Deck 12: Completing the Balance Sheet

Question 1

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the equity basis, what revenue would it record for the year ended 31 December 2016 in respect of its investment in Down Ltd?

A) $90 000
B) $150 000
C) $190 000
D) $280 000

Answer 1

D

Question 2

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the cost basis, what dividend revenue did it record for the year ended 31 December 2016 in respect of its investment in Down Ltd?

A) Nil
B) $90 000
C) $190 000
D) $280 000

Answer 2

B

Question 3

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the equity basis, what dividend revenue would it record for year ended 31 December 2016 in respect of its investment in Ping Ltd?

A) $120 000
B) $150 000
C) $350 000
D) None of the answers provided

Answer 3

C

Question 4

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the cost basis, what would be the balance sheet value of its investment in Ping Ltd at 31 December 2016?

A) $900 000
B) $1 100 000
C) $1 170 000
D) $1 250 000

Question 5

XYZ buys a 24 per cent share in ABC for $80m. ABC's total net profit is $50m and it pays $4m in dividends to XYZ. Using the equity method, the revenue recognised for this investment during the year would be:

A) $4m.
B) $12m.
C) $50m.
D) $0.

Question 6

What percentage of shares, as a general rule, are held by an investor for it to be presumed that the investor has significant influence over the company, unless there is evidence to the contrary?

A) 20 per cent or more
B) 40 per cent or more
C) 50 per cent or more
D) 80 per cent or more

Question 7

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the cost basis, which of the following accounting records would it make on 30 June 2016 in response to Down Ltd's earnings announcement?

A) It would increase dividend revenue by $150 000.
B) It would increase investment in Down Ltd by $150 000.
C) It would decrease investment in Down Ltd by $150 000.
D) No record would have been made.

Question 8

When the cost method of accounting for long-term investment in shares is employed, the receipt of a dividend on those shares is recorded as a credit to:

A) the investment asset.
B) dividend revenue.
C) dividend declared.
D) retained profits.

Question 9

Which of the following statements about the equity method is NOT true?

A) The investment asset is valued at cost on acquisition.
B) The investment asset is increased for the investing company's share of the investee company's profit.
C) When the investee company pays a dividend, the investing company credits dividend revenue.
D) The investment asset is decreased for the investing company's share of the investee company's loss.

Question 10

XYZ buys a 24 per cent share in ABC for $80m. ABC's total net profit is $50m and it pays $4m in dividends to XYZ. Using the cost method, what would be the revenue and investment amounts at year-end for this investment?

A) $4m and $80m
B) $4m and $84m
C) $12m and $80m
D) $12m and $92m

Question 11

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the cost basis, what was the balance sheet value of investment in Down Ltd at 31 December 2016?

A) $510 000
B) $600 000
C) $690 000
D) $880 000

Question 12

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the equity basis, what would the balance sheet value of investment in Down Ltd be at 31 December 2016?

A) $880 000
B) $600 000
C) $510 000
D) $790 000

Question 13

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the cost method, what would have been the impact of Ping Ltd's 30 June 2016 earnings announcement?

A) Dividend revenue would have increased by $200 000.
B) Investment in Ping Ltd would have increased by $200 000.
C) Investment in Ping Ltd would have decreased by $200 000.
D) No record would have been made.

Question 14

Briar Ltd acquired short-term investments for $100 000 on 31 March 2016. By 30 June 2016 (balance sheet date), the market value had slipped to $85 000. Briar Ltd uses the lower of cost or net realisable value rule. How would the reduction in value of $15 000 be recorded in the accounts for year ended 30 June 2016?

A) As an expense
B) As a charge against retained profits
C) As a reduction in share capital
D) The transaction would not be recorded

Question 15

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the cost method, what dividend revenue would it record for the year ended 31 December 2016 in respect of its investment in Ping Ltd?

A) Nil
B) $120 000
C) $200 000
D) $350 000

Question 16

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the equity method, what would have been the impact of Ping Ltd's 31 December 2016 earnings announcement?

A) Investment in Ping Ltd would have increased by $150 000.
B) Dividend revenue would have increased by $150 000.
C) Investment in Ping Ltd would have increased by $150 000 and dividend revenue would have increased by $150 000.
D) There would be no impact.

Question 17

XYZ buys a 24 per cent share in ABC for $80m. ABC's total net profit is $50m and it pays $4m in dividends to XYZ. Using the equity method, the value of the investment in ABC would be recorded at year-end as:

A) $80m.
B) $88m.
C) $92m.
D) $19m.

Question 18

On 1 January 2016, Yu Ltd acquired 100 000 shares (30 per cent of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2016, Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2016, Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e., $1.50 additional since 30 June). If Yu Ltd used the equity basis, what would be the balance sheet value of its investment in Ping Ltd at 31 December 2016?

A) $780 000
B) $1 130 000
C) $1 250 000
D) $900 000

Question 19

On 1 January 2016, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2016, Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2016, Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e., $1.30 additional since 30 June). If Sky-High Ltd used the equity basis, which of the following accounting records would it make on 31 December 2016 in response to Down Ltd's earnings announcement?

A) It would increase investment in Down Ltd by $130 000.
B) It would increase cash by $130 000.
C) It would increase dividend revenue by $130 000.
D) It would increase investment in Down Ltd by $130 000 and increased dividend revenue by $130 000.

Question 20

Investments appear on the balance sheet under the heading of:

A) assets.
B) liabilities.
C) retained profits.
D) shareholders' equity.

Question 21

The entry to create a general reserve is usually:

A) Dr General reserve
Cr Retained profits.
B) Dr Retained profits
Cr General reserve.
C) Dr Profit and loss
Cr General reserve.
D) Dr Expense
Cr General reserve.

Question 22

Which of the following statements about bonus issues is NOT true?

A) Bonus issues can be a useful takeover defence.
B) Bonus issues reduce shareholders' equity as well as assets.
C) Bonus issues do not affect cash.
D) Bonus issues are also referred to as share dividends.

Question 23

Gargantua Ltd paid $1 000 000 for 75 per cent of the voting shares of Dwarf Ltd, and evaluated Dwarf's assets to be worth $1 500 000 and its liabilities $300 000. What was the goodwill on consolidation at the date of acquisition?

A) $100 000
B) $200 000
C) $300 000
D) None of the answers provided

Question 24

The directors of Behrens Ltd decided to issue 300 000 ordinary shares at $1 each. 25 cents per share was payable on application, 25 cents per share on allotment and the balance through two equal calls. Applications were received for 250 000 shares, which were duly issued and allotment money was paid in full. The journal entries to record the allotment would include a:

A) credit to allotment, $75 000.
B) credit to cash, $62 500.
C) debit to share capital, $62 500.
D) debit to allotment, $75 000.

Question 25

A debit balance in the retained profits account indicates that the company has:

A) made a loss in the current period.
B) made a loss in at least one period.
C) never made a profit.
D) paid a dividend.

Question 26

Springtown Ltd issued 10 000 ordinary shares for $2.50 each, payable $1 on application, 50 cents on allotment and $1 in calls as required. The journal entries to record the allotment of 10 000 shares would include a:

A) credit to cash, $5000.
B) debit to allotment, $10 000.
C) credit to share capital, $25 000.
D) credit to share capital, $5000.

Question 27

When bonus shares are issued:

A) total assets increase.
B) total liabilities increase.
C) retained profits increase.
D) shareholders may receive more dividends.

Question 28

Which of the following are NOT eliminated in the preparation of consolidated financial statements?

A) Intercompany receivables
B) The account for the parent company's investment in the subsidiary
C) Intercompany sales and expenses
D) Assets of the subsidiary

Question 29

Which of the following is NOT omitted from the consolidated accounts?

A) Debt owing to parent company by subsidiary company
B) Intercompany sales
C) Management fees charged to the subsidiary by the parent company
D) Credit sales of the subsidiary

Question 30

A credit balance in retained profits:

A) equals the balance of cash available for dividends.
B) indicates that a profit was earned in the last financial period.
C) represents the profits earned and not paid out in dividends.
D) indicates that a loss was earned in the last financial period.

Question 31

LMN Ltd declared an interim dividend on 12 February 2016 of 5 cents per share (500 000 issued shares) and paid it on 3 March 2016. The journal entry on 3 March 2016 would include:

A) Dr Interim dividend declared, $25 000.
B) Cr Cash, $25 000.
C) Cr Interim dividend payable, $25 000.
D) Cr Retained profits, $25 000.

Question 32

XYZ Limited paid $2 million for 100 per cent of the voting shares of ABC Limited and determined the assets to be worth $3 million and the liabilities $800 000. What was the goodwill on consolidation at the date of acquisition?

A) $100 000
B) $200 000
C) $300 000
D) None of the answers provided

Question 33

R Limited has control over another entity, S Limited. R Limited is referred to as:

A) an associate entity.
B) a parent entity.
C) a consolidated entity.
D) a minority shareholder.

Question 34

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. The journal entry to record the cash received on application would include:

A) Dr Cash at bank, $110 000.
B) Cr Share capital, $110 000.
C) Cr Application, $110 000.
D) Dr Application, $110 000.

Question 35

Alby Ltd paid $1 800 000 for 80 per cent of the voting shares of Bunter Ltd and evaluated Bunter's assets to be worth $3 000 000 and its liabilities $800 000. What was the goodwill on consolidation at date of acquisition?

A) $40 000
B) $400 000
C) $430 000
D) $360 000

Question 36

Which of the following statements about the general reserve account is NOT true?

A) A transfer to this account may be used to indicate to shareholders that it is unlikely to be paid out in dividends.
B) Amounts can be transferred back from it to retained profits.
C) The general reserve account provides an indication of where funds are invested.
D) The general reserve account appears under shareholders' equity in the balance sheet.

Question 37

LMN Ltd declared an interim dividend on 12 February 2016 of 5 cents per share (500 000 issued shares) and paid it on 3 March 2016. The journal entry on 12 February 2016 would include:

A) Dr Interim dividend declared, $25 000.
B) Cr Cash, $25 000.
C) Cr Retained profits, $25 000.
D) none of the answers provided.

Question 38

P Limited has control over another entity called Q Limited. Q Limited is referred to as the:

A) subsidiary entity.
B) economic entity.
C) associate entity.
D) minority interest.

Question 39

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. The journal entry to record the amount due on application would include:

A) Dr Share capital, $110 000.
B) Cr Application, $110 000.
C) Cr Share capital, $150 000.
D) Dr Share capital, $110 000.

Question 40

An issue of 50 000 shares at $3 required $2.20 per share to be paid at the time of application. On allotment, another $0.30 was due and a further $0.50 when determined by the board of directors. The application money in respect of the 50 000 shares was received on 8 July. On 26 July, the shares were issued with the amount due on allotment received on 15 August. The remaining $0.50 was called up on 20 September and received on 10 October. What was the balance of share capital at 11 October?

A) $25 000
B) $125 000
C) $150 000
D) $110 000

Question 41

Which of the following is NOT true with respect to bonus shares? They:

A) increase net assets.
B) have no effect on cash balances.
C) give directors the opportunity to signal future dividend policy to current and future shareholders.
D) total shareholders' equity increases.

Question 42

Which of the following statements about a bonus issue is NOT true?

A) Shareholders will only gain if the market value of the combined shares is greater than it was before the bonus issue.
B) Total shareholders' equity remains constant.
C) The total value of the firm must increase.
D) If a shareholder owned 10 per cent of the company before the bonus issue, she or he would still own 10 per cent after the bonus issue.

Question 43

Which of the following statements about a 2:1 share split is NOT true?

A) The number of shares is doubled.
B) The unit market price of each share is reduced.
C) The value of share capital is doubled.
D) No journal entry is required.

Question 44

Share splits increase:

A) total assets.
B) total liabilities.
C) total shareholders' equity.
D) the number of shares on issue.