Deck 11: Shareholders Equity

Question 1

In a sole proprietorship,the single capital provider bears all the risks of the venture and holds claim to a percentage of the future wealth creation of the business.What is this percentage?

A) 10%
B) 25%
C) 50%
D) 100%

Answer 1

D

Question 2

What happens to yearly earnings?

A) They are always retained in the business as retained earnings.
B) They are always distributed as dividends.
C) Some are retained in the business as retained earnings,and some are distributed as dividends.
D) None of these

Answer 2

C

Question 3

In which of the following ways are dividends allocated?

A) Proportionately to the rights attached to the shares.
B) Discretionally by the board of directors.
C) Uppermost to the most important shareholders.
D) None of these

Answer 3

A

Question 4

What are investors in a corporation called?

A) Partners
B) Shareholders
C) Associates
D) Proprietors

Question 5

In an uncorporated sole entrepreneurship,the liability of the entrepreneur is:

A) Limited to his contribution to the capital of the entity.
B) Unlimited.
C) Limited to the capital of the entity.
D) None of these

Question 6

Which of the following statements is not correct?

A) The special rights of preferred shares make them less attractive to purchase than ordinary shares.
B) The special rights of preferred shares can take many forms,which may combine pecuniary advantage and different voting rights.
C) The basic idea behind preferred shares is that they allow capital to be raised without necessarily creating a proportional dilution,or without creating a shift in stewardship away from the original shareholders.
D) Preferred shares generally represent a trade-off between return and control: either higher dividends but reduced voting rights,or higher voting rights but lower returns.

Question 7

Which of the following statements is not correct?

A) Capital has a specified reimbursement date.
B) Generally no return is guaranteed for capital providers.
C) Capital is an investment at risk that implies the investor's participation (even nominal or virtual)in managerial decision making.
D) Capital is provided by investors in exchange for a claim of the future returns of the business venture.

Question 8

Which of the following types of capital is defined as: 'The fraction of the subscribed capital that the corporation's board decided to collect from the investors'?

A) Authorized capital
B) Issued capital
C) Outstanding capital
D) Called-up capital

Question 9

Which of the following statements about partnerships is not correct?

A) In many countries,a partnership is not incorporated.
B) Each of the partners is fully responsible for all the consequences of the actions of the business.
C) A partnership is a business with one or more owners
D) Partnership is best suited for a limited number of partners.

Question 10

What are the two types of limited liability companies distinguished by many countries?

A) Small and large limited companies
B) Private and public limited companies
C) National and international limited companies
D) Closed and open limited companies

Question 11

The 2^nd European Directive states that at least ____ of the capital needs to be handed over to the corporation upon incorporation and initial issuance of shares.

A) 10%
B) 25%
C) 50%
D) 100%

Question 12

According to IAS 1,which of the following items should be disclosed either on the balance sheet or in notes?

A) The number of shares authorized
B) The number of shares issued and fully paid,and issued but not fully paid
C) Par value per share,or that the shares have no par value
D) All of these

Question 13

The voting power of a common shareholder is strictly proportional to the number of common shares she or he holds.

Question 14

Which right(s)is (are)held by each shareholder?

A) Influence management decision making by participating in and voting in general assembly meetings
B) Receive dividends and a proportionate share of any eventual liquidation surplus
C) First pass at acquiring additional shares (proportionately to the current holding)in the case of a new issue of shares
D) All of these

Question 15

Whatever the legal organizational format,it is essential to separate private and business rights and responsibilities.

Question 16

Which of the following statements is false?

A) There is no need for the accounting and the reporting systems to separate economic transactions that concern the business exclusively,from those that concern its individual or corporate capital providers.
B) A business represents a legal or economic entity that is separate from the individual or corporate capital providers.
C) Any business must report on its economic activity by issuing periodic financial statements,even if only for tax purposes.
D) If incorporated as a legal entity,a business can go to court,or be taken to court.

Question 17

Which of the following equations is correct?

A) Subscribed capital = Paid-in capital - Capital receivable - Uncalled capital
B) Subscribed capital = Paid-in capital + Capital receivable + Uncalled capital
C) Subscribed capital/Paid-in capital = Uncalled capital
D) Subscribed capital × Uncalled capital = Paid-in capital

Question 18

Which of the following equations is correct?

A) Capital = Par value/Number of shares
B) Capital = Number of shares/Par value
C) Capital = Number of shares × Par value
D) Capital = Number of shares - Par value

Question 19

Which of the following statements is not correct?

A) In public limited companies,a minimum number of capital providers is required,but no maximum is ever specified.
B) When shares of public limited companies can be traded freely on open financial markets,these shares are liquid and offer a preferred medium of investment for capital providers.
C) Most of the time,shares of public limited companies can be traded freely on open financial markets.
D) Each country's legislation specifies a minimum amount of capital and this minimum is generally lower for public limited companies than it is for the private limited companies.

Question 20

Which of the following equations is correct?

A) Outstanding shares ≤ Authorized shares ≤ Issued shares
B) Outstanding shares ≤ Issued shares ≤ Authorized shares
C) Authorized shares ≤ Issued shares ≤ Outstanding shares
D) Issued shares ≤ Outstanding shares ≤ Authorized shares

Question 21

How is the ratio return on equity calculated?

A) Net sales/Average equity
B) Net income/Average equity
C) Taxable income/Average equity
D) Financial income/Average equity

Question 22

In which situation(s)may shares be issued in return for something other than cash?

A) Shares can be issued in return for a capital contribution in kind.
B) New shares may be issued as the result of a capitalization of reserves.
C) New shares may be the result of the conversion by a creditor of their claim into shares.
D) All of these

Question 23

After the incorporation of reserves in the share capital,the total book value of the shareholders' equity is unchanged but the number of shares or par value of shares has been modified.

Question 24

A stock option plan is a motivational device in which the corporation grants employees the right to acquire a specified personalized number of shares of the corporation at a predetermined invariant price and for a specified time window.

Question 25

How often are dividends generally paid in most European countries?

A) Monthly
B) Quarterly
C) Half-yearly
D) Annually

Question 26

How is the debt/equity ratio calculated?

A) Shareholders' equity/Total assets
B) Shareholders' equity/Long-term debts
C) Total assets/Shareholders' equity
D) Long-term debts/Shareholders' equity

Question 27

What is it called when reserves are incorporated into the share capital?

A) Cancellation
B) Incorporation
C) Capitalization
D) Reservation

Question 28

In the United States,dividends are mostly paid to the shareholders by anticipation.

Question 29

How is the equity ratio calculated?

A) Shareholders' equity/Total assets
B) Net income/Average equity
C) Total assets/Shareholders' equity
D) Average equity/Net income

Question 30

IAS 1 states that an entity shall present a statement of changes in equity showing on the face of the statement:

A) Total comprehensive income for the period,showing separately the total amounts attributable to owners of the parent and to non-controlling interests;.
B) For each component of equity,the effects of retrospective application or retrospective restatement recognized in accordance with IAS 8.
C) For each component of equity,a reconciliation between the carrying amount at the beginning and the end of the period,separately disclosing changes resulting from:
(i)profit or loss; (ii)each item of other comprehensive income;and (iii)transactions with owners in their capacity as owners,showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.
D) All of these

Question 31

Which of the following equations is correct?

A) Retained earnings (up to the end of previous period)- Net income (after tax)of the year - Dividends declared - Transfers to reserves = Retained earnings (at year-end)
B) Retained earnings (up to the end of previous period)- Net income (after tax)of the year + Dividends declared + Transfers to reserves = Retained earnings (at year-end)
C) Retained earnings (up to the end of previous period)+ Net income (after tax)of the year + Dividends declared + Transfers to reserves = Retained earnings (at year-end)
D) Retained earnings (up to the end of previous period)+ Net income (after tax)of the year - Dividends declared - Transfers to reserves = Retained earnings (at year-end)

Question 32

Incorporating a corporation or increasing its capital are operations that incur significant costs.These costs include legal costs,auditors' fees,bankers' commissions,etc.How are the costs handled?

A) They are considered to be a period cost and recognized in the corresponding income statement
B) They are capitalized as an intangible asset and amortized.
C) They are written off against the total accumulated share premium.
D) All of these.

Question 33

Which of the following items is not a category of reserves?

A) Legal reserve
B) Share reserve
C) Statutory reserve
D) Revaluation reserve