Deck 16: Companies: Formation and Operations

Question 1

Which type of company has the right to advertise share issues to the general public?

A)Proprietary company
B)Public company
C)Both a proprietary and a public company
D)A company limited by guarantee

Answer 1

B

Question 2

It is true for a private company:

A)That the maximum number of shareholders is not restricted
B)It can raise funds from the public
C)It must have 'Proprietary' or 'Pty' as part of its name
D)The shareholders must be family members

Answer 2

C

Question 3

Daisy and Wing each own 8,000 shares in the Texas Company Ltd.If Daisy sells her shares directly to Wing:

A)The Texas Company share capital increases
B)The Texas Company share capital decreases
C)The Texas Company share capital remains the same
D)The Texas Company bank increases

Answer 3

C

Question 4

When accounting for share issues the ultimate debit and credit entries are:

A)Dr Bank; Cr Share capital
B)Dr Share Capital; Cr Bank
C)Dr Share Capital; Cr Application
D)Dr Application; Cr Share capital

Question 5

To be classified as 'small' under the Corporations Act a Proprietary company must normally satisfy two out of three conditions.Which of these are two of those conditions?

Question 6

Which of these is not an advantage of companies over sole traders or partnerships?

A)Less government regulation
B)Easier transferability of ownership
C)Limited liability
D)Continuity of existence

Question 7

If a dividend of 10c per share is declared how much will a shareholder who owns 1000 shares receive if the shares were issued for $2 each and are currently selling on the stock market at $5.40 each?

A)$100
B)$200
C)$540
D)$1000

Question 8

Which of these is the responsibility of the board of directors?
I)Recommending dividends
Ii)Collecting bad debts
Iii)Preparing the company tax return
Iv)Preparing the budget

A)i.
B)i,ii
C)i.ii,iii
D)i.ii,iii,iv

Question 9

Malaysia Company Ltd decided to issue 200 000 ordinary shares for $2.10c each,payable in instalments,40c 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 the correct journal entry to transfer the application money to the share capital account is:

A)Debit application $88 000; credit trust bank account $88 000
B)Debit trust bank account $80 000; credit share capital account $80 000
C)Debit application $88 000; credit share capital $88 000
D)Debit application $80 000; credit share capital $80 000

Question 10

At the end of the year a company declared a final cash dividend out of its retained earnings.The journal entry to record the declaration is:

A)Debit Cash; credit Final Dividend Payable
B)Debit Final Dividend Payable; credit Cash
C)Debit Share Capital; credit Final Dividend Payable
D)Debit Retained Earnings; credit Final Dividend Payable

Question 11

Which of the following statements concerning cash dividends is not true?

A)The Final Dividend Payable account is classified as a liability
B)The greater the dividend payment the fewer earnings retained within the company
C)Shareholders have the right to determine the amount of dividends declared
D)It is common for companies to pay an interim and a final dividend

Question 12

On 1 January 2011 XYZ Ltd decided to issue 100 000 shares to the public,payable as follows:
50 cents initially on application
20 cents payable within one month of allotment
30 cents payable in calls due 30 September 2012
Assuming the issue was fully subscribed and all amounts due were received by 30 June 2011.The balance of the Share Capital account on that date was:

A)$70 000
B)$75 000
C)$100 000
D)$105 000

Question 13

If total liabilities are $120 000,total assets are $280 000 and total paid-up capital is $140,000,the amount of retained earnings is:

A)$20 000
B)$110 000
C)$140 000
D)$160 000

Question 14

Depending on its constitution and the terms of the prospectus,a company that receives more than the required number of applications for its shares will normally:

A)Refund the excess to unsuccessful applicants
B)Issue the additional shares
C)Retain the excess in satisfaction of future calls
D)Refund the excess to unsuccessful applicants or retain the excess in satisfaction of future calls

Question 15

Lion Ltd issued 20 000 shares with an issue price of $1.30 on which the full price has been paid to the company.The maximum additional amount the shareholders can be asked to contribute if the company cannot pay its debts is:

A)$1.30 per share or $26 000
B)Nil
C)30c per share or $6 000
D)There is no limit on the amount the shareholders can be asked to contribute

Question 16

Under current accounting standards share issue expenses must be treated as:

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

Question 17

XYZ Ltd was incorporated on 1 January 2011.A private placement of 5000 shares at $1 a share was made and the public was invited to subscribe for 95 000 shares at the same price.The public issue called for payment in the following instalments:
A)40 cents on application
B)30 cents on allotment
C)payment of the call for the balance outstanding by 30 September 2013.
Applications were received for 90 000 shares.All money due on allotment was received by 30 May 2011.
The balance of the Share Capital of XYZ Ltd at 30 June 2011 was:

A)$70 000
B)$68 000
C)$71 500
D)$100 000

Question 18

On 1 January 2011 the balance in Bend Co Pty Ltd's retained earnings account was $50 000.The balance on 31 December 2011 was $100 000.On 10 December 2011 dividends of $50 000 were declared payable on 31 January 2012.Assuming all closing entries have been completed the profit for 2011 was:

A)$0
B)$50 000
C)$100 000
D)$150 000

Question 19

The statement concerning shares that is not true is:

A)Sometimes shares can be bought back by the company from its shareholders
B)The directors can issue shares at any price,the limiting factor is what the market will pay
C)Under changes to the Corporations Act shares can no longer be issued payable in instalments
D)Directors may decide to issue ordinary shares,preference shares or both

Question 20

When a company is incorporated ASIC issues it with a:

A)Certificate of registration
B)Birth certificate
C)License
D)Prospectus

Question 21

F_______________ costs are costs incurred in forming a company.

Question 22

The true statement concerning preference shares is:

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

Question 23

Shares which have preferential treatment over ordinary shares are called __________________ shares.

Question 24

Two accounting entries are required for income tax,one to provide for the tax and one to pay the tax.If S Ltd wishes to provide for estimated income tax expense on 30 June 2012 of $146000,the correct entry is:

A)Debit income tax expense $146 000; credit current tax liability $146 000
B)Debit current tax liability $146 000; credit income tax expense $146 000
C)Debit income tax expense $146 000; credit retained earnings $146 000
D)Debit income tax expense $146 000; credit bank $146 000

Question 25

Which of these is not a reason for declaring a share dividend?

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

Question 26

For identification purposes every Australian company is issued with an A_____________________ C_________________ number.

Question 27

The basic journal entry to create a general reserve is:

A)Dr general reserve,Cr retained earnings
B)Dr profit loss summary,Cr general reserve
C)Dr retained earnings,Cr general reserve
D)Dr income,Cr general reserve

Question 28

Which class of preference shares have the right to receive further dividends above their fixed rate once ordinary shares have received a stated percentage?

A)Bonus preference shares
B)Redeemable preference shares
C)Participating preference shares
D)Cumulative preference shares

Question 29

When accounting for the issue of shares placing application monies in a separate Cash Trust account is required:

A)to meet the obligation by the company to remit the funds to ASIC.
B)before the share issue is finalised the money does not belong to the company and some or all of it may need to be refunded
C)because the bank requires it
D)it is administratively easier for the company if the money is placed in a separate account

Question 30

A company is a l_________ entity,separate and distinct from its owners at law.

Question 31

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

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

Question 32

The rules contained within the Corporations Act relating to dealings between management and shareholders are known as r________________ rules.

Question 33

L________________ l_______________ means the maximum amount the company's owners can lose is normally no greater than the amount of their investment in its shares.

Question 34

Which statement relating to reserves is not true?

A)They represent items of equity other than share capital
B)They represent cash set aside to be drawn on in hard times
C)Retained earnings is a type of reserve account
D)When a non-current asset is revalued upwards a revaluation reserve is created

Question 35

The statement relating to share dividends bonus share issues)that is incorrect is:

A)They reduce total shareholder's equity
B)They involve a transfer of retained earnings or reserves to share capital
C)Shareholders are provided with additional shares without cost
D)A bonus issue can only be made if the company has sufficient reserves

Question 36

The primary purpose of a share split is to:

A)Increase the total capital of the company
B)Decrease the total capital of the company
C)Reduce retained earnings
D)Reduce the market value of the company's shares

Question 37

How many of the following are reasons for a company to declare a share dividend bonus issue)?
.To reduce the market price of their shares
.To capitalise the retained earnings of the company
.To conserve cash

A)0
B)1
C)2
D)3

Question 38

When a newly established company issues shares for the first time the directors will issue the shares:

A)at the price of $1 per share
B)at the market price
C)at a price established in consultation with ASIC
D)at the highest price that they expect that the shareholders will be prepared to pay

Question 39

How many of these statements are true? The difference between a share split and a share dividend bonus issue)is that a bonus issue,but not a share split:
I)Increases the share capital and reduces the retained earnings
Ii)Reduces the market price of the shares
Iii)Requires accounting entries to be made in the ledger

A)i.
B)ii,iii
C)i,ii
D)i,iii

Question 40

Walker Ltd declared and distributed a 10% share dividend bonus issue)when share capital was $500 000.What is the effect on total shareholders' equity?

A)No effect
B)$50 000 increase
C)$50 000 decrease
D)$100 000 increase

Question 41

Company income tax payable is calculated by multiplying the company tax rate by company t_________________ i______________.

Question 42

If applications in response to a public issue of shares are for fewer shares than the company has stated it will issue,the issue is said to be _________-_________________.

Question 43

The Current Tax Liability and Final Dividend Payable accounts are both classified as current _______________ in the balance sheet.

Question 44

Any approach to the general public by a public company to issue shares,loans,or debentures must be accompanied by a p__________.