Question 1

The legal entity is:

Accepted Answer

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

Question 2

The feature that is not a characteristic of a company is:

Accepted Answer

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

Question 3

Which of the following statements is correct?

Accepted Answer

A)  Most companies see retained profits as the least likely source of finance. 
B)  The law quite clearly specifies the size of the non-distributable portion of capital a firm must hold back. 
C)  Preference capital redeemed by a company is always held in retained profits. 
D)  A company is not allowed to acquire and hold its own shares.

Question 4

Which statement concerning a rights issue is true?

Accepted Answer

A)  The issue is often made to ensure that new shareholders are brought into the company. 
B)  The shares are generally offered at above the current market price of the existing shares. 
C)  The cost of the issue tends to be less than making a share issue to the general public. 
D)  Both A and C.

Question 5

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 6

If the retained profit figure in a company statement of financial position increases from the beginning of the year to the end of the year,it is most probable that:

Accepted Answer

A)  profit for the year is less than dividends declared. 
B)  bonus shares have been issued. 
C)  additional capital has been raised during the year. 
D)  profit for the year is more than dividends declared.

Question 7

An investor invests in Canta Ltd by purchasing 1,000 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 100 and the market price of the shares will fall. 
B)  will increase by 1,000 and the market price of the shares will remain the same. 
C)  will increase by 1,000 and the market price of the shares will fall. 
D)  will increase by 1,000 and the market price of the shares will rise.

Question 8

Redeemable preference shares:

Accepted Answer

A)  are the same as bonus shares. 
B)  can be repurchased by the company. 
C)  allow the holders full voting rights. 
D)  can be exchanged for ordinary shares.

Question 9

Which part of shareholders' equity may not be used to pay cash dividends?

Accepted Answer

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

Question 10

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 11

Assume the balance in the retained profit account 30/06/2014 is $57,000.The profit for 2014/15 is $32,000 and dividends declared are $40,000.What is the balance in retained profits 30/6/2015?

Accepted Answer

A)  $49,000. 
B)  $89,000. 
C)  $65,000. 
D)  None of the above.

Question 12

The shareholders' equity section in a statement of financial position may include which of the following accounts?

Accepted Answer

A)  Retained profits. 
B)  Share capital. 
C)  Reserves. 
D)  All of the above.

Question 13

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.

Question 14

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 15

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 16

Limited liability means:

Accepted Answer

A)  the liability of shareholders for company debts is normally limited to the amount they have paid for their shares. 
B)  the liability of directors for company debts is limited. 
C)  if the company fails, the creditors may have to bear greater losses than if they were dealing with a non-company. 
D)  Both A and C.

Question 17

Shareholders who exercise their entitlement to a bonus issue of shares,in theory,will:

Accepted Answer

A)  leave their wealth unchanged. 
B)  reduce their proportional ownership in the company. 
C)  increase their wealth. 
D)  reduce their wealth.

Question 18

Bonus shares are:

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.

Question 19

The company 'Raider Limited' must be:

Accepted Answer

A)  a proprietary company. 
B)  a public company. 
C)  a private company. 
D)  none of the above.

Question 20

Which item(s)can be a component of shareholders' equity?

Accepted Answer