share capital, dividends and retained earnings

Question 1

sole proprietorship capital structure

Answer 1

one owner who contributes the full capital

Question 2

limited liability partnership capital structure

Answer 2

two or more partners where each partner contributes capital

Question 3

private limited company capital structure

Answer 3

up to 50 shareholders where each shareholder buys shares and contributes capital

Question 4

sole proprietorship access to funds

Answer 4

• difficult to get funds from banks and other lenders
• funds limited to personal funds of owner

Question 5

LLP access to funds

Answer 5

• easier to get funds from banks and other lenders
• may get more partners to join and contribute capital

Question 6

PLC access to funds

Answer 6

• easier to get funds from banks and other lenders
• may issue more shares to raise funds

Question 7

sole proprietorship extent of liability

Answer 7

owner is personally liable for all debts and losses incurred by the business

Question 8

LLP extent of liability

Answer 8

• partners not personally liable for the debts and losses of the business

Question 9

PLC extent of liability

Answer 9

shareholders not personally liable for debts and losses of business

Question 10

sole proprietorship level of control

Answer 10

owner has full control over all decisions

Question 11

LLP level of control

Answer 11

control shared among the partners

Question 12

PLC level of control

Answer 12

shareholders have no control over running of business. the company hires professionals to manage the business.

Question 13

sole proprietorship lifespan

Answer 13

exists as long as the owner is alive and desires to continue operations

Question 14

LLP lifespan

Answer 14

the business exists forever until wound up or struck-off

Question 15

PLC lifespan

Answer 15

business exists forever until wound up or struck-off

Question 16

sole proprietorship transfer of ownership

Answer 16

owner can transfer or sell business to others

Question 17

LLP transfer of ownership

Answer 17

all partners need to agree to addition or withdrawal of partners

Question 18

PLC transfer of ownership

Answer 18

shareholders can transfer or sell their shares to others

Question 19

share capital

Answer 19

refers to cash raised by issuing shares to shareholders

Question 20

retained earnings

Answer 20

refers to the accumulation of profits and losses that has not been distributed to the shareholders yet since operation

Question 21

dividends

Answer 21

the portion of profits that are distributed to the shareholders

Question 22

journal entry to record issue of shares/ share capital

Answer 22

dr cash at bank xx
cr share capital xx

Question 23

journal entry for business makes profit

Answer 23

dr income summary xx
cr retained earnings xx

Question 24

journal entry for business makes loss

Answer 24

dr retained earnings xx
cr income summary xx

Question 25

journal entry to record dividends declared if paid

Answer 25

dr dividends xx
cr cash at bank xx

Question 26

journal entry to record dividends declared if not paid

Answer 26

dr dividends xx
cr dividends payable xx

Question 27

journal entry to record subsequent payment of dividends payable

Answer 27

dr dividends payable xx
cr cash at bank xx

Question 28

journal entry to record transfer of dividends to retained earnings account

Answer 28

dr retained earnings xx
cr dividends xx

Question 29

share capital account has a

Answer 29

credit balance

Question 30

share capital account when company issues new shares

Answer 30

credit cash at bank

Question 31

dividends account has a

Answer 31

debit balance

Question 32

dividends account when dividends declared but not paid

Answer 32

dr dividends payable

Question 33

dividends account when dividends declared and paid

Answer 33

dr cash at bank plus date which dividends declared

Question 34

retained earnings account when profit earned

Answer 34

cr income summary

Question 35

retained earnings account when loss made

Answer 35

dr income summary

Question 36

retained earning account when dividends declared (regardless paid or not)

Answer 36

always debit dividends

Question 37

extract of statement of financial position, show equity portion

Answer 37

shareholders’ equity

share capital, xxx ordinary shares
retained earnings (beginning balance+profit-dividends)