account?

Which of the following is a reason for declaring a share dividend?

Simone Ltd issued 20 000 shares with an issue price of $2.00 per share. The full price has been paid to the company. What is the maximum additional amount the shareholders can be asked to contribute if Simone Ltd cannot pay its debts?

A legal document accompanying an invitation to purchase shares, containing information about the issuing company, is called a(n):

A no cost, pro rata distribution of a company's shares to its shareholders is known as a:

Which of the following is not a reason for declaring a share dividend?

What type of account is a reserve?

Under the Corporations Act, a Proprietary company is classified as 'small' if it can satisfy two out of three conditions. Which of the following are two of those conditions?

Buster and Foster each own 30 000 shares in Rebound Company Ltd. If Buster sells his shares directly to Foster:

If total liabilities are $135 000, total assets are $420 000 and total paid-up capital is $180 000, the amount of retained earnings is:

The board of directors has which of the following responsibilities? I. Recommendation of dividend payments II. Collection of bad debts III. Preparation of the company budget IV. Preparation of the company tax return

Which of the following statements concerning preference shares is correct?

Which of the following financial statements is required to be completed by a company? I. Statement of cash flows II. Statement of profit or loss and other comprehensive income III. Statement of changes in equity IV. Statement of financial position

Which of the following statements about a private company is correct?

The rules for governing the internal affairs of a company that have been built into the Corporations Law are known as:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation, Operation and Reporting

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

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