Deck 16: Companies: Formation and Operations

Full screen (f)
exit full mode
Question
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
Use Space or
up arrow
down arrow
to flip the card.
Question
When a company is incorporated ASIC issues it with a:

A) prospectus.
B) constitution.
C) license.
D) certificate of registration.
Question
Kent Ltd issued 15 000 shares with an issue price of $1.60 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) $1.60 per share or $24 000.
B) Nil.
C) 60c per share or $9000.
D) There is no limit on the amount the shareholders can be asked to contribute.
Question
Which of these is not an advantage of companies over sole traders or partnerships?

A) Continuity of existence
B) Limited liability
C) Less government regulation
D) Easier transferability of ownership
Question
A reserve is what type of account?

A) A liability
B) An expense
C) Equity
D) Negative equity
Question
The two most common types of companies that operate in Australia are:

A) proprietary and public companies.
B) proprietary and no liability companies.
C) public companies and companies limited by guarantee.
D) public and no liability companies.
Question
The ultimate power to control a company rests with the:

A) the mangers.
B) the shareholders.
C) the board of directors.
D) the Chief Financial Officer (CFO).
Question
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
Which of these is not one of the three major categories that a company's equity can be divided into?

A) Share capital
B) Reserves
C) Retained earnings
D) Dividends
Question
ASIC stands for:

A) Australian Shares and Investments Committee.
B) Association of Shareholder's Interests in Companies.
C) Australian Securities and Investments Commission.
D) Association of Special and Interesting Companies.
Question
The rules for governing the internal affairs of a company that have been built into the Corporations Law are called:

A) constitution.
B) prospectus.
C) replaceable rules.
D) memorandum of association.
Question
It is true that a private company:

A) is not restricted with a maximum number of shareholders.
B) can raise funds from the public.
C) must have 'Proprietary' or 'Pty' as part of its name.
D) can only have shareholders that are family members.
Question
Barry and Fiona each own 15 000 shares in the Texas Company Ltd. If Barry sells her shares directly to Fiona:

A) the Texas Company share capital remains the same.
B) the Texas Company share capital decreases.
C) the Texas Company share capital increases.
D) the Texas Company bank increases.
Question
A legal document accompanying an invitation to purchase shares, containing information about the issuing company, is called a(n):

A) debenture.
B) company report.
C) affidavit.
D) prospectus.
Question
Companies are administered under the:

A) Corporations Act 2001.
B) Company and Partnership Act.
C) Taxation Act.
D) Bankruptcy Act.
Question
Which of these is not part of the information required to be lodged with ASIC when applying to form a company?

A) The address of the company's proposed registered office.
B) The date it is proposed to wind up the company.
C) The name and address of each person who consents to become a member.
D) The name and address of each person who consents to become a director.
Question
Which of these is not an advantage of incorporation?

A) Limited liability
B) The transferability of shares
C) Continuity of existence
D) Less government regulation
Question
On 1 January 2014 the balance in Detrack Pty Ltd's retained earnings account was $50 000. The balance on 31 December 2014 was $100 000. On 10 December 2014 dividends of $50 000 were declared payable on 31 January 2015. Assuming all closing entries have been completed the profit for 2014 was:

A) $150 000.
B) $0.
C) $50 000.
D) $100 000.
Question
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?

A) Consolidated gross revenue less than $25 million and consolidated gross assets less than $12.5 million.
B) Consolidated gross assets less than $12.5 million and fewer than 200 employees.
C) Consolidated gross revenue less than $25 million and less than 200 employees.
D) Consolidated gross assets less than $5 million and less than 50 employees.
Question
If total liabilities are $85 000, total assets are $240 000 and total paid-up capital is $120 000, the amount of retained earnings is:

A) $120 000.
B) $35 000.
C) $155 000.
D) $205 000.
Question
Which is the true statement concerning preference shares?

A) Preference shares normally receive a fixed rate of dividend.
B) Preference shares normally have voting rights attached.
C) Preference shares cannot be listed on the stock exchange.
D) Preference shareholders face a greater risk of loss than ordinary shareholders.
Question
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 and refunds were made for 20 000 shares. The correct journal entry to record the amount due to the company for the allotment instalment is which of the following?

A) No accounting entry is required
B) Debit share capital $200 000; credit allotment $200 000
C) Debit allotment $220 000; credit share capital $220 000
D) Debit allotment $200 000; credit share capital $200 000
Question
Under current accounting standards share issue expenses must be treated as a(n):

A) asset.
B) expense.
C) deduction from the proceeds of the share issue.
D) liability.
Question
Ambrosia Ltd was incorporated on 1 January 2014. A private placement of 5000 shares at $1 a share was made and the public was invited to subscribe for 45 000 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 2016.
Applications were received for 35 000 shares. All money due on allotment was received by 30 May 2014.
The balance of the Share Capital of Ambrosia Ltd at 30 June 2014 was:

A) $50 000.
B) $29 500.
C) $19 000.
D) $24 500.
Question
Under current accounting standards share issue expenses are treated as a(n):

A) asset.
B) expense.
C) deduction from the proceeds of the share issue.
D) liability.
Question
On 1 January 2014 Manbobbie Ltd decided to issue 40 000 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 2015.
Assuming the issue was fully subscribed and all amounts due were received by 30 June 2014. The balance of the Share Capital account on that date was:

A) $20 000.
B) $40 000.
C) $28 000.
D) $12 000.
Question
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
How many of the following statements, relating to ordinary shareholders, are true?
\bullet Ordinary shareholders generally have greater risks than preference shareholders.
\bullet Ordinary shareholders are the last to receive a distribution if the company is wound up.
\bullet Ordinary shareholders have a greater opportunity for gain if the company is profitable than preference shareholders.
\bullet Ordinary shareholders have the right to vote at meetings of the company.

A) 1
B) 2
C) 3
D) 4
Question
Which of these accounts used to record the issue of shares is a permanent account?

A) Application
B) Allotment
C) Call
D) Share capital
Question
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
If the number of shares subscribed for exceeds the number offered the issue is said to be:

A) over-subscribed.
B) under-subscribed.
C) uncalled.
D) over-called.
Question
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 and refunds were made for 20 000 shares. The journal entry to record the full receipt of the allotment instalment is which of the following?

A) Debit bank account $200 000; credit allotment $200 000
B) Debit bank account $220 000; credit allotment $220 000
C) Debit allotment $220 000; credit share capital $220 000
D) Debit share capital $200 000; credit bank account $200 000
Question
Allotment of shares can only occur if the ____________________________ specified in the prospectus has been reached.

A) profit forecast
B) minimum share subscription
C) maximum share subscription
D) borrowings forecast
Question
Fletcher Ltd was incorporated on 1 January 2014 and on that date issued:
<strong>Fletcher Ltd was incorporated on 1 January 2014 and on that date issued:   During December 2017 DT Ltd declared a total of $5000 in dividends. This was the first dividend declared by DT Ltd, that is, no dividends were declared or paid during the first two years of operations. If the preference shares are cumulative and non-participating the total amount of the $5000 dividend that will be available for payment to the ordinary shareholders is:</strong> A) $2778. B) $4600. C) $1000. D) $5000. <div style=padding-top: 35px>
During December 2017 DT Ltd declared a total of $5000 in dividends. This was the first dividend declared by DT Ltd, that is, no dividends were declared or paid during the first two years of operations. If the preference shares are cumulative and non-participating the total amount of the $5000 dividend that will be available for payment to the ordinary shareholders is:

A) $2778.
B) $4600.
C) $1000.
D) $5000.
Question
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
When a newly established company issues shares for the first time, the directors will issue the shares at:

A) the price of $1 per share.
B) the market price.
C) a price established in consultation with ASIC.
D) the highest price that they expect that the shareholders will be prepared to pay.
Question
Diamonta 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, which of the following is the correct journal entry to transfer the application money to the share capital account?

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
Which statement relating to ordinary shares is not true?

A) Ordinary shares have a fixed rate of dividend attached.
B) Ordinary shares receive their dividends after the preference shares.
C) Holders of ordinary shares have the right to sell their shares.
D) The market price of ordinary shares tends to fluctuate with expectations of future profits.
Question
Which statement concerning shares is not true?

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
When accounting for share issues, the ultimate debit and credit entries are which of the following?

A) Dr Application; Cr Share capital
B) Dr Bank; Cr Share capital
C) Dr Bank; Cr Allotment
D) Dr Share Capital; Cr Bank
Question
At year-end, the Board of Directors of Mega Motors Ltd declared a final dividend of 4c per share on 80 000 ordinary shares. Early in the next year, the dividend was paid. Which of the following is the general journal entry to record the payment of the dividend?

A) Debit retained earnings $3200; credit final dividend payable $3200
B) Debit retained earnings $3200; credit bank $3200
C) Debit final dividend payable $3200; credit bank $3200
D) Debit bank $3200; credit final dividend payable $3200
Question
Two accounting entries are required for income tax, one to provide for the tax and one to pay the tax. On 28 February 2014, S Ltd pays the tax authorities the $146 000 provided as a liability on 30 June 2013. Which is the correct entry to record this payment?

A) Debit income tax expense $146 000; credit current tax liability $146 000
B) Debit current tax liability $146 000; credit bank $146 000
C) Debit bank $146 000; credit income tax expense $146 000
D) Debit income tax expense $146 000; credit bank $146 000
Question
The correct accounting entry to create a reserve is:

A) debit reserve; credit retained earnings.
B) debit retained earnings; credit reserve.
C) debit profit and loss summary account; credit reserve.
D) debit expense; credit reserve.
Question
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
A dividend declared and paid part-way through the year is called a/an:

A) interim dividend.
B) preference dividend.
C) mini dividend.
D) dividend in arrears.
Question
A company is a legal entity and as such has an additional expense for ________________ in its income statement that sole traders and partnerships do not have.

A) legal entity expenses
B) cost of sales
C) income tax
D) depreciation
Question
Two accounting entries are required for income tax, one to provide for the tax and one to pay the tax. If Webmark Ltd wishes to provide for estimated income tax expense on 30 June 2014 of $97 000, the correct entry is which of the following?

A) Debit income tax expense $97 000; credit current tax liability $97 000
B) Debit current tax liability $97 000; credit income tax expense $97 000
C) Debit income tax expense $97 000; credit retained earnings $97 000
D) Debit income tax expense $97 000; credit bank $97 000
Question
King Ltd declared and distributed a 12% share dividend (bonus issue) when share capital was $380 000. What is the effect on total shareholders' equity?

A) $45 600 increase
B) It depends on the price of the bonus issue
C) No effect
D) $45 600 decrease
Question
Final dividend payable is what type of account?

A) An expense
B) A liability
C) Equity
D) Negative equity
Question
If a dividend of 18c per share is declared how much will a shareholder who owns 3000 shares receive if the shares were issued for $6 each and are currently selling on the stock market at $5.40 each?

A) Nil
B) $496
C) $540
D) $1800
Question
Which of the following is the accounting entry to record a share split?

A) Dr Share capital; Cr Reserve account
B) Dr Retained earnings; Cr Share capital
C) No entry is required
D) Dr Allotment account; Cr Share capital
Question
When a share dividend of 20 000 $1 shares, is declared and paid, the effect on total equity in the company balance sheet is a(n):

A) increase in share capital of $20 000 and a decrease in reserves of $20 000, i.e. no change in total equity.
B) increase in total equity of $20 000.
C) decrease in total equity of $20 000.
D) increase in the number of issued shares and a decrease in the book value of each share.
Question
The primary purpose of a share split is to:

A) reduce retained earnings.
B) reduce the market value of the company's shares.
C) increase the total capital of the company.
D) decrease the total capital of the company.
Question
How many of the following are reasons for a company to declare a share dividend (bonus issue)?
\bullet To reduce the market price of their shares.
\bullet To capitalise the retained earnings of the company.
\bullet To conserve cash.

A) 0
B) 1
C) 2
D) 3
Question
The basic entry to provide for company income tax at the end of the financial year is which of the following?

A) Dr Current tax liability; Cr Income tax expense
B) Dr Income tax expense; Cr Current tax liability
C) Dr Retained earnings; Cr Current tax liability
D) Dr Income tax expense; Cr Bank
Question
Which of the following statements concerning cash dividends is not true?

A) The Final Dividend Payable account is classified as a liability.
B) Shareholders have the right to determine the amount of dividends declared.
C) The greater the dividend payment the fewer earnings retained within the company.
D) It is common for companies to pay an interim and a final dividend.
Question
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 give shareholders extra shares.
Question
At the end of the year a company declared a final cash dividend out of its retained earnings. Which of the following is the journal entry to record the declaration?

A) Dr Cash; Cr Final dividend payable
B) Dr Final dividend payable; Cr Cash
C) Dr Share capital; Cr Final dividend payable
D) Dr Retained earnings; Cr Final dividend payable
Question
Which of these is not a reason for declaring a share dividend?

A) To raise extra capital for the company.
B) To stave off a takeover.
C) To conserve the company's cash instead of declaring a cash dividend.
D) To decrease the market price of the shares.
Question
Which statement relating to share dividends (bonus share issues) is incorrect?

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
The person who maintains the minutes of the meetings of the directors and shareholders and represents the company in many legal and contractual matters is:

A) Managing Director.
B) Chief Financial Officer.
C) Treasurer.
D) Company Secretary.
Question
A no cost, pro rata distribution of a company's shares to its shareholders is known as a:

A) special dividend.
B) share dividend.
C) preference dividend.
D) dividend in arrears.
Question
Total equity for a company is called:

A) share capital.
B) member's equity.
C) retained earnings.
D) equity.
Question
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
What is the basic journal entry to create a general reserve?

A) Dr General reserve, Cr Retained earnings
B) Dr Profit or loss summary, Cr General reserve
C) Dr Retained earnings, Cr General reserve
D) Dr Income, Cr General reserve
Unlock Deck
Sign up to unlock the cards in this deck!
Unlock Deck
Unlock Deck
1/65
auto play flashcards
Play
simple tutorial
Full screen (f)
exit full mode
Deck 16: Companies: Formation and Operations
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
B
2
When a company is incorporated ASIC issues it with a:

A) prospectus.
B) constitution.
C) license.
D) certificate of registration.
D
3
Kent Ltd issued 15 000 shares with an issue price of $1.60 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) $1.60 per share or $24 000.
B) Nil.
C) 60c per share or $9000.
D) There is no limit on the amount the shareholders can be asked to contribute.
B
4
Which of these is not an advantage of companies over sole traders or partnerships?

A) Continuity of existence
B) Limited liability
C) Less government regulation
D) Easier transferability of ownership
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
5
A reserve is what type of account?

A) A liability
B) An expense
C) Equity
D) Negative equity
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
6
The two most common types of companies that operate in Australia are:

A) proprietary and public companies.
B) proprietary and no liability companies.
C) public companies and companies limited by guarantee.
D) public and no liability companies.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
7
The ultimate power to control a company rests with the:

A) the mangers.
B) the shareholders.
C) the board of directors.
D) the Chief Financial Officer (CFO).
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
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
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
9
Which of these is not one of the three major categories that a company's equity can be divided into?

A) Share capital
B) Reserves
C) Retained earnings
D) Dividends
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
10
ASIC stands for:

A) Australian Shares and Investments Committee.
B) Association of Shareholder's Interests in Companies.
C) Australian Securities and Investments Commission.
D) Association of Special and Interesting Companies.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
11
The rules for governing the internal affairs of a company that have been built into the Corporations Law are called:

A) constitution.
B) prospectus.
C) replaceable rules.
D) memorandum of association.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
12
It is true that a private company:

A) is not restricted with a maximum number of shareholders.
B) can raise funds from the public.
C) must have 'Proprietary' or 'Pty' as part of its name.
D) can only have shareholders that are family members.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
13
Barry and Fiona each own 15 000 shares in the Texas Company Ltd. If Barry sells her shares directly to Fiona:

A) the Texas Company share capital remains the same.
B) the Texas Company share capital decreases.
C) the Texas Company share capital increases.
D) the Texas Company bank increases.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
14
A legal document accompanying an invitation to purchase shares, containing information about the issuing company, is called a(n):

A) debenture.
B) company report.
C) affidavit.
D) prospectus.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
15
Companies are administered under the:

A) Corporations Act 2001.
B) Company and Partnership Act.
C) Taxation Act.
D) Bankruptcy Act.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
16
Which of these is not part of the information required to be lodged with ASIC when applying to form a company?

A) The address of the company's proposed registered office.
B) The date it is proposed to wind up the company.
C) The name and address of each person who consents to become a member.
D) The name and address of each person who consents to become a director.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
17
Which of these is not an advantage of incorporation?

A) Limited liability
B) The transferability of shares
C) Continuity of existence
D) Less government regulation
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
18
On 1 January 2014 the balance in Detrack Pty Ltd's retained earnings account was $50 000. The balance on 31 December 2014 was $100 000. On 10 December 2014 dividends of $50 000 were declared payable on 31 January 2015. Assuming all closing entries have been completed the profit for 2014 was:

A) $150 000.
B) $0.
C) $50 000.
D) $100 000.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
19
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?

A) Consolidated gross revenue less than $25 million and consolidated gross assets less than $12.5 million.
B) Consolidated gross assets less than $12.5 million and fewer than 200 employees.
C) Consolidated gross revenue less than $25 million and less than 200 employees.
D) Consolidated gross assets less than $5 million and less than 50 employees.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
20
If total liabilities are $85 000, total assets are $240 000 and total paid-up capital is $120 000, the amount of retained earnings is:

A) $120 000.
B) $35 000.
C) $155 000.
D) $205 000.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
21
Which is the true statement concerning preference shares?

A) Preference shares normally receive a fixed rate of dividend.
B) Preference shares normally have voting rights attached.
C) Preference shares cannot be listed on the stock exchange.
D) Preference shareholders face a greater risk of loss than ordinary shareholders.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
22
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 and refunds were made for 20 000 shares. The correct journal entry to record the amount due to the company for the allotment instalment is which of the following?

A) No accounting entry is required
B) Debit share capital $200 000; credit allotment $200 000
C) Debit allotment $220 000; credit share capital $220 000
D) Debit allotment $200 000; credit share capital $200 000
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
23
Under current accounting standards share issue expenses must be treated as a(n):

A) asset.
B) expense.
C) deduction from the proceeds of the share issue.
D) liability.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
24
Ambrosia Ltd was incorporated on 1 January 2014. A private placement of 5000 shares at $1 a share was made and the public was invited to subscribe for 45 000 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 2016.
Applications were received for 35 000 shares. All money due on allotment was received by 30 May 2014.
The balance of the Share Capital of Ambrosia Ltd at 30 June 2014 was:

A) $50 000.
B) $29 500.
C) $19 000.
D) $24 500.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
25
Under current accounting standards share issue expenses are treated as a(n):

A) asset.
B) expense.
C) deduction from the proceeds of the share issue.
D) liability.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
26
On 1 January 2014 Manbobbie Ltd decided to issue 40 000 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 2015.
Assuming the issue was fully subscribed and all amounts due were received by 30 June 2014. The balance of the Share Capital account on that date was:

A) $20 000.
B) $40 000.
C) $28 000.
D) $12 000.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
27
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.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
28
How many of the following statements, relating to ordinary shareholders, are true?
\bullet Ordinary shareholders generally have greater risks than preference shareholders.
\bullet Ordinary shareholders are the last to receive a distribution if the company is wound up.
\bullet Ordinary shareholders have a greater opportunity for gain if the company is profitable than preference shareholders.
\bullet Ordinary shareholders have the right to vote at meetings of the company.

A) 1
B) 2
C) 3
D) 4
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
29
Which of these accounts used to record the issue of shares is a permanent account?

A) Application
B) Allotment
C) Call
D) Share capital
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
30
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
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
31
If the number of shares subscribed for exceeds the number offered the issue is said to be:

A) over-subscribed.
B) under-subscribed.
C) uncalled.
D) over-called.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
32
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 and refunds were made for 20 000 shares. The journal entry to record the full receipt of the allotment instalment is which of the following?

A) Debit bank account $200 000; credit allotment $200 000
B) Debit bank account $220 000; credit allotment $220 000
C) Debit allotment $220 000; credit share capital $220 000
D) Debit share capital $200 000; credit bank account $200 000
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
33
Allotment of shares can only occur if the ____________________________ specified in the prospectus has been reached.

A) profit forecast
B) minimum share subscription
C) maximum share subscription
D) borrowings forecast
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
34
Fletcher Ltd was incorporated on 1 January 2014 and on that date issued:
<strong>Fletcher Ltd was incorporated on 1 January 2014 and on that date issued:   During December 2017 DT Ltd declared a total of $5000 in dividends. This was the first dividend declared by DT Ltd, that is, no dividends were declared or paid during the first two years of operations. If the preference shares are cumulative and non-participating the total amount of the $5000 dividend that will be available for payment to the ordinary shareholders is:</strong> A) $2778. B) $4600. C) $1000. D) $5000.
During December 2017 DT Ltd declared a total of $5000 in dividends. This was the first dividend declared by DT Ltd, that is, no dividends were declared or paid during the first two years of operations. If the preference shares are cumulative and non-participating the total amount of the $5000 dividend that will be available for payment to the ordinary shareholders is:

A) $2778.
B) $4600.
C) $1000.
D) $5000.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
35
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.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
36
When a newly established company issues shares for the first time, the directors will issue the shares at:

A) the price of $1 per share.
B) the market price.
C) a price established in consultation with ASIC.
D) the highest price that they expect that the shareholders will be prepared to pay.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
37
Diamonta 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, which of the following is the correct journal entry to transfer the application money to the share capital account?

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
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
38
Which statement relating to ordinary shares is not true?

A) Ordinary shares have a fixed rate of dividend attached.
B) Ordinary shares receive their dividends after the preference shares.
C) Holders of ordinary shares have the right to sell their shares.
D) The market price of ordinary shares tends to fluctuate with expectations of future profits.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
39
Which statement concerning shares is not true?

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.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
40
When accounting for share issues, the ultimate debit and credit entries are which of the following?

A) Dr Application; Cr Share capital
B) Dr Bank; Cr Share capital
C) Dr Bank; Cr Allotment
D) Dr Share Capital; Cr Bank
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
41
At year-end, the Board of Directors of Mega Motors Ltd declared a final dividend of 4c per share on 80 000 ordinary shares. Early in the next year, the dividend was paid. Which of the following is the general journal entry to record the payment of the dividend?

A) Debit retained earnings $3200; credit final dividend payable $3200
B) Debit retained earnings $3200; credit bank $3200
C) Debit final dividend payable $3200; credit bank $3200
D) Debit bank $3200; credit final dividend payable $3200
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
42
Two accounting entries are required for income tax, one to provide for the tax and one to pay the tax. On 28 February 2014, S Ltd pays the tax authorities the $146 000 provided as a liability on 30 June 2013. Which is the correct entry to record this payment?

A) Debit income tax expense $146 000; credit current tax liability $146 000
B) Debit current tax liability $146 000; credit bank $146 000
C) Debit bank $146 000; credit income tax expense $146 000
D) Debit income tax expense $146 000; credit bank $146 000
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
43
The correct accounting entry to create a reserve is:

A) debit reserve; credit retained earnings.
B) debit retained earnings; credit reserve.
C) debit profit and loss summary account; credit reserve.
D) debit expense; credit reserve.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
44
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
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
45
A dividend declared and paid part-way through the year is called a/an:

A) interim dividend.
B) preference dividend.
C) mini dividend.
D) dividend in arrears.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
46
A company is a legal entity and as such has an additional expense for ________________ in its income statement that sole traders and partnerships do not have.

A) legal entity expenses
B) cost of sales
C) income tax
D) depreciation
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
47
Two accounting entries are required for income tax, one to provide for the tax and one to pay the tax. If Webmark Ltd wishes to provide for estimated income tax expense on 30 June 2014 of $97 000, the correct entry is which of the following?

A) Debit income tax expense $97 000; credit current tax liability $97 000
B) Debit current tax liability $97 000; credit income tax expense $97 000
C) Debit income tax expense $97 000; credit retained earnings $97 000
D) Debit income tax expense $97 000; credit bank $97 000
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
48
King Ltd declared and distributed a 12% share dividend (bonus issue) when share capital was $380 000. What is the effect on total shareholders' equity?

A) $45 600 increase
B) It depends on the price of the bonus issue
C) No effect
D) $45 600 decrease
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
49
Final dividend payable is what type of account?

A) An expense
B) A liability
C) Equity
D) Negative equity
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
50
If a dividend of 18c per share is declared how much will a shareholder who owns 3000 shares receive if the shares were issued for $6 each and are currently selling on the stock market at $5.40 each?

A) Nil
B) $496
C) $540
D) $1800
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
51
Which of the following is the accounting entry to record a share split?

A) Dr Share capital; Cr Reserve account
B) Dr Retained earnings; Cr Share capital
C) No entry is required
D) Dr Allotment account; Cr Share capital
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
52
When a share dividend of 20 000 $1 shares, is declared and paid, the effect on total equity in the company balance sheet is a(n):

A) increase in share capital of $20 000 and a decrease in reserves of $20 000, i.e. no change in total equity.
B) increase in total equity of $20 000.
C) decrease in total equity of $20 000.
D) increase in the number of issued shares and a decrease in the book value of each share.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
53
The primary purpose of a share split is to:

A) reduce retained earnings.
B) reduce the market value of the company's shares.
C) increase the total capital of the company.
D) decrease the total capital of the company.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
54
How many of the following are reasons for a company to declare a share dividend (bonus issue)?
\bullet To reduce the market price of their shares.
\bullet To capitalise the retained earnings of the company.
\bullet To conserve cash.

A) 0
B) 1
C) 2
D) 3
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
55
The basic entry to provide for company income tax at the end of the financial year is which of the following?

A) Dr Current tax liability; Cr Income tax expense
B) Dr Income tax expense; Cr Current tax liability
C) Dr Retained earnings; Cr Current tax liability
D) Dr Income tax expense; Cr Bank
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
56
Which of the following statements concerning cash dividends is not true?

A) The Final Dividend Payable account is classified as a liability.
B) Shareholders have the right to determine the amount of dividends declared.
C) The greater the dividend payment the fewer earnings retained within the company.
D) It is common for companies to pay an interim and a final dividend.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
57
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 give shareholders extra shares.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
58
At the end of the year a company declared a final cash dividend out of its retained earnings. Which of the following is the journal entry to record the declaration?

A) Dr Cash; Cr Final dividend payable
B) Dr Final dividend payable; Cr Cash
C) Dr Share capital; Cr Final dividend payable
D) Dr Retained earnings; Cr Final dividend payable
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
59
Which of these is not a reason for declaring a share dividend?

A) To raise extra capital for the company.
B) To stave off a takeover.
C) To conserve the company's cash instead of declaring a cash dividend.
D) To decrease the market price of the shares.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
60
Which statement relating to share dividends (bonus share issues) is incorrect?

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.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
61
The person who maintains the minutes of the meetings of the directors and shareholders and represents the company in many legal and contractual matters is:

A) Managing Director.
B) Chief Financial Officer.
C) Treasurer.
D) Company Secretary.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
62
A no cost, pro rata distribution of a company's shares to its shareholders is known as a:

A) special dividend.
B) share dividend.
C) preference dividend.
D) dividend in arrears.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
63
Total equity for a company is called:

A) share capital.
B) member's equity.
C) retained earnings.
D) equity.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
64
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.
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
65
What is the basic journal entry to create a general reserve?

A) Dr General reserve, Cr Retained earnings
B) Dr Profit or loss summary, Cr General reserve
C) Dr Retained earnings, Cr General reserve
D) Dr Income, Cr General reserve
Unlock Deck
Unlock for access to all 65 flashcards in this deck.
Unlock Deck
k this deck
locked card icon
Unlock Deck
Unlock for access to all 65 flashcards in this deck.