Question 1

The board of directors must assign a per share value to a share dividend declared that is

Accepted Answer

A)   greater than the par or stated value.
B)   less than the par or stated value.
C)   equal to the par or stated value.
D)   at least equal to the par or stated value.E) A) and B)
F) A) and C)

Question 2

Net losses reduce the balance of Share Capital-Ordinary.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about retained earnings restrictions is incorrect?

Accepted Answer

A)   Many jurisdictions require a corporation to restrict retained earnings for the cost of treasury shares purchased.
B)   Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.
C)   The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes.
D)   Retained earnings restrictions are generally disclosed through a journal entry on the books of a company.E) A) and C)
F) B) and C)

Question 4

Ordinary Share Dividends Distributable is shown in the equity section of the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 5

On January 1, 2014, Fairly Company issued 30,000 ordinary shares with a $2 par value for $150,000. On March 1, 2014, the company purchased 4,000 ordinary shares for $8 per share for the treasury. On June 1, 2014, 1,000 of the treasury shares are sold for $10 per share. On September 1, 2014, 2,000 treasury shares are sold at $6 per share.
Instructions
Journalize the share transactions of Fairly Company in 2014.

Accepted Answer

The answer of On January 1, 2014, Fairly Company issued...

Question 6

The par value of shares

Accepted Answer

A)   is legally significant.
B)   reflects the most recent market price.
C)   is selected by the IASB.
D)   is indicative of the worth of the shares.E) None of the above
F) B) and C)

Question 7

Peebles Company purchased 2,000 shares of its own £5 par value ordinary shares, paying £14 per share. The shares were originally sold for £9 each. The journal entry to record the purchase of treasury shares includes a debit to

Accepted Answer

A)   Share Capital-Ordinary for £10,000.
B)   Treasury Shares for £28,000.
C)   Share Premium-Ordinary for £8,000.
D)   Retained Earnings for £10,000.E) A) and B)
F) C) and D)

Question 8

A corporation is not committed to a legal obligation when it declares

Accepted Answer

A)   a cash dividend.
B)   either a cash dividend or a share dividend.
C)   a share dividend.
D)   a distribution date.E) B) and D)
F) C) and D)

Question 9

The two ways that a corporation can be classified by purpose are

Accepted Answer

A)   general and limited.
B)   profit and not-for-profit.
C)   local and national
D)   publicly held and privately held.E) B) and C)
F) All of the above

Question 10

On January 1, Castagno Corporation had 1,200,000 ordinary shares with a $10 par value outstanding. On March 31, the company declared a 15% share dividend. Market value was $15/share. As a result of this event,

Accepted Answer

A)   Castagno's Share Premium-Ordinary account increased $900,000.
B)   Castagno's total equity was unaffected.
C)   Castagno's Share Dividends account increased $2,700,000.
D)   All of these answer choices are correct.E) A) and D)
F) B) and D)

Question 11

Freidrichs Company has issued and outstanding 11,000 shares of cumulative, 6%, €50 par value preference shares which it sold for €54 per share at the beginning of 2012. The company has never paid preference dividends. As of December 31, 2014, dividends in arrears are

Accepted Answer

A)   €66,000.
B)   €99,000.
C)   €121,500.
D)   €106,920.E) A) and B)
F) B) and D)

Question 12

Dividends may be declared and paid in cash or shares.

Accepted Answer

A) True 
 B)False

Question 13

Retained earnings is increased by each of the following except

Accepted Answer

A)   net income.
B)   prior period adjustments.
C)   some disposals of treasury shares.
D)   All of these answer choices are correct.E) B) and D)
F) B) and C)

Question 14

Luther Inc has 2,000 shares of 5%, $50 par value, cumulative preference shares and 100,000 ordinary shares with a $1 par value outstanding at December 31, 2013, and December 31, 2014. The board of directors declared and paid a $4,000 dividend in 2013. In 2014, $24,000 of dividends are declared and paid. What are the dividends received by the preference shareholders in 2014?

Accepted Answer

A)   $18,000
B)   $12,000
C)   $6,000
D)   $5,000E) All of the above
F) A) and B)

Question 15

Which of the following rights of an ordinary shareholder is being eliminated by many companies?

Accepted Answer

A)   Right to vote and elect the board of directors.
B)   Right to receive a pro rata share of dividends paid.
C)   Pre-emptive right.
D)   Share in assets at liquidation.E) A) and D)
F) A) and B)

Question 16

The ability of a corporation to obtain capital is

Accepted Answer

A)   enhanced because of limited liability and ease of share transferability.
B)   less than a partnership.
C)   restricted because of the limited life of the corporation.
D)   about the same as a partnership.E) B) and C)
F) None of the above

Question 17

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

Accepted Answer

A)   corporation is organized for the purpose of making a profit.
B)   corporation is subject to government taxes.
C)   corporation is an accounting economic entity.
D)   corporation's temporary accounts are closed at the end of the accounting period.E) All of the above
F) A) and D)

Question 18

Retained earnings are occasionally restricted

Accepted Answer

A)   to set aside cash for dividends.
B)   to keep the legal capital associated with share premium intact.
C)   due to contractual loan restrictions.
D)   if preference dividends are in arrears.E) All of the above
F) A) and B)

Question 19

Elton Manufacturing Corporation purchased 4,000 shares of its own previously issued $10 par ordinary shares for $115,000. As a result of this event,

Accepted Answer

A)   Elton's Share Capital-Ordinary account decreased $40,000.
B)   Elton's total equity decreased $115,000.
C)   Elton's Share Premium-Ordinary account decreased $75,000.
D)   All of these answer choices are correct.E) C) and D)
F) B) and C)

Question 20

When treasury shares are purchased, the cost is debited to Share Capital - Ordinary.

Accepted Answer

A) True 
 B)False

Exam 11: Corporations: Organization, Share Transactions, Dividends, and Retained Earnings

Retained earnings is increased by each of the following except

Correct Answer
verified

Elton Manufacturing Corporation purchased 4,000 shares of its own previously issued $10 par ordinary shares for $115,000. As a result of this event,

Correct Answer
verified

The two ways that a corporation can be classified by purpose are

Correct Answer
verified

Net losses reduce the balance of Share Capital-Ordinary.

Correct Answer
verified

On January 1, Castagno Corporation had 1,200,000 ordinary shares with a $10 par value outstanding. On March 31, the company declared a 15% share dividend. Market value was $15/share. As a result of this event,

Correct Answer
verified

The par value of shares

Correct Answer
verified

When treasury shares are purchased, the cost is debited to Share Capital - Ordinary.

Correct Answer
verified

Which of the following rights of an ordinary shareholder is being eliminated by many companies?

Correct Answer
verified

Which of the following statements about retained earnings restrictions is incorrect?

Correct Answer
verified

Retained earnings are occasionally restricted

Correct Answer
verified

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

Correct Answer
verified

Correct Answer
verified

The board of directors must assign a per share value to a share dividend declared that is

Correct Answer
verified

Dividends may be declared and paid in cash or shares.

Correct Answer
verified

Correct Answer
verified

Peebles Company purchased 2,000 shares of its own £5 par value ordinary shares, paying £14 per share. The shares were originally sold for £9 each. The journal entry to record the purchase of treasury shares includes a debit to

Correct Answer
verified

The ability of a corporation to obtain capital is

Correct Answer
verified

A corporation is not committed to a legal obligation when it declares

Correct Answer
verified

Freidrichs Company has issued and outstanding 11,000 shares of cumulative, 6%, €50 par value preference shares which it sold for €54 per share at the beginning of 2012. The company has never paid preference dividends. As of December 31, 2014, dividends in arrears are

Correct Answer
verified

Ordinary Share Dividends Distributable is shown in the equity section of the statement of financial position.

Correct Answer
verified

Exam 11: Corporations: Organization, Share Transactions, Dividends, and Retained Earnings

Retained earnings is increased by each of the following except

Correct AnswerverifiedShow Answer

Elton Manufacturing Corporation purchased 4,000 shares of its own previously issued $10 par ordinary shares for $115,000. As a result of this event,

Correct AnswerverifiedShow Answer

The two ways that a corporation can be classified by purpose are

Correct AnswerverifiedShow Answer

Net losses reduce the balance of Share Capital-Ordinary.

Correct AnswerverifiedShow Answer

On January 1, Castagno Corporation had 1,200,000 ordinary shares with a $10 par value outstanding. On March 31, the company declared a 15% share dividend. Market value was $15/share. As a result of this event,

Correct AnswerverifiedShow Answer

The par value of shares

Correct AnswerverifiedShow Answer

When treasury shares are purchased, the cost is debited to Share Capital - Ordinary.

Correct AnswerverifiedShow Answer

Which of the following rights of an ordinary shareholder is being eliminated by many companies?

Correct AnswerverifiedShow Answer

Which of the following statements about retained earnings restrictions is incorrect?

Correct AnswerverifiedShow Answer

Retained earnings are occasionally restricted

Correct AnswerverifiedShow Answer

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The board of directors must assign a per share value to a share dividend declared that is

Correct AnswerverifiedShow Answer

Dividends may be declared and paid in cash or shares.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Peebles Company purchased 2,000 shares of its own £5 par value ordinary shares, paying £14 per share. The shares were originally sold for £9 each. The journal entry to record the purchase of treasury shares includes a debit to

Correct AnswerverifiedShow Answer

The ability of a corporation to obtain capital is

Correct AnswerverifiedShow Answer

A corporation is not committed to a legal obligation when it declares

Correct AnswerverifiedShow Answer

Freidrichs Company has issued and outstanding 11,000 shares of cumulative, 6%, €50 par value preference shares which it sold for €54 per share at the beginning of 2012. The company has never paid preference dividends. As of December 31, 2014, dividends in arrears are

Correct AnswerverifiedShow Answer

Ordinary Share Dividends Distributable is shown in the equity section of the statement of financial position.

Correct AnswerverifiedShow Answer

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