Deck 2: Financing Company Operations

Question 1

When a public share issue is made,the offer comes from:

A)the company issuing the shares
B)the Australian Securities and Investments Commission once it has reviewed the prospectus documentation
C)the broker handing the share issue for the company
D)the applicant.

Answer 1

D

Question 2

The amount of the surplus payable to the shareholders whose shares were forfeited is:

A)$5 000
B)$500
C)$2 500
D)$3 000.

Answer 2

B

Question 3

The costs of issuing equity effectively:

A)reduce the proceeds from the equity issue
B)increase the proceeds from the equity issue
C)are borne by the underwriters of the equity issue
D)are recognised as a deferred asset and carried forward in the balance sheet.

Answer 3

A

Question 4

Without the prior approval of shareholders a company is restricted to private placements of shares,in any one year,of no more than:

A)5% of existing capital
B)10% of existing capital
C)15% of existing capital
D)20% of existing capital.

Question 5

Underwriting and other share issue costs paid to a broker or a financial institution should be reported in a balance sheet as:

A)a liability
B)an asset
C)an increase in retained earnings
D)a reduction of share capital.

Question 6

In respect to the issue of shares by a company,what is an IPO?

A)Investment in Preference and Ordinary shares
B)Initial Public Offering of shares
C)Investment Prospectus for an issue of Options
D)Instruments Providing Options to ordinary shareholders.

Question 7

The appropriate journal entry to record the cash collected from applicants for shares before the shares are issued is:

A)Increase Cash account: Increase Issued Share Capital account
B)Increase Application account: Decrease Issued Share Capital account
C)Increase Issued Share Capital account: Decrease Cash Trust account
D)Increase Cash Trust account: Increase Application account.

Question 8

The entry to record the reissue of forfeited shares is:

Question 9

If the balance in a forfeited shares account is refundable to the owners of those shares,then the forfeited shares account is classified as a component of:

A)income
B)liabilities
C)equity
D)expense.

Question 10

When shares are issued fully payable on application,the journal entries to record the issue (assuming the minimum subscription is reached)are:

Question 11

The appropriate account to record any excess proceeds received and retained (not refunded)by a company from an oversubscription to a share offer application,is the:

A)Share issue costs account
B)Forfeited Shares account
C)Share capital account
D)Calls in advance account.

Question 12

Following the allotment the balance in the Share Capital account would be:

A)$100 000 Credit
B)$250 000 Credit
C)$100 000 Debit
D)$250 000 Debit.

Question 13

Which of the following journal entries demonstrates the appropriate accounting treatment for share issue costs?

A)Dr Deferred asset: Cr Cash
B)Dr Cash: Cr Deferred asset
C)Dr Share capital: Cr: Cash
D)Dr Cash: Cr Share capital.

Question 14

On 1 July 2012,a company redeemed its debenture liability of $100 000 using available cash on hand.The terms of the debenture issue provided that a premium of 10% was to be paid on redemption of the debentures.The entry to record the redemption is:

Question 15

The bonus issue of shares has the following impact on the equity of a company

A)total equity increases
B)total equity decreases
C)one equity account increases and another equity account decreases by an equal amount
D)only the amount of issued share capital changes.

Question 16

Following the allotment,the amount transferred from the Cash Trust account to the Cash account would be:

A)$150 000
B)$110 000
C)$100 000
D)$15 000.

Question 17

Identify 5 common differences between ordinary and preference shares.

Question 18

Bonacurso Limited issued 10 000 share options to subscribe for ordinary shares.The exercise price on the options was $3 per share.If all options were exercised on due date the following journal entry would be recorded:

Question 19

After application,and prior to allotment,the balance in the Application account would be:

A)$150 000 Debit
B)$150 000 Credit
C)$165 000 Debit
D)$165 000 Credit.

Question 20

The entry to record the forfeiture of shares is:

Question 21

Summarise the steps involved in the issue of securities to the public.

Question 22

Explain why a company may hold excess money from an applicant for securities.

Question 23

Discuss the effect that a bonus issue of shares may have on the share price of a company.