Corporation Formation

Question 1

Preference share dividends are usually paid prior to payment of ordinary
share dividends.

Answer 1

True

Question 2

Paid in capital is capital from contributions by shareholders.

Answer 2

True

Question 3

Paid in capital includes share premium and retained earnings.

Answer 3

False

Question 4

Treasury share is one that gives the holder a preference over the holders
of ordinary shares with respect to the payment of dividends.

Answer 4

True

Question 5

Resale of treasury share at more than cost is one source of additional
paid in capital.

Answer 5

True

Question 6

Reissue of treasury shares does not affect the total shareholders’ equity.

Answer 6

False

Question 7

Declaration and issuance of share dividend will not affect total
shareholders’ equity.

Answer 7

True

Question 8

Retirement of shares previously held in the treasury does not affect total
shareholders’ equity.

Answer 8

True

Question 9

The purchase of treasury shares decreases the total shareholder’s
equity

Answer 9

True

Question 10

The generally accepted method of accounting for treasury shares is
the cost method

Answer 10

True

Question 11

A gain or loss is recognized in profit or loss when the retirement
price of share capital differs from the original issue price of the share.

Answer 11

False

Question 12

Non cumulative preference shares are entitled to dividends that
have not been declared in the prior years.

Answer 12

False

Question 13

The purchase of treasury shares reduces both the number of
shares issued and the number of shares outstanding.

Answer 13

False

Question 14

When a corporation reacquires its own ordinary shares as treasury
shares, the balance in the Ordinary Share Capital is decreased

Answer 14

False

Question 15

Appropriation of retained earnings requires the setting up of a
separate cash fund.

Answer 15

False

Question 16

The ledger balance of the Treasury Shares account is reported in
the shareholders’ equity section as a direct deduction from retained
earnings.

Answer 16

False

Question 17

Acquisition of treasury shares by donation from shareholders does
not change the total shareholders’ equity.

Answer 17

True

Question 18

No entry is made by the corporation on the date of record.

Answer 18

True

Question 19

As a general guideline, a share dividend of less than 20% of the
number of shares previously outstanding is considered as a small share
dividend.

Answer 19

True

Question 20

A share dividend requires a transfer of capital from retained
earnings to contributed capital.

Answer 20

True

Question 21

With a large share dividend, a corporation transfers from retained
earnings to contributed capital an amount equal to the par or stated
value of the share issues.

Answer 21

True

Question 22

Retained earnings may not be increased as a result of share capital
transactions.

Answer 22

True

Question 23

A deficit in retained earnings arises whenever a net loss is reported
for an accounting period.

Answer 23

False

Question 24

No adjustment is made by the corporation for any change in the fair value of the assets held for distribution to shareholders from the date of declaration to the date of settlement.

Answer 24

False

Question 25

Deficit is the term that is used to indicate a debit balance in the retained earnings account.

Answer 25

True

Question 26

A property dividend is recorded at the adjusted carrying value, on the date of declaration, of the non-cash asset to be distributed as dividends.

Answer 26

False

Question 27

Assets held for distribution as dividends to shareholders are measured on the statement of financial position at the lower of the fair value and their carrying value.

Answer 27

False

Question 28

An appropriation of retained earnings is necessary for the cost of treasury shares held by the corporation.

Answer 28

True

Question 29

A scrip dividend is a distribution to shareholders representing a return of a portion of contributed capital.

Answer 29

False

Question 30

A share dividend increases contributed capital and retained earnings

Answer 30

False

Question 31

Dividends, other than a share dividend, reduce total shareholders' equity.

Answer 31

True

Question 32

Book value per share is a measurement of the amount of income earned by a shareholder during the period.

Answer 32

False

Question 33

Payment of dividends, which have been previously declared and recorded, does not affect Total shareholders' equity.

Answer 33

True

Question 34

No liability is recognized by a corporation upon declaration of a share dividend.

Answer 34

True

Question 35

Preference share that is given a right to share with the ordinary share in dividends in excess of a stated dividend rate is said to be a. cumulative b. participating c. non cumulative d. non participating

Answer 35

B.

Question 36

For an entity that has only ordinary shares outstanding, total shareholders' equity divided by the number of shares outstanding represents a. return on equity b. earnings per share c. Liquidation value per share d. Book Value Per Share

Answer 36

d.

Question 37

How would the share dividends distributable account balance be presented on the statement of financial position? as part of current liabilities as addition to share capital as addition to retained earnings as addition to additional paid in capital

Answer 37

as addition to share capital

Question 38

Sale of treasury shares at less than cost shall be charged to Loss on sale of treasury shares to be reported as other expense Retained earnings and then additional paid in capital from treasury share transactions Additional paid in capital from treasury share transactions and then retained earnings Share premium from original issuance, additional paid in capital from treasury share transactions and then retained earnings

Answer 38

Additional paid in capital from treasury share transactions and then retained earnings

Question 39

When a corporation calls in all of its preference shares for more than the original issuance price, the excess paid above the original issuance price shall be a. accounted for as loss on exchange in the income statement b. charged against share premium on ordinary shares c. charged to a discount on preference shares d. charged against retained earnings

Answer 39

D.

Question 40

Contributed capital does not include a. share premiums on ordinary and preference shares b. preference share capital dividend distributable c. share capital resulting from reissuance of treasury shares at price above acquisition price d. accumulated earnings of the corporation

Answer 40

d.

Question 41

The corporation should charge retained earnings for the fair value of the shares issued in a a.1 for 5 share capital dividend b. 1 for 8 share capital dividend c. 4 for 1 share split d. 2 for 1 share split

Answer 41

d.

Question 42

Appropriations of retained earnings, if reflected in separate account shall be reported as a. component of equity as part of share premium b. component of equity as part as total retained earnings c. component of total liabilities as current liability d. component of total liabilities as noncurrent liability

Answer 42

b.

Question 43

Which dividends do not reduce total shareholders' equity? a. liquidating dividends b. property dividends c. share capital dividends d. scrip dividends

Answer 43

c.