B 1. Voltaire Corporation issued 2,000 ordinary shares of CHF5 par value for CHF20 per share. The entry to record this transaction includes a credit to Share Premium–ordinary for
a. CHF40,000.
b. CHF30,000.
c. CHF10,000.
d. CHF20,000.
C 2. If Vickers Company issues 4,000 ordinary shares with a $5 par value for
$140,000,
a. Share Capital–Ordinary will be credited for $140,000.
b. Share Premium–Ordinary will be credited for $20,000.
c. Share Premium–Ordinary will be credited for $120,000.
d. Cash will be debited for $120,000.
A 3. If shares are issued for a non-cash asset, the asset should be recorded on the books of the corporation at
a. fair value.
b. cost.
c. zero.
d. a nominal amount.
B 4. Share Premium–Ordinary
a. is credited when no-par share does not have a stated value.
b. is reported as part of equity on the statement of financial position.
c. represents the amount of legal capital.
d. normally has a debit balance.
A 5. Andrews, Inc. paid $45,000 to buy back 9,000 shares of its $1 par value ordinary shares. These shares were sold later at a selling price of $6 per share.
The entry to record the sale includes a
a. credit to Share Premium–Treasury for $9,000.
b. credit to Retained Earnings for $9,000.
c. debit to Share Premium–Treasury for $45,000.
d. debit to Retained Earnings for $45,000.
B 6. A corporation purchases 20,000 shares of its own $10 par ordinary shares for
$25 per share, recording it at cost. What will be the effect on total equity?
a. Increase by $200,000 b. Decrease by $500,000 c. Increase by $500,000 d. Decrease by $200,000
d 7. Treasury shares are
a. shares issued by the U.S. Treasury Department.
b. shares purchased by a corporation and held as an investment in its treasury.
c. corporate shares issued by the treasurer of a company.
d. a corporation's own shares which have been reacquired but not retired.
B 8. When preference shares is cumulative, preference dividends not declared in a period are
a. considered a liability.
b. called dividends in arrears.
c. distributions of earnings.
d. never paid.
B 9. Cole Corporation issues 10,000 preference shares with a $50 par value for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $600,000 and a credit or credits to
a. Preference Shares for $600,000.
b. Preference Shares for $500,000 and Share Premium—Preferred Share for
$100,000.
c. Preference Shares for $750,000 and Share Premium for $100,000.
d. Share Premium for $600,000.
D 10. Beckham Company has 1,000 shares of 6%, $100 par cumulative preference shares outstanding at December 31, 2011. No dividends have been paid on these shares for 2010 or 2011. Dividends in arrears at December 31, 2011 total a. $0.
b. $600.
c. $6,000.
d. $12,000.
D 11. If a corporation declares a 10% ordinary share dividend, the account to be debited on the date of declaration is
a. Ordinary Share Dividends Distributable.
b. Share Capital–Ordinary.
c. Share Premium–Ordinary.
d. Retained Earnings.
B 12. Share dividends and share splits have the following effects on retained earnings:
Share Splits Share Dividends
a. Increase No change
b. No change Decrease
c. Decrease Decrease d. No change No change
a 13. The per share amount normally assigned by the board of directors to a small share dividend is
a. the market value of the shares on the date of declaration.
b. the average price paid by shareholders on outstanding shares.
c. the par or stated value of the shares.
d. zero.
D 14. Prior period adjustments are reported
a. in the footnotes of the current year's financial statements.
b. on the current year's statement of financial position.
c. on the current year's income statement.
d. on the current year's retained earnings statement.
B 15. Van Luther Company had total equity of £8,650,000 at January 1, 2011 and
£9,807,000 at December 31, 2011. The Company had net income for 2011 of
£1,557,000 and paid total dividends of £400,000, including the annual preference dividend of £320,000. Van Luther's return on equity for 2011 is a. 12.5%.
b. 13.4%.
c. 15.9%.
d. 16.9%.
b 16. At December 31, the shareholders’ equity included
Share capital–ordinary, $5 par value; 1,100,000 shares issued
and 1,000,000 shares outstanding $5,500,000
Share premium–ordinary 1,400,000
Retained earnings 1,500,000
Treasury shares, (100,000 shares) (700,000)
Total equity $7,700,000
The book value per ordinary share is a. $7.00
b. $7.70 c. $8.40 d. $7.20
A 17. Jennifer Company reports the following amounts for 2011:
Net income $135,000
Average shareholders' equity 500,000
Preference dividends 35,000
Par value preference shares 100,000 The 2011 rate of return on ordinary shareholders' equity is a. 25.0%.
b. 22.5%.
c. 27.0%.
d. 33.8%.
