Equity Flashcards
- A corporation is incorporated in only one country regardless of the number of countries in which it operates.
T
- The preemptive right allows shareholders the right to vote for directors of the company.
F
- Ordinary shares is the residual corporate interest that bears the ultimate risks of loss.
T
- Earned capital consists of contributed capital and retained earnings.
F
- True no-par shares should be carried in the accounts at issue price without any share premium reported.
T
- Companies allocate the proceeds received from a lump-sum sale of securities based on the securities’ par values.
F
- 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.
T
- Treasury shares are a company’s own shares that have been reacquired and retired.
F
- The cost method records all transactions in treasury shares at their cost and reports the treasury shares as a deduction from ordinary shares.
F
- When a corporation sells treasury shares below its cost, it usually debits the difference between cost and selling price to Share Premium—Treasury.
T
- 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.
F
- Callable preference shares permit the corporation at its option to redeem the outstanding preference shares at stipulated prices.
T
- The laws of some jurisdictions require that corporations restrict their contributed capital from distribution to shareholders.
T
- Many companies pay dividends in amounts equal to their legally available retained earnings.
F
- All dividends, except for liquidating dividends, reduce the total shareholders’ equity of a corporation.
F
- Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.
T
- 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.
T
- Share splits and share dividends have the same effect on a company’s retained earnings
and total shareholders’ equity.
F
- The return on ordinary share equity is computed by dividing net income by the average ordinary equity.
F
- The payout ratio is determined by dividing cash dividends paid to ordinary shareholders by net income available to ordinary shareholders.
T
- The residual interest in a corporation belongs to the
a. management.
b. creditors.
c. ordinary shareholders.
d. preference shareholders.
C.
- The pre-emptive right of an ordinary shareholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preference shareholders.
d. exclude preference shareholders from voting rights.
B.
- The pre-emptive right enables a shareholder to
a. share proportionately in any new issues of shares of the same class.
b. receive cash dividends before other classes of stock without the pre-emptive right.
c. sell ordinary shares back to the corporation at the option of the shareholder.
d. receive the same amount of dividends on a percentage basis as the preference
shareholders.
A
- Special characteristics of the corporate form that affect accounting include the
a. influence of corporate law.
b. use of the share system.
c. development of a variety of ownership interests.
d. All of these answer choices are correct.
D