Deck 14: Corporations: Additional Topics and Ifrs

Question 1

In a 2 for 1 stock split, two shares are exchanged for one share.

Answer 1

False

Question 2

When shares are reacquired at a price below average cost, Retained Earnings will be debited.

Answer 2

False

Question 3

The acquisition of a company's own shares, by a corporation, increases total assets and shareholders' equity.

Answer 3

False

Question 4

A stock dividend will reduce retained earnings.

Question 5

All companies following IFRS must report comprehensive income.

Question 6

A stock split will increase the number of shares of a company as will a stock dividend.

Question 7

When a company reacquires shares at a loss and there is no balance in contributed capital, then there will be a debit to retained earnings for the amount of the loss.

Question 8

At the declaration date, the stock dividend account is increased by the fair market value of the shares to be issued.

Question 9

A stock dividend makes no difference to overall share capital of the company.

Question 10

When a company reacquires its own shares at a price that is lower than the average issue price, there will be a loss on the reacquisition.

Question 11

A stock split will usually result in an increase in the market value of a share.

Question 12

In discontinued operations reporting, the amounts shown on the income statement are shown net of tax.

Question 13

A stock split will increase share capital.

Question 14

The reacquisition of common shares for a price lower than the average cost will result in a credit to "gain on the purchase of common shares."

Question 15

The effects of a share split and a stock dividend are the same on the cash position of the company.

Question 16

The most common type of dividend is a stock dividend.

Question 17

Discontinued operations use the intraperiod tax allocation method.

Question 18

Under IFRS, a company has two options of reporting comprehensive income; an all-inclusive format or in a separate statement.

Question 19

Only common shares are able to be split.

Question 20

When an operation is discontinued, the disposal is reported in two parts; the profit (loss) from present operations and the profit (loss) from past operations.

Question 21

The change in 2011 from Canadian GAAP to either IFRS or ASPE required a retroactive change in a company's financial statements.

Question 22

Gains or losses, which bypass profit but affect shareholders equity, will be reported in the category of other comprehensive income.

Question 23

Retained earnings are always shown in before tax amounts, NOT net of tax amounts.

Question 24

The effect of a stock dividend is to

A) decrease total assets and shareholders' equity.
B) change the composition of shareholders' equity.
C) decrease total assets and total liabilities.
D) increase total shareholders' equity.

Question 25

Price Earnings ratio is calculated as the EPS divided by the market price per share.

Question 26

When calculating earnings per share, the amount of dividends payable to the common shareholders must be deducted from the profit of the company.

Question 27

Common Stock Dividends Distributable is shown within the Share Capital subdivision of the statement of changes in shareholders' equity.

Question 28

Accumulated other comprehensive income is reported in the income statement under other income.

Question 29

The payout ratio is the cash dividends divided by the profit, expressed as a percentage.

Question 30

Correction of errors would always result in a decrease in Retained Earnings.

Question 31

Earnings per share is only done for common shares.

Question 32

The payout ratio would be important to shareholders, whose goal in owning shares is growth in the market price of the share.

Question 33

The statement of changes in shareholders' equity discloses changes in total shareholders' equity for the period as well as changes in each shareholder's equity account.

Question 34

A constant payout ratio is more anticipated in a company with stable earnings.

Question 35

Prior period adjustments should be made for a change in accounting policy by the company.

Question 36

The correction of a prior period error would only affect the account in which the error has occurred.

Question 37

A correction of a prior period error would lead to restatement of the opening balance of retained earnings.

Question 38

If a company starts using a new accounting method because of a change in circumstances; this is considered a change in accounting policy under IFRS.

Question 39

Comprehensive income includes all changes in shareholders equity during a period with the exception of changes in share capital or the payment of dividends.

Question 40

Common Stock Dividends Distributable is classified as

A) an asset account.
B) a shareholders' equity account.
C) an expense account.
D) a liability account.

Question 41

Which of the following statements is correct?

A) Stock dividends and stock splits both increase total shareholder equity.
B) Stock dividends increase total shareholder equity.
C) Stock splits increase total shareholder equity.
D) Neither stock splits nor stock dividends affect total shareholder equity.

Question 42

Identify the effect the declaration of a stock dividend has on total share capital, retained earnings, and shareholders' equity.

Question 43

Stock dividends and stock splits have the following effects on retained earnings:

Question 44

At January 1, 2013, Jones Corporation had the following share capital: $2 Preferred shares, noncumulative, On February 16, 2013 the board of directors declared and paid a 10% common stock dividend. On July 31, 2013, the board declared a 3-for-1 stock split on the common stock. On its December 31, 2013 financial statements, Jones Corporation will report how many common shares issued?

A) 10,000
B) 11,000
C) 30,000
D) 33,000

Question 45

Use the following information for questions 53-54.
At January 1, 2013, Leblanc Corporation had the following shareholders' equity: On March 12, 2013, when the common shares have a market value of $18, the board of directors declared and paid a 10% common stock dividend. On July 31, 2013, the board declared a 2-for-1 stock split on the common shares. During the year, the company paid cash dividends of $80,000 and reported profit of $435,000.
The number of common shares issued at December 31, 2013 is

A) 55,000.
B) 2,000,000.
C) 100,000.
D) 110,000.

Question 46

Juan Inc. has 1,000 common shares issued at $100 and currently trading at $200. The entry to record declaration of a 10% stock dividend is

A) debit Common Stock Dividends Distributable $100,000, credit Retained Earnings $100,000.
B) debit Retained Earnings $100,000, credit Cash $100,000.
C) debit Stock Dividends $20,000, credit Common Stock Dividends Distributable $20,000.
D) debit Common Stock Dividends Distributable $20,000, credit Common Shares $20,000.

Question 47

Which of the following show the proper effect of a stock split and a stock dividend?

Question 48

Which one of the following events would NOT require a formal journal entry on a corporation's books?

A) 2-for-1 stock split
B) 100% stock dividend
C) 2% stock dividend
D) $1 per share cash dividend

Question 49

Corporations generally issue stock dividends in order to

A) increase the market price per share.
B) exceed shareholders' dividend expectations.
C) increase the marketability of the shares.
D) decrease the amount of share capital in the corporation.

Question 50

Irwin, Inc. had 200,000 common shares before a stock split occurred and 400,000 shares after the stock split. The stock split was

A) 2 for 4.
B) 4 for 1.
C) 1 for 4.
D) 2 for 1.

Question 51

A shareholder who receives a stock dividend would

A) expect the market price per share to increase.
B) own more shares.
C) expect retained earnings to increase.
D) expect the overall value of his or her shares to change.

Question 52

Use the following information for questions 53-54.
At January 1, 2013, Leblanc Corporation had the following shareholders' equity: On March 12, 2013, when the common shares have a market value of $18, the board of directors declared and paid a 10% common stock dividend. On July 31, 2013, the board declared a 2-for-1 stock split on the common shares. During the year, the company paid cash dividends of $80,000 and reported profit of $435,000.
At its December 31 year end, the balance in share capital is

A) $910,000.
B) $1,000,000.
C) $1,800,000.
D) $2,000,000.

Question 53

What would be the effect of a stock split on the accounts of the company?

A) an increase in current liabilities upon declaration
B) an increase in share capital upon declaration
C) a decrease in retained earnings upon declaration
D) an increase in the number of shares issued upon declaration

Question 54

A stock split

A) may occur in the absence of retained earnings.
B) will increase total contributed capital.
C) will increase the total value of the shares.
D) will have no effect on the value per share.

Question 55

What would be the effect of a stock dividend on the accounts of the company?

A) an increase in current liabilities upon declaration
B) an increase in retained earnings upon declaration
C) a decrease in retained earnings upon declaration
D) an increase in shareholders' equity upon declaration

Question 56

When stock dividends are distributed,

A) Common Stock Dividends Distributable is decreased.
B) Retained Earnings is decreased.
C) Cash is decreased.
D) no entry is necessary if it is a large stock dividend.

Question 57

Which of the following is a characteristic of neither a stock split nor a stock dividend?

A) Cash flow is reduced.
B) The number of shares issued increases.
C) There is no change in shareholders' equity.
D) There is no change in the authorized share capital of the company.

Question 58

Which is the main difference between a stock split and a stock dividend?

A) A stock dividend increases the number of shares issued.
B) A stock dividend requires no cash outlay on the part of the company.
C) A stock dividend reduces the amount of Retained earnings in a company.
D) A stock dividend makes no change in the amount of authorized shares of a company.

Question 59

If a corporation declares a 10% stock dividend on its common shares, the account to be debited on the date of declaration is

A) Common Stock Dividends Distributable.
B) Common Shares.
C) Cash.
D) Stock Dividends (Retained Earnings).

Question 60

The board of directors generally assigns a per share value to a stock dividend declared that is

A) greater than the book value.
B) at the discretion of the board of directors.
C) equal to the issue price of the original share.
D) equal to the fair market value per share.

Question 61

Use the following information for questions 66-68.
Jacobs Corporation has the following shareholders' equity on December 31, 2014:
Shareholders' equity
If 10,000 common shares were reacquired for $24 per share, the journal entry to record the transaction would

A) credit Contributed Surplus-Reacquisition of Shares for $40,000.
B) credit Retained Earnings for $40,000.
C) credit Common Shares for $240,000.
D) debit Common Shares for $200,000.

Question 62

The entry to record the reacquisition of common shares at a cost higher than the average issue cost requires a

A) debit to Common Shares.
B) debit to Loss on Repurchase of Common Shares.
C) credit to Common Shares.
D) credit to Retained Earnings.

Question 63

Under IFRS the following account is included in the shareholders equity section of the balance sheet

A) Other Comprehensive Income.
B) Accumulated Other Comprehensive Income.
C) Contributed Comprehensive Income.
D) Retained Comprehensive Income.

Question 64

All of the following are included in comprehensive income EXCEPT

A) profit reported on the traditional income statement.
B) income tax expense.
C) dividends paid.
D) gains and losses on equity investments.

Question 65

Which of the following statements concerning a change in accounting policy is true?

A) If a change in accounting policy is adopted retroactively, the company needs to restate closing retained earnings.
B) If a change in accounting policy is adopted retroactively, the company needs to restate opening retained earnings.
C) If a change in accounting policy is adopted prospectively, the company needs to restate closing retained earnings.
D) If a change in accounting policy is adopted prospectively, the company needs to restate opening retained earnings.

Question 66

A prior period adjustment that corrects profit of a prior period requires that an entry be made to

A) an income statement account.
B) a current year revenue or expense account.
C) the retained earnings account.
D) an asset account.

Question 67

Which of the following describes how comprehensive income should be reported?

A) Must be reported in a separate statement, as part of a complete set of financial statements.
B) Should not be reported in the financial statements but should only be disclosed in the footnotes.
C) May be reported in a separate statement, in a combined statement of earnings and comprehensive income, or within a statement of shareholders' equity.
D) May be reported in a combined statement of earnings and comprehensive income or disclosed within a statement of shareholders' equity; separate statements of comprehensive income are not permitted.

Question 68

Under IFRS which of the following is NOT a choice for the Statement of Comprehensive Income?

A) The company may use an all inclusive format.
B) Items may be reported on a before tax basis.
C) The company may use a separate statement.
D) Items must be reported on a net of tax basis.

Question 69

Use the following information for questions 66-68.
Jacobs Corporation has the following shareholders' equity on December 31, 2014:
Shareholders' equity
If 10,000 common shares were reacquired for $17 per share, the journal entry to record the transaction would

A) credit Contributed Surplus for $30,000.
B) debit Retained Earnings for $30,000.
C) credit Common Shares for $170,000.
D) debit Common Shares for $170,000.

Question 70

The general concept of "let the tax follow the profit or loss" is associated with

A) Revenue recognition criteria.
B) Intraperiod tax allocation.
C) Canada Pension Plan.
D) taxation of partnership income.

Question 71

When the disposal of a significant business component occurs, the income statement should report the profit (or loss) from this event as

A) other revenue or expense.
B) cost of goods sold.
C) discontinued operations, before tax.
D) discontinued operations, net of tax.

Question 72

The following information is available regarding a corporation's common shares: authorized 30,000 shares; issued 10,000 at $100,000; and 15,000 at $175,000. The average cost of the corporation's shares is

A) $10.
B) $11.
C) $11.67.
D) $13.75.

Question 73

Use the following information for questions 66-68.
Jacobs Corporation has the following shareholders' equity on December 31, 2014:
Shareholders' equity
The average cost per common share is

A) $9.
B) $20.
C) $11.40.
D) $5.70.

Question 74

The entry to record the reacquisition of common shares at a cost lower than the average issue cost requires a

A) credit to Contributed Surplus.
B) credit to Contributed Surplus-Reacquisition of Common Shares.
C) credit to Common Shares.
D) credit to Retained Earnings.

Question 75

When a company repurchases its shares but does NOT retire them, these shares would said to be

A) authorized, issued and outstanding.
B) authorized and issued, but not outstanding.
C) redeemable.
D) authorized and unissued but not outstanding.

Question 76

A company may reacquire its own shares for all of the following reasons EXCEPT

A) to increase trading in the company's shares in hopes of enhancing its market value.
B) to reduce the number of shares issued thereby increasing earnings per share.
C) to hold the shares as a long-term investment.
D) to have additional shares available for use in the acquisition of other companies.

Question 77

Prior period adjustments are reported

A) in the notes of the current year's financial statements.
B) on the current year's balance sheet.
C) on the current year's income statement.
D) on the current year's statement of retained earnings.

Question 78

A prior period adjustment for understatement of profit

A) will be credited to the Retained Earnings account.
B) will be debited to the Retained Earnings account.
C) will show as a gain on the current year's Income Statement.
D) will show as an asset on the current year's Balance Sheet.

Question 79

All of the following should occur as a result of a prior period adjustment EXCEPT

A) the cumulative effect of the correction or change should be reported as an adjustment to opening retained earnings.
B) all prior period financial statements should be corrected or restated.
C) the effects of the change should be detailed and disclosed in a note to the financial statements.
D) the unadjusted balance of retained earnings should be presented on the balance sheet.

Question 80

Which of the following statements apply to discontinued operations?
1) The operations and cash flows have been (or will be) eliminated from the ongoing operations of the company as a result of the disposal transaction.
2) The company must report the profit (loss) and gain (loss) on discontinued operations net of the applicable taxes.
3) Assets (net of any related liabilities) that are held for sale as discontinued operations are valued and reported on the balance sheet at the lower of their carrying amount and fair value (less any anticipated costs of selling).

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) 1, 2 and 3