Deck 11: Shareholders Equity

Question 1

Employees are not eligible to purchase their employers shares.

Answer 1

False

Question 2

Corporations generally issue shares through investment bankers known as "tellers".

Answer 2

False

Question 3

Retractable shares can be sold back to the company at the option of the shareholder.

Answer 3

True

Question 4

Accumulated other comprehensive income is a revenue account reported on the statement of income.

Question 5

Common shareholders have the right to vote at shareholder meetings.

Question 6

Dividends are only paid in cash.

Question 7

All companies are obligated to declare dividends.

Question 8

Non-cumulative means that common shareholders must be paid for dividends in arrears before preferred shareholders are paid.

Question 9

Every corporation must have one class of shares that represents the company's basic voting ownership rights.

Question 10

Repurchasing shares increases the number of shares outstanding.

Question 11

Contributed surplus is reported on the statement of income because it is a recognized gain.

Question 12

The repurchase of shares may result in a recognizable gain or loss.

Question 13

Convertible preferred shares can be converted,at the option of the company,into other types of preferred shares.

Question 14

Share capital represents the amount that investors paid for the shares when they were initially issued by the company.

Question 15

Pre-emptive rights prevent ownership interests from being diluted.

Question 16

Shares that have been sold by the company are known as issued shares.

Question 17

If a company would like to issue additional shares,they do not need to amend their Articles of Incorporation.

Question 18

Stock dividends are accounted for using the fair market value of the shares on the date of declaration.

Question 19

Preferred shares are normally non-voting.

Question 20

Convertible preferred shares are convertible to common shares at the option of the shareholder.

Question 21

The Statement of Financial Position shows all the dividends declared during the year.

Question 22

The repurchase of shares at a price lower than what the shares were initially issued at is called

A)share capital.
B)retained earnings.
C)other comprehensive income.
D)contributed surplus.

Question 23

Stock splits do not impact the value of the share capital or retained earnings accounts.

Question 24

Cash dividends are paid on the date of record.

Question 25

Public companies cannot pay a dividend on the date of declaration.

Question 26

A 2-for-1 stock split should have the effect of cutting the market price per share in half.

Question 27

The date of record results in a legal obligation to pay the cash dividends.

Question 28

Early-stage or growing companies do not normally pay dividends.

Question 29

The denominator in the return on equity calculation is the average number of common shares outstanding.

Question 30

The shareholders' equity section of the statement of financial position,includes all of the following accounts except for

A)contributed surplus.
B)accumulated OCI.
C)dividends.
D)share Capital.

Question 31

Dividend yield measure the dividends an investor will receive relative to the share price.

Question 32

Reverse stock splits are also known as consolidations.

Question 33

The price/earnings ratio provides a measure of the return to common shareholders.

Question 34

Stock splits only apply to common shareholders.

Question 35

Bailey Inc.issues 100,000 shares at $11 / share in January.Later that year the company is able to repurchase 9,000 of these shares at $10 per share.The effect of this is

A)a decrease to the share capital account of $90,000.
B)an increase to the contributed surplus account of $9,000.
C)a decrease to total shareholders' equity of $99,000.
D)an increase in retained earnings by $9,000.

Question 36

Stock splits are normally associated with profitable growing companies.

Question 37

Unrealized gains and losses from the revaluation of certain types of investments to fair value would be reported on

A)the income statement.
B)the statement of financial position.
C)the statement of changes in shareholders' equity.
D)the comprehensive income statement.

Question 38

A company may pay a one-time dividend if it has benefitted from an unusual gain.

Question 39

Stable companies usually pay out a lower portion of their earnings in dividends.

Question 40

Earnings per share provides a measure of the earnings relative to the number of common shares outstanding.

Question 41

Generally the major difference between preferred shares and common shares is

A)preferred shares are restricted by the amount of dividends that can be paid out.
B)common shares have a priority claim over corporate assets.
C)preferred shares have voting rights.
D)there are no significant differences between preferred and common shares.

Question 42

The maximum number of shares that a firm can issue is the number of

A)issued shares.
B)authorized shares.
C)outstanding shares.
D)permissible shares.

Question 43

Calypso Inc.issues 100,000 shares at $10 / share in January.Later that year the company is able to repurchase 9,000 of these shares at $11 per share.The balance in the contributed surplus account is $0 prior to the share repurchase.The effect of this is

A)a decrease to the share capital account of $99,000.
B)an increase to the contributed surplus account of $9,000.
C)a increase to total shareholders' equity of $99,000.
D)a decrease in retained earnings by $9,000.

Question 44

The one class of shares that represent a company's basic voting rights are

A)preferred shares.
B)capital shares.
C)cumulative shares.
D)common shares.

Question 45

When a company decides to repurchase shares it's previously sold,this is referred to as

A)retired share capital.
B)treasury shares.
C)a buyback.
D)contributed surplus.

Question 46

In a situation where a CDN company has a dual class share structure and common shareholders have more than one vote,this is referred to as a

A)pre-emptive right.
B)participating common share.
C)super voting share.
D)hybrid share.

Question 47

Dividends in arrears relate to which of the following?

A)cumulative preferred shares
B)participating preferred shares
C)cumulative common shares
D)participating common shares

Question 48

Which of the basic rights of shareholders does the preferred shareholder usually give up in order to acquire preferences over the common shareholder?

A)right to share in profits and losses
B)right to share in subsequent issues of shares
C)right to share in assets upon liquidation
D)right to vote

Question 49

When the value of a company is determined by the trading price of its shares multiplied by the number of shares outstanding,this is referred to as

A)other comprehensive income.
B)share capital.
C)market capitalization.
D)contributed surplus.

Question 50

The articles of incorporation include all of the following except

A)what kinds of shares are to be issued.
B)the costs of issuing the shares.
C)the type of business to be conducted.
D)how the board of directors is organized.

Question 51

Which of the following is not a basic right of common shares?

A)right to share in profits and losses
B)right to participate in the management of the company
C)right to vote in the selection of the board of directors for the corporation
D)right to share in the assets upon liquidation

Question 52

The type of preferred share that can be bought back by the company at a specified time and price is a

A)cumulative preferred share.
B)convertible preferred share.
C)redeemable preferred share.
D)non-participating preferred share.

Question 53

Which of the following statements is true?

A)Dividends are guaranteed to preferred shareholders.
B)Dividends accumulate on common shares.
C)Dividends are only issued if the board of directors declares them.
D)Dividends are paid to all classes of shares on the same basis.

Question 54

In the case of liquidation,where do preferred shareholders rank?

A)before creditors and common shareholders
B)after creditors and common shareholders
C)after creditors and equally with common shareholders
D)before common shareholders and after creditors

Question 55

What type of preferred share is entitled to dividends above its specified dividend if the common shares receive excess dividends and must receive dividends in arrears before the common dividends can be declared?

A)cumulative and participating
B)cumulative and non-participating
C)redeemable and participating
D)redeemable and cumulative

Question 56

Which of the following is the largest number of shares?

A)outstanding shares
B)authorized shares
C)issued shares
D)approved shares

Question 57

Preferred shares that pay a fixed dividend for as long as the shares remain outstanding are called

A)floating rate shares.
B)rate reset shares.
C)fixed dividend rate shares.
D)perpetual shares.

Question 58

For accounting purposes,the most important section of the articles of incorporation is the description of

A)the shares to be issued.
B)the type of business to be conducted.
C)how the board of directors will be organized.
D)who will make up the management.

Question 59

The pre-emptive right is the right to

A)share in the management of the company.
B)share proportionately in any new sale of shares.
C)share in the profits and losses of the company.
D)share in any dividends paid by the company.

Question 60

Which of the following accounts is not reported on the Statement of Changes in Shareholders' Equity?

A)Accumulated Other Comprehensive Income
B)Retained Earnings
C)Goodwill
D)Share Capital

Question 61

Which date is used to determine which shareholders will receive the declared dividend?

A)date of record
B)date of declaration
C)ex-dividend date
D)date of payment
Use the following information for questions 75-77.
Seaside Developments Inc.has $200,000 of no par value 4% cumulative preferred shares,and 12,000 shares of no par value common shares outstanding.In its first three years of operation,the company paid cash dividends as follows: Year 1: $8,000;Year 2: $18,000;and Year 3: $24,000.

Question 62

The amount of dividends received by the common shareholders in year 1 was

A)$4,000.
B)$ 0.
C)$8,000.
D)$12,000.

Question 63

The declaration and issuance of a stock dividend

A)increases total shareholders' equity.
B)does not change total shareholders' equity.
C)increases current liabilities.
D)does not change total retained earnings.

Question 64

Repurchasing shares

A)increases the number of shares outstanding.
B)decreases the number of shares outstanding.
C)has no effect on the number of shares outstanding.
D)splits shares in half.

Question 65

Dividends are not paid on

A)common shares.
B)preferred shares.
C)treasury shares.
D)outstanding shares.

Question 66

Use the following information for questions below
On January 1,The Blue Azul Diving Co.had total shareholders' equity as shown below when their shares were selling at $25 per share:
Common shares $( 125,000$ shares) $\ldots \ldots \ldots \ldots . \$ 2,500,000$
Retained earnings $\ldots \ldots \ldots \ldots . 4,000,000$
Total shareholders' equity $\ldots \ldots \ldots \ldots . \$ 6,500,000$

-Assume the company declared and issued a 10% stock dividend and that the market price remained constant.The effect of this dividend would

A)increase common shares by $312,500.
B)increase common shares by $250,000.
C)decrease retained earnings by $250,000.
D)increase common shares by $400,000.

Question 67

At least one class of a company's common share must have all three of the following rights except

A)the right to vote at meetings of the company's shareholders.
B)the right to receive dividends,if declared.
C)the right to a share of the company's net assets upon liquidation of the company.
D)the right to convert shares to cumulative participating preferred shares.

Question 68

The amount of dividends received by the common shareholders in year 3 was

A)$8,000.
B)$12,000.
C)$16,000.
D)$20,000.

Question 69

Use the following information for questions below
On January 1,The Blue Azul Diving Co.had total shareholders' equity as shown below when their shares were selling at $25 per share:
Common shares $( 125,000$ shares) $\ldots \ldots \ldots \ldots . \$ 2,500,000$
Retained earnings $\ldots \ldots \ldots \ldots . 4,000,000$
Total shareholders' equity $\ldots \ldots \ldots \ldots . \$ 6,500,000$

-Assume the company declared and issued a 50% stock dividend.The effect of this dividend would

A)increase common shares by $1,250,000 and shares issued and outstanding by 62,500.
B)increase common shares by $1,250,000 with no change in the number of issued and outstanding shares.
C)leave total shareholders' equity unchanged but increase the number of shares issued and outstanding to 187,500.
D)reduce retained earnings by $2,000,000 and double the number of shares issued and outstanding.

Question 70

A new company just starting to pay dividends may choose to make a one-time dividend payment know as a(n)

A)unexpected dividend.
B)special dividend.
C)ex-dividend.
D)stock dividend.

Question 71

Which of the following happens at the date of record of a cash dividend?

A)Dr.Dividends Declared,Cr.Dividends Payable
B)Dr.Dividends Declared,Cr.Cash
C)No entry is made in the accounts,but a list of shareholders entitled to receive the dividend is prepared.
D)The board of directors approves the dividend but no entry is made in the accounts.

Question 72

The amount of dividends received by the preferred shareholders in year 2 was

A)$8,000.
B)$9,000.
C)$12,000.
D)$18,000.

Question 73

When shares are repurchased for less than their cost,the difference is recognized as

A)contributed surplus.
B)ordinary gains.
C)extraordinary gains.
D)an increase to retained earnings.

Question 74

A legal liability for cash dividends occurs on which of the following dates?

A)date of record
B)ex-dividend date
C)date of payment
D)date of declaration

Question 75

Which of the following happens at the date of declaration of a cash dividend?

A)Dr.Dividends Expense,Cr.Dividends Declared
B)Dr.Dividends Declared,Cr.Cash
C)Dr.Dividends Declared,Cr.Dividends Payable
D)The board of directors approves the dividend but no entry is made in the accounts.

Question 76

All of the following are terms used to refer to the number of company shares except

A)authorized.
B)available.
C)issued.
D)outstanding.

Question 77

Dividends not declared in one year carry over to the next year for

A)cumulative preferred shares.
B)cumulative common shares.
C)arrears shares.
D)pre-emptive shares.

Question 78

Shares that have been issued and subsequently repurchased but not cancelled are called

A)issued shares.
B)re-issued shares.
C)treasury shares.
D)outstanding shares.

Question 79

When common or preferred shares are made available for sale to the public,the details of the shares are discussed in a legal document called

A)articles of incorporation.
B)share repurchase agreement.
C)shareholder composition.
D)prospectus.

Question 80

Which of the following is the first date in the sequence required to pay dividends?

A)payment date
B)announcement date
C)date of record
D)declaration date