Question 1

What are bonus shares?

Accepted Answer

A)  shares issued to employees.
B)  shares issued at no cost to shareholders.
C)  shares issued to the board of directors.
D)  shares issued to valued customers. B

Question 2

If operating profit is $131,000, tax expense is $39,000 and profit for the year is $82,000, what is the interest expense?

Accepted Answer

A)  $43,000.
B)  $49,000.
C)  $10,000.
D)  Unable to be calculated. C

Question 3

If a company issues 25,000 ordinary shares which are sold at $4 per share, the effect on the accounting equation is:

Accepted Answer

A)  increase cash $100,000; decrease in shareholders' equity $80,000.
B)  increase cash $100,000; increase in liabilities $80,000.
C)  increase cash $100,000; increase in shareholders' equity $100,000.
D)  none of the above. C

Question 4

In what order do the following items appear in a company's statement of financial performance? 
1. Tax expense
2. Revenue
3. Gross profit
4. Operating profit
5. Cost of sales

Accepted Answer

A)  1, 2, 3, 5 & 4.
B)  2, 3, 5, 1 & 4.
C)  2, 5, 3, 1, & 4.
D)  2, 5, 3, 4 & 1.

Question 5

In a company statement of financial position, the balance of retained profit at the end of the period is equal to:

Accepted Answer

A)  profit for the period.
B)  retained profit at the beginning of the period plus profit minus dividends declared.
C)  profit less losses.
D)  retained profit at the beginning of the period plus profit.

Question 6

The part of shareholders' equity that may not be used to pay cash dividends is:

Accepted Answer

A)  Retained profits.
B)  Share capital.
C)  Revenue reserves.
D)  Both A and B.

Question 7

A shareholder in Company C owns 2,000 shares bought for $1 each. The company decides to make a bonus issue of one new share for every two existing shares held. How many shares does the shareholder now have in Company C?

Accepted Answer

A)  3,000 shares.
B)  1,500 shares.
C)  500 shares.
D)  1,000 shares.

Question 8

Which of the following equations relating to a company's statements of financial performance is incorrect?

Accepted Answer

A)  Operating profit - Interest = Profit before tax.
B)  Revenues - Cost of sales = Gross profit.
C)  Profit before tax - Tax expense = Profit for the period.
D)  Gross profit - Tax expense - Interest expense = Operating profit.

Question 9

An investor invests in Canta Ltd by purchasing 2,000 shares for $2.50 each. In the following year, the company distributes a 1 for 1 share dividend (bonus issue). After the issue, the number of shares held by the investor:

Accepted Answer

A)  will increase by 200 and the market price of the shares will fall.
B)  will increase by 2,000 and the market price of the shares will remain the same.
C)  will increase by 2,000 and the market price of the shares will rise.
D)  will increase by 2,000 and the market price of the shares will fall.

Question 10

A company issued 500,000 ordinary shares to the public, priced at $1. The shares were payable 50 cents on 1 July 2018 and 50 cents was uncalled. How much cash was due to the company on 1 July from the issue?

Accepted Answer

A)  $150,000.
B)  $300,000.
C)  $100,000.
D)  $250,000.

Question 11

Which feature is not a characteristic of a company?

Accepted Answer

A)  limited liability.
B)  less government regulation than other types of entities.
C)  legal entity.
D)  perpetual life.

Question 12

If a company has a share capital of $150,000, revenue reserves of $25,000 and retained profits of $50,000, what is the maximum amount it can legally distribute as cash dividends?

Accepted Answer

A)  $130,000.
B)  $75,000.
C)  $145,000.
D)  $30,000.

Question 13

Which statement relating to preference shares is not correct?

Accepted Answer

A)  They are often non-voting shares.
B)  They are generally more risky for shareholders to own than ordinary shares.
C)  They are entitled to receive a dividend before the ordinary shareholders.
D)  They normally have a fixed rate of dividend attached.

Question 14

Assume the balance in the retained profit account 03/06/2017 is $55,000. The profit for 2017/18 is $35,000 and dividends declared are $40,000. What is the balance in retained profits 03/06/2018?

Accepted Answer

A)  $49,000.
B)  $89,000.
C)  $50,000.
D)  None of the above.

Question 15

Which is the highest level of control in a company?

Accepted Answer

A)  board of directors.
B)  chief financial officer.
C)  executive officer.
D)  chief accountant.

Question 16

Which is the main government regulator of companies in Australia?

Accepted Answer

A)  The Australian Securities and Investments Commission.
B)  The Auditors Board.
C)  The Australian Securities Exchange.
D)  The Australian Accounting Standards Board.

Question 17

What is the main difference between the financial statements prepared for a sole proprietorship and those prepared for a company?

Accepted Answer

A)  the number of statements that must be prepared.
B)  the detail in the reports.
C)  sole proprietorship's reports are always prepared at the end of December.
D)  companies do not have to prepare a cash flow statement.

Question 18

Sovereign Ltd has an issued capital of 300,000,000 shares sold at $2 each. Aman holds 9,000 shares. If Sovereign Ltd makes a 1 for 3 bonus issue, how many bonus shares will Aman acquire?

Accepted Answer

A)  3,000 shares.
B)  1,800 shares.
C)  2,000 shares.
D)  9,000 shares.

Question 19

Which of the following is a legal entity?

Accepted Answer

A)  company.
B)  partnership.
C)  sole proprietorship.
D)  all of the above.

Question 20

Which of the following is not a reason for a company making a bonus issue of shares?

Accepted Answer

A)  To use cash.
B)  As a signal to the market of the company's confidence in its future.
C)  To reduce its share price when it has become too high.
D)  None of the above, i.e., all are reasons for making a bonus issue.

Exam 4: Introduction to Limited Companies