LEMONADE

Question 1

A corporation is incorporated in only one country, regardless of the number of countries in which it operates

Answer 1

TRUE

Question 2

The preemptive right allows shareholders the right to vote for directors of the company.

Answer 2

FALSE

Question 3

Ordinary shares is the residual corporate interest that bears the ultimate risks of loss

Answer 3

TRUE

Question 4

Earned capital consists of contributed capital and retained earnings.

Answer 4

FALSE

Question 5

True no-par shares should be carried in the accounts at issue price without any share premium reported

Answer 5

TRUE

Question 6

Companies allocate the proceeds received from a lump-sum sale of securities based on the securities’ par value

Answer 6

FALSE

Question 7

Companies should record shares issued for services or noncash property at either the fair value of the shares issued or the fair value of the consideration received

Answer 7

TRUE

Question 8

Treasury shares are a company’s own shares that have been reacquired and retired.

Answer 8

FALSE

Question 9

The cost method records all transactions in treasury shares at their cost and reports the treasury shares as a deduction from ordinary shares.

Answer 9

FALSE

Question 10

When a corporation sells treasury shares below its cost, it usually debits the difference between cost and selling price to Share Premium-Treasury

Answer 10

TRUE

Question 11

Participating preference shares require that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any ordinary dividends.

Answer 11

FALSE

Question 12

Callable preference shares permit the corporation at its option to redeem the outstanding preference shares at stipulated prices.

Answer 12

TRUE

Question 13

The laws of some jurisdictions require that corporations restrict their contributed capital from distribution to shareholders.

Answer 13

TRUE

Question 14

Many companies pay dividends in amounts equal to their legally available retained earnings

Answer 14

FALSE

Question 15

All dividends, except for liquidating dividends, reduce the total shareholders’ equity of a corporation.

Answer 15

FALSE

Question 16

Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.

Answer 16

TRUE

Question 17

When a share dividend is declared on the ordinary shares outstanding, a company is required to transfer the par value of the shares issued from retained earnings.

Answer 17

TRUE

Question 18

Share splits and share dividends have the same effect on a company’s retained earnings and total shareholders’ equity.

Answer 18

FALSE

Question 19

The return on ordinary share equity is computed by dividing net income by the average ordinary equity

Answer 19

FALSE

Question 20

The payout ratio is determined by dividing cash dividends paid to ordinary shareholders by net income available to ordinary shareholders.

Answer 20

TRUE

Question 21

The residual interest in a corporation belongs to the

Answer 21

ORDINARY SHAREHOLDERS

Question 22

The preemptive right of an ordinary shareholder is the right to

Answer 22

Share proportionately in any new issues of stock of the same class

Question 23

Special characteristics of the corporate form that affect accounting include:
a. influence of corporate law
b. use of the share system
c. development of a variety of ownership interests
d. all of the above

Answer 23

a. influence of corporate law
b. use of the share system
c. development of a variety of ownership interests

Question 24

Hiro Corp. issues shares which bear the ultimate risks of loss and receive the benefit of success. These shares are not guaranteed dividends nor assets upon dissolution. These shares are________

Answer 24

Ordinary shares, not preference shares

Question 25

Categories of equity include all of the following except a. non-controlling interest b. accumulated other comprehensive income c. liquidating dividends d. treasury shares

Answer 25

LIQUIDATING DIVIDENDS (debt instrument)

Question 26

Shareholders of a business enterprise are said to be the residual owners. The term residual owners means that shareholders:

Answer 26

Bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership

Question 27

Total shareholders' equity is:

Answer 27

Both income retained by the corporation and contributions by holders

Question 28

The accounting problem in a lump sum issuance is the allocation proceeds between the classes of securities. An acceptable method of allocation is the:

Answer 28

PROPORTIONAL METHOD or the INCREMENTAL METHOD

Question 29

When a corporation issues its ordinary shares in payment for services, the least appropriate basis for recording the transaction is

Answer 29

PAR VALUE OF SHARES ISSUED

Question 30

In the case of noncash assets, distributed as dividends, the noncurrent asset classified for distribution is measured at:

Answer 30

THE LOWER OF CARRYING AMOUNT and FAIR VALUE LESS COSTS TO SELL/COSTS TO COMPLETE

Question 31

A change in the fair value less cost of noncash assets to be distributed as dividends causes an adjustment to the asset, if and only if, the amount is less than the fair value of the asset. This change is only recorded at the end of the reporting period and is not adjusted at the date of settlement

Answer 31

TRUE

Question 32

If the updated fair value of noncash assets is greater than its carrying amount, the carrying amount of the noncash asset is increased accordingly.

Answer 32

FALSE

Question 33

The dividends payable account is adjusted for any changes recognized in equity at the end of each reporting period and at the date of settlement.

Answer 33

TRUE

Question 34

If the noncash asset is less than the dividends payable on the settlement date, there is a loss on distribution of property dividends.

Answer 34

FALSE

Question 35

If the noncash asset is greater than the dividends payable on the settlement date, there is a loss on distribution of property dividends.

Answer 35

TRUE

Question 36

Direct costs incurred to sell shares such as underwriting costs should be accounted for as:

Answer 36

REDUCTION OF SHARE PREMIUM

Question 37

Start up costs such as legal and secretarial costs should be accounted for as:

Answer 37

EXPENSE WHEN INCURRED

Question 38

A "secret reserve" will be created if:

Answer 38

A capital expenditure is charged to expense

Question 39

What represents the total number of shares that a corporation may issue under the terms of its charter

Answer 39

AUTHORIZED SHARES

Question 40

Shares that have a fixed per-share amount printed on each share certificate are called:

Answer 40

PAR VALUE SHARES

Question 41

What is the pro-forma journal entry for recording the payment of dividends payable when there is no indication when the dividends were declared?

Answer 41

Retained earnings Cash/Non-cash asset

Question 42

Which of the following is not a legal restriction related to profit distributions by a corporation? a. the amount distributed to owners must be in compliance with the laws governing corporations b. the amount distributed in any one year can never exceed the net income reported for that year c. profit distributions must be formally approved by the board of directors d. divdends must be in full agreement with the capital contracts as to preferences and participation

Answer 42

The amount distributed in any one year can never exceed the net income reported for that year

Question 43

Ordinary no-par shares can be sold at a premium.

Answer 43

FALSE

Question 44

Ordinary no-par shares may be subject to high taxes

Answer 44

TRUE

Question 45

Dunn Trading Co. issued 2,500 ordinary shares. The shares have a $2 par value and are sold for $12 per share. Dunn incurred $3,000 to sell the shares relating to underwriting costs and legal fees. Dunn Trading Co. will record the $3,000 as:

Answer 45

DEBIT to SHARE PREMIUM-ORDINARY Because share issuance costs are charged to Share Premium.

Question 46

In January 2015, Finley Corporation, a newly formed company, issed 10,000 shares of its $10 par ordinary shares for $15 per share. On July 1, 2015, Finley Corporation reacquired 1,000 shares of outstanding shares for $12 per share. The acquisition of these treasury shares

Answer 46

DECREASED TOTAL SHAREHOLDERS' EQUITY

Question 47

Treasury shares are:

Answer 47

ISSUED BUT NOT OUTSTANDING SHARES

Question 48

When treasury shares are purchased for more than the par value of the shares and the cost method is used to account for treasury shares, what accounts should be debited?

Answer 48

TREASURY SHARES FOR THE PURCHASE PRICE

Question 49

"Gains" on sales of treasury shares (using the cost method) should be credited to

Answer 49

SHARE PREMIUM-TREASURY

Question 50

The amount credited to share premium-treasury is equal to:

Answer 50

THE EXCESS OF ISSUE PRICE OVER THE COST OF THE TREASURY SHARES

Question 51

Potter Corp. purchased its own par value shares on January 1, 2015 for $20,000 and debited the treasury shares account for the purchase price. The shares were subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from:

Answer 51

SHARE PREMIUM-TREASURY to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings

Question 52

How should "gain" from the sale of treasury shares be reflected using the cost method of recording treasury shares transactions?

Answer 52

As share premium from treasury share transactions

Question 53

What is the effect of treasury share transactions on retained earnings?

Answer 53

May decrease but not increase retained earnings. This is because the law requires that an amount of retained earnings is appropriated for treasury shares.

Question 54

What characteristic makes a preference share more like a debt instrument than an equity instrument?

Answer 54

REDEEMABLE

Question 55

This is a preference share that can be called in for redemption at a specified price at the option of the corporation.

Answer 55

CALLABLE PREFERENCE SHARE

Question 56

Why is a redeemable preference share considered to be a financial liability?

Answer 56

Redemption by the issuer is mandatory for a fixed amount at a future date. Neither the issuer or the holder has a choice in the redemption.

Question 57

This feature of preference shares requires that preference dividends not paid in any year must be made up in a later year before dividends are distributed to ordinary shareholders.

Answer 57

CUMULATIVE FEATURE

Question 58

What amount should be used as a basis for computing the preference share dividends in arrears?

Answer 58

The amount of preference shares outstanding

Question 59

What amount should be used as a basis for computing ordinary share dividends?

Answer 59

The residual amount of dividends declared after deducting the amount allocated to preference dividend shares

Question 60

According to IFRS, redeemable preference shares should be included as a:

Answer 60

LIABILITY

Question 61

Cumulative preference dividends in arrears should be shown in a corporation's statement of financial position as:

Answer 61

A FOOTNOTE

Question 62

The features most frequently associated with preference shares include all the following except: a. callable at the option of the shareholder b. convertible into ordinary shares c. non-voting d. preference as to assets in the event of liquidation

Answer 62

CALLABLE AT THE OPTION OF THE SHAREHOLDER

Question 63

When preference shares share ratably with ordinary shareholders in a profit distributions beyond the prescribed rate, this is known as:

Answer 63

PARTICIPATING FEATURE

Question 64

Liquidating dividends:

Answer 64

Reduce amounts paid-in by shareholders

Question 65

At the date of financial statements, ordinary shares issued would exceed ordinary shares outstanding as a result of:

Answer 65

PURCHASE OF TREASURY SHARES

Question 66

An entry is not made on the:

Answer 66

DATE OF RECORD

Question 67

Cash dividends are paid on the basis of the number of shares ____________

Answer 67

OUTSTANDING

Question 68

A property dividend is usually in the form of securities of other companies.

Answer 68

TRUE

Question 69

The accounting for a property dividend should be based on the carrying value of the nonmonetary assets transferred.

Answer 69

FALSE

Question 70

Houser Corporation owns 4,000,000 shares of Baha Corporation. On December 31, 2015, Houser distributed these shares as a dividend to its shareholders. This is an example of a:

Answer 70

PROPERTY DIVIDEND

Question 71

A dividend which is a return to shareholders of a portion of their original investments.

Answer 71

LIQUIDATING DIVIDEND

Question 72

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

Answer 72

SHARE PREMIUM

Question 73

If management wishes to "capitalize" part of the earnings, it may issue a:

Answer 73

SHARE DIVIDEND

Question 74

Which dividends do not reduce equity

Answer 74

SHARE DIVIDENDS

Question 75

The declaration and issuance of a share dividend

Answer 75

Decreases retained earnings but does not change total equity because it causes an equivalent increase in share capital.

Question 76

Quirk Corporation issued a 100% share dividend of its ordinary shares which had a par value of $10 before and after the dividend. At what amount should the retained earnings should be capitalized for the additional shares issued:

Answer 76

PAR VALUE OF SHARES

Question 77

The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to contributed capital an amount equal to the:

Answer 77

PAR or STATED VALUE OF THE SHARES ISSUED

Question 78

At the date of declaration of an ordinary share divident, the entry should not include:

Answer 78

A credit to Share Capital-Ordinary It should instead include a credit to Share Dividends Payable

Question 79

The balance in Share Dividends Payable should be reported as:

Answer 79

Addition to Share Capital-Ordinary

Question 80

A feature that is common to both share splits and share dividends is:

Answer 80

That there is no effect on total equity

Question 81

What effect does the issuance of a 2-for-1 split have on the par value of each share?

Answer 81

DECREASES THE PAR VALUE OF EACH SHARE

Question 82

Which of the following disclosures should be made in the equity section of the statement of financial position, rather than in the notes to the financial statements? a. dividend preference b. liquidation preferences c. call prices d. conversion or exercise prices

Answer 82

LIQUIDATION PREFERENCE

Question 83

The return on ordinary share equity is calculated by:

Answer 83

DIVIDING NET INCOME less PREFERENCE DIVIDENDS by the AVERAGE ORDINARY SHAREHOLDER'S EQUITY

Question 84

The payout ratio can be calculated by:

Answer 84

DIVIDING CASH DIVIDENDS by NET INCOME less PREFERENCE DIVIDENDS

Question 85

Ordinary shareholder's equity divided by the number of ordinary shares outstanding is called

Answer 85

BOOK VALUE PER SHARE

Question 86

The Statement of Financial Position and the Statement of Changes in Equity are both required statements under IFRS.

Answer 86

TRUE

Question 87

Trading on the equity is:

Answer 87

A RETURN ON ASSETS THAT IS HIGHER THAN THE COST OF FIANNCING THESE ASSETS

Question 88

Dividends are paid on treasury shares

Answer 88

FALSE

Question 89

Noncumulative preferred dividends in arrears are not paid but disclosed

Answer 89

FALSE. Noncumulative preferred dividends in arrears are not paid or disclosed.

Question 90

How should cumulative preference dividends in arrears be shown in a corporation's statement of financial position?

Answer 90

NOTE DISCLOSURE

Question 91

What is the impact on total equity of treasury shares resold at more than cost?

Answer 91

INCREASE TOTAL EQUITY

Question 92

What is the impact on total equity of operating loss for the period?

Answer 92

DECREASE TOTAL EQUITY

Question 93

What is the impact on total equity of retirement of bonds payable at more than book value?

Answer 93

DECREASE TOTAL EQUITY

Question 94

What is the impact on total equity of declaration of a share dividend?

Answer 94

NO EFFECT ON TOTAL EQUITY

Question 95

What is the impact on total equity of the acquisition of machinery for ordinary shares?

Answer 95

INCREASE TOTAL EQUITY

Question 96

What is the impact on total equity of conversion of bonds payable into ordinary shares?

Answer 96

INCREASE TOTAL EQUITY

Question 97

What is the impact on total equity of not declaring a dividend on cumulative preference shares?

Answer 97

NO EFFECT ON TOTAL EQUITY

Question 98

What is the impact on total equity of declaring a cash dividend?

Answer 98

DECREASE TOTAL EQUITY

Question 99

What is the impact on total equity of a payment of cash dividend?

Answer 99

NO EFFECT ON TOTAL EQUITY