Financial Endterm

Question 1

Treasury shares are:

Answer 1

a corporation’s own shares that it has reacquired from shareholders but not retired.

Question 2

Reasons for why companies buy their own shares

Answer 2

1. To reissue the shares to officers and employees under bonus and share compensation plans.
2. To enhance the share’s market value.
   3.To have additional shares available for use in the acquisition of other companies.
3. To increase earnings per share.

Question 3

Treasury Shares is a ________ account

Answer 3

contra-equity (so they have a debit balance)

Question 4

If treasury shares are sold again the difference between the par value or stated value and the sales price is credited to the ::::

Answer 4

Share Premium - Treasury account

Question 5

Reasons why corporations issue share dividends:

Answer 5

Satisfy shareholders’ dividend expectations without spending cash
Increase marketability of corporation’s shares
Emphasize a portion of shareholders’ equity has been permanently reinvested in business

Question 6

Small share dividend

Answer 6

less than 20–25% of corporation’s issued shares, recorded at fair market value)

Question 7

Large share dividend

Answer 7

greater than 20–25% of issued share, recorded at par value

Question 8

decrease in accounts receivable _______ net income

Answer 8

increases

Question 9

increases in inventories _______ net income

Answer 9

decreases

Question 10

increase in prepaid expenses ________________– net income

Answer 10

decreases

Question 11

When income taxes payable decreases ; net income ___________

Answer 11

decreases as cash was used to pay the income taxes

Question 12

when accounts payable increases; net income ___________

Answer 12

increases

Question 13

Increase in current asset account causes a _______ to the net income account

Answer 13

deduction

Question 14

Decrease in current liability account leads to a _________ to the net income account

Answer 14

addition