Question 1

Cash dividends are not a liability of the corporation until they are declared by the board of directors.

Accepted Answer

Cash dividends are an appropriation of retained earnings and become a liability only when declared by the board of directors. Until then, they are considered a potential liability, but not an actual one.

Question 2

The trading of a corporation's shares on the secondary market has no impact on the corporation's financial position.

Accepted Answer

The trading of shares on the secondary market involves buyers and sellers exchanging ownership of the shares amongst themselves, and does not involve the corporation directly. Therefore, it does not impact the corporation's financial position.

Question 3

An initial public offering occurs the first time a corporation sells shares to the public.

Accepted Answer

An initial public offering (IPO) is the first time a company sells shares of its stock to the public, allowing individuals to buy a stake in the company.

Question 4

One of the reasons a company may reacquire its own shares is to reduce the market value to make the shares more affordable.

Accepted Answer

Companies typically reacquire their own shares to reduce the number of shares outstanding, which can increase the value of remaining shares, not to make them more affordable.

Question 5

Preferred shares have a contractual preference over common shares in certain areas, but do not have the right to vote.

Accepted Answer

Preferred shares have priority in receiving dividend payments and capital returns before common shares, but do not typically have voting rights.

Question 6

The liability for a cash dividend is recorded on the date of record, because it is on that date that the shareholders who will receive the dividend are identified.

Accepted Answer

The liability for a cash dividend is recorded on the date of declaration, not on the date of record. The date of record is simply the date on which shareholders are determined to be eligible to receive the dividend.

Question 7

The number of common shares authorized can never be greater than the number of shares issued.

Accepted Answer

The number of common shares authorized can be greater than the number of shares issued. Authorized shares are the maximum number of shares a company can issue, while issued shares are the shares that have been actually issued to investors. A company may authorize more shares than it needs at the time of incorporation or in case of future needs. Therefore, the number of authorized shares can be greater than the number of issued shares.

Question 8

The issue of common shares affects both share capital and retained earnings.

Accepted Answer

Issuing common shares affects share capital by increasing it, but it does not directly affect retained earnings. Retained earnings are impacted by net income and dividends, not by the issuance of shares.

Question 9

Most companies in Canada have an unlimited amount of authorized shares.

Accepted Answer

Most companies in Canada have an unlimited number of authorized shares, which means they can issue as many shares as they need without having to amend their articles of incorporation.

Question 10

The market capitalization of a company is calculated by multiplying the number of shares authorized by the share price at any given date.

Accepted Answer

Market capitalization is calculated by multiplying the number of shares outstanding (not authorized) by the current market price of one share.

Question 11

A corporation is not an entity that is separate and distinct from its owners.

Accepted Answer

A corporation is a legal entity that is separate and distinct from its owners, known as shareholders. This means the corporation can enter into contracts, sue or be sued, and own property. The shareholders, on the other hand, are not personally liable for the debts or actions of the corporation.

Question 12

The liability of a shareholder is usually limited to the shareholder's investment in the corporation.

Accepted Answer

This is a fundamental principle of corporate law, known as limited liability. It means that shareholders are not personally responsible for the debts or obligations of the corporation beyond the amount they have invested in the company.

Question 13

When preferred shares are cumulative, preferred dividends not declared in a given period are called dividends in arrears.

Accepted Answer

When preferred shares are cumulative, preferred dividends not declared in a given period are added to the next period's dividend calculation and are called dividends in arrears.

Question 14

A shareholder owning common shares has the right to vote in the election of the board of directors.

Accepted Answer

As a owner of common shares, shareholders have the right to vote in the election of the board of directors. This is one of the key shareholder rights associated with common shares.

Question 15

A company can control the market value of its shares.

Accepted Answer

The market value of a company's shares is determined by various factors such as supply and demand, financial performance, economic conditions, and investor sentiment. While a company can influence some of these factors through effective management and communication with investors, it cannot directly control the market value of its shares.

Question 16

Contributed capital is the amount shareholders paid or contributed to the corporation in exchange for shares of ownership.

Accepted Answer

Contributed capital refers to the funds that shareholders provide to a corporation in exchange for ownership shares, representing their investment in the company.

Question 17

Identify and discuss the major characteristics of a corporation.

Accepted Answer

The answer of Identify and discuss the major characteristics of...

Question 18

The sale of shares in a corporation by one shareholder to another affects the total capital of the corporation.

Accepted Answer

The sale of shares from one shareholder to another does not affect the total capital of the corporation. The total capital of the corporation remains the same, only the distribution of the shares changes.

Question 19

Preferred shares are generally issued to appeal to a larger segment of potential investors.

Accepted Answer

Preferred shares typically provide investors with a fixed dividend payment, priority over common shareholders in terms of receiving dividends and liquidation proceeds, and sometimes other special rights. These characteristics can make them more appealing to certain types of investors, such as those seeking stable income streams and a lower level of risk than common shares.

Question 20

A corporation acts under its' own name rather than in the name of its shareholders.

Accepted Answer

A corporation is a legal entity that acts under its own name, separate from its shareholders. This is known as the principle of separate legal personality. Shareholders own shares in the corporation but do not act or transact business in the corporation's name.

Quiz 11: Reporting and Analyzing Shareholders Equity