Question 1

The declaration of a property dividend results in:

Accepted Answer

The declaration of a property dividend results in a debit to retained earnings because it reduces the amount of retained earnings available to shareholders.

Question 2

A property dividend causes a debit to retained earnings equal to the of the property distributed.

Accepted Answer

A property dividend causes a debit to retained earnings equal to the fair market value of the property distributed. This is because the company recognizes the property at its current value when distributing it as a dividend, not at its historical cost or book value.

Question 3

ABC Inc.engages in a non-cash exchange with a third party whereby ABC Inc.issues common shares to the third party in exchange for some highly specialized Machinery & Equipment.The value of the shares issued was $15,000 while the appraised value of the Machinery & Equipment was $12,000.At what amount would this transaction be valued on ABC's books?

Accepted Answer

Under IFRS, the transaction would be recorded at the fair value of the assets given up or the assets received, whichever is more clearly evident. In this case, since the fair value of the shares ($15,000) is more clearly evident than the fair value of the machinery and equipment, the transaction would be recorded at $15,000. Under ASPE, the transaction is recorded at the fair value of the asset given up or the asset received, but there is more flexibility to use the fair value of the asset received (the machinery and equipment) if it is more reliably measurable, which in this case is $12,000.

Question 4

Preferred shares, which have the most restrictive features, are:

Accepted Answer

Noncumulative, non-participating, nonvoting preferred shares have the most restrictive features as they do not accumulate unpaid dividends, do not participate in additional profits beyond the fixed dividend, and do not have voting rights.

Question 5

Cash dividends sometimes are declared in one reporting period and are payable in the next reporting period.The dividend should be recorded on the:

Accepted Answer

The dividend should be recorded on the declaration date because it is the date on which the board of directors formally authorizes the dividend and announces it to shareholders, creating a liability for the company.

Question 6

The number of treasury shares held by a corporation equals:

Accepted Answer

Treasury shares are the shares that were issued and subsequently reacquired by the corporation. They are the difference between the issued shares and the outstanding shares.

Question 7

ABC Inc.issued 1,000 common shares and 3,000 preferred shares for a lump sum of $25,000.The fair market value of each share on the date of issue was $6 per common share and $8 per preferred share.How much of the proceeds received should be allocated to the preferred shares on the date of issue?

Accepted Answer

The answer of ABC Inc.issued 1,000 common shares and 3,000...

Question 8

ABC made the following entry to record the issuance of a dividend:  ABC must have declared a:

Accepted Answer

The answer of ABC made the following entry to record...

Question 9

The declaration and issuance of a common stock dividend:

Accepted Answer

The declaration and issuance of a common stock dividend reallocates part of the company's retained earnings to common stock, but it does not change the total assets, liabilities, or owners' equity of the company. It's essentially moving amounts within equity.

Question 10

Gains on sale of treasury stock should be credited to:

Accepted Answer

Gains on the sale of treasury stock are credited to additional contributed capital because these transactions relate to equity and do not impact the income statement. This approach prevents inflating the company's earnings through treasury stock transactions.

Question 11

LS issued 200 common shares to BH (last share transaction was a year prior when LS sold 10 shares at $4 per share), and received a patent in full payment.The patent had a current market value of $2,000 and was carried on the books of BH at $1,500.Under ASPE, common shares should be credited for:

Accepted Answer

The answer of LS issued 200 common shares to BH...

Question 12

If a corporation has dividends in arrears of $25,000 on its cumulative preferred shares, it must:

Accepted Answer

Cumulative preferred shares have a feature that requires the corporation to pay any unpaid dividends (dividends in arrears) on these shares before any dividends can be distributed to common shareholders. This ensures that preferred shareholders receive their due dividends before common shareholders.

Question 13

Which of the following represents the interest period for a scrip dividend?

Accepted Answer

A scrip dividend's interest period typically spans from the declaration date, when the dividend is announced, to the payment date, when the dividend is actually paid out.

Question 14

Owners' equity must equal the:

Accepted Answer

Owners' equity is calculated as the total assets of a company minus its total liabilities. This represents the residual interest in the assets of the entity after deducting liabilities, essentially the net worth of the company.

Question 15

The following data is available for XAC:  Find the number of shares subscribed and the subscription price per share?

Accepted Answer

The answer of The following data is available for XAC:...

Question 16

Cash dividends usually are declared on one date and paid on a subsequent date to shareholders of record on some intermediate date.On which of the following dates should an accrual basis shareholder recognize investment revenue?

Accepted Answer

Accrual basis accounting recognizes revenue when it is earned, regardless of when the cash is received. Therefore, a shareholder should recognize investment revenue on the declaration date, as this is when the company officially commits to paying the dividend.

Question 17

ABC had 20,000 shares of treasury common stock, which it purchased for $7 per share.Until now, this was ABC's only treasury stock transaction.The shares were originally sold and issued at $5 per share.ABC uses the single-transaction method.ABC is now selling the treasury shares for $5 per share.The entry to record the resale would include a:

Accepted Answer

The resale of treasury stock at a price lower than the purchase price results in a loss, which is debited to Retained Earnings. The loss is calculated as (Purchase price - Resale price) x Number of shares = ($7 - $5) x 20,000 = $40,000.

Question 18

A firm declares a property dividend to its shareholders.The assets to be distributed in the dividend have a combined book value of $40,000 and combined market value of $60,000.Before taxes, the net change in retained earnings as a result of this nonreciprocal transfer is:

Accepted Answer

The answer of A firm declares a property dividend to...

Question 19

When a corporation sells some of its own common shares, all on credit, there should be a debit to the account:

Accepted Answer

When a corporation sells some of its own common shares on credit, the correct account to debit is "Subscriptions receivable, common." This account represents the amount owed by subscribers (buyers) who have agreed to purchase the corporation's common shares but have not yet paid. It is specific to transactions involving the sale of shares on credit, distinguishing it from other types of receivables.

Question 20

MNO declared a stock dividend when it had 40,000 shares outstanding.After issuing the dividend, 7,200 additional shares and 4,000 fractional share rights were outstanding.If it required five fractional share rights to acquire a new share, this dividend must have been a:

Accepted Answer

The company had 40,000 shares and issued 7,200 additional shares, which is an increase of 18%. However, there were also 4,000 fractional share rights issued, and it takes 5 of these rights to make one share, resulting in 800 additional shares (4,000 / 5). Adding these 800 shares to the 7,200 gives a total of 8,000 new shares, which is 20% of the original 40,000 shares, indicating a 20 percent stock dividend.

Quiz 14: Shareholders Equity