Question 1

The directors of Behrens Ltd decided to issue 300 000 ordinary shares at $1 each. 25 cents per share was payable on application, 25 cents per share on allotment and the balance through two equal calls. Applications were received for 250 000 shares, which were duly issued and allotment money was paid in full. The journal entries to record the allotment would include a:

Accepted Answer

A)  credit to allotment, $75 000. 
B)  credit to cash, $62 500. 
C)  debit to share capital, $62 500. 
D)  debit to allotment, $75 000.

Question 2

Gargantua Ltd paid $1 000 000 for 75 per cent of the voting shares of Dwarf Ltd, and evaluated Dwarf's assets to be worth $1 500 000 and its liabilities $300 000. What was the goodwill on consolidation at the date of acquisition?

Accepted Answer

A)  $100 000 
B)  $200 000 
C)  $300 000 
D)  None of the answers provided

Question 3

Which of the following statements about a bonus issue is NOT true?

Accepted Answer

A)  Shareholders will only gain if the market value of the combined shares is greater than it was before the bonus issue. 
B)  Total shareholders' equity remains constant. 
C)  The total value of the firm must increase. 
D)  If a shareholder owned 10 per cent of the company before the bonus issue, she or he would still own 10 per cent after the bonus issue.

Question 4

Which of the following statements about the general reserve account is NOT true?

Accepted Answer

A)  A transfer to this account may be used to indicate to shareholders that it is unlikely to be paid out in dividends. 
B)  Amounts can be transferred back from it to retained profits. 
C)  The general reserve account provides an indication of where funds are invested. 
D)  The general reserve account appears under shareholders' equity in the balance sheet.

Question 5

What percentage of shares, as a general rule, are held by an investor for it to be presumed that the investor has significant influence over the company, unless there is evidence to the contrary?

Accepted Answer

A)  20 per cent or more 
B)  40 per cent or more 
C)  50 per cent or more 
D)  80 per cent or more

Question 6

XYZ Limited paid $2 million for 100 per cent of the voting shares of ABC Limited and determined the assets to be worth $3 million and the liabilities $800 000. What was the goodwill on consolidation at the date of acquisition?

Accepted Answer

A)  $100 000 
B)  $200 000 
C)  $300 000 
D)  None of the answers provided

Question 7

Investments appear on the balance sheet under the heading of:

Accepted Answer

A)  assets. 
B)  liabilities. 
C)  retained profits. 
D)  shareholders' equity.

Question 8

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the cost method, what would have been the impact of Ping Ltd's 30 June 2016 earnings announcement?

Accepted Answer

A)  Dividend revenue would have increased by $200 000. 
B)  Investment in Ping Ltd would have increased by $200 000. 
C)  Investment in Ping Ltd would have decreased by $200 000. 
D)  No record would have been made.

Question 9

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. The journal entry to record the amount due on application would include:

Accepted Answer

A)  Dr Share capital, $110 000. 
B)  Cr Application, $110 000. 
C)  Cr Share capital, $150 000. 
D)  Dr Share capital, $110 000

Question 10

LMN Ltd declared an interim dividend on 12 February 2016 of 5 cents per share (500 000 issued shares) and paid it on 3 March 2016. The journal entry on 12 February 2016 would include:

Accepted Answer

A)  Dr Interim dividend declared, $25 000. 
B)  Cr Cash, $25 000. 
C)  Cr Retained profits, $25 000. 
D)  none of the answers provided.

Question 11

Which of the following statements about a 2:1 share split is NOT true?

Accepted Answer

A)  The number of shares is doubled. 
B)  The unit market price of each share is reduced. 
C)  The value of share capital is doubled. 
D)  No journal entry is required.

Question 12

XYZ buys a 24 per cent share in ABC for $80m. ABC's total net profit is $50m and it pays $4m in dividends to XYZ. Using the equity method, the value of the investment in ABC would be recorded at year-end as:

Accepted Answer

A)  $80m. 
B)  $88m. 
C)  $92m. 
D)  $19m.

Question 13

Springtown Ltd issued 10 000 ordinary shares for $2.50 each, payable $1 on application, 50 cents on allotment and $1 in calls as required. The journal entries to record the allotment of 10 000 shares would include a:

Accepted Answer

A)  credit to cash, $5000. 
B)  debit to allotment, $10 000. 
C)  credit to share capital, $25 000. 
D)  credit to share capital, $5000.

Question 14

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the equity basis, what revenue would it record for the year ended 31 December 2016 in respect of its investment in Down Ltd?

Accepted Answer

A)  $90 000 
B)  $150 000 
C)  $190 000 
D)  $280 000

Question 15

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. The journal entry to record the cash received on application would include:

Accepted Answer

A)  Dr Cash at bank, $110 000. 
B)  Cr Share capital, $110 000. 
C)  Cr Application, $110 000. 
D)  Dr Application, $110 000.

Question 16

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. What was the balance of share capital at 11 October?

Accepted Answer

A)  $25 000 
B)  $125 000 
C)  $150 000 
D)  $110 000

Question 17

Which of the following is NOT omitted from the consolidated accounts?

Accepted Answer

A)  Debt owing to parent company by subsidiary company 
B)  Intercompany sales 
C)  Management fees charged to the subsidiary by the parent company 
D)  Credit sales of the subsidiary

Question 18

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the cost method, what dividend revenue would it record for the year ended 31 December 2016 in respect of its investment in Ping Ltd?

Accepted Answer

A)  Nil 
B)  $120 000 
C)  $200 000 
D)  $350 000

Question 19

Alby Ltd paid $1 800 000 for 80 per cent of the voting shares of Bunter Ltd and evaluated Bunter's assets to be worth $3 000 000 and its liabilities $800 000. What was the goodwill on consolidation at date of acquisition?

Accepted Answer

A)  $40 000 
B)  $400 000 
C)  $430 000 
D)  $360 000

Question 20

Which of the following statements about bonus issues is NOT true?

Accepted Answer

A)  Bonus issues can be a useful takeover defence. 
B)  Bonus issues reduce shareholders' equity as well as assets. 
C)  Bonus issues do not affect cash. 
D)  Bonus issues are also referred to as share dividends.

Exam 12: Completing the Balance Sheet