Question 1

When a company has both common shares and preferred shares outstanding, the book value of the common shares is calculated by dividing total shareholders' equity less preferred equity by the number of common shares outstanding.

Accepted Answer

This is an accurate statement. When a company has both common and preferred shares outstanding, the book value per common share is calculated by subtracting the preferred shares' equity from the total shareholders' equity and dividing the result by the number of common shares outstanding.

Question 2

Which of the following is the best measure as to whether a company is successful in using its assets to earn income for the individuals who finance the business?

Accepted Answer

The answer of Which of the following is the best...

Question 3

The book value of a share is the amount of shareholders' equity on the company's books for each share.

Accepted Answer

The book value of a share is calculated by dividing the company's total shareholders' equity by the number of outstanding shares. It represents the net value of the company's assets that would remain if all liabilities were paid off.

Question 4

Pharmaprix Corporation's balance sheet reported the following shareholders' equity as of December 31, 2013:
Share capital:
Preferred shares, $5 cumulative, 10,000 shares
  Common shares 200,000 shares authorized, 50,000
  Assuming there are 2 years' dividends in arrears (including that of the current year), determine (1) preferred equity and (2) book value per share of common shares.

Accepted Answer

The answer of Pharmaprix Corporation's balance sheet reported the following...

Question 5

IMA Believer Corp.'s balance sheet reported the following shareholders' equity as of December 31, 2014:
Share capital:
Preferred shares, $100 stated value, $5 cumulative, 10,000 shares
  Common shares 200,000 shares authorized, 50,000
  Assuming there are 3 years' dividends in arrears (including that of the current year), determine (1) preferred equity and (2) book value per share of common shares.

Accepted Answer

The answer of IMA Believer Corp.'s balance sheet reported the...

Question 6

Koffler Corp. reported the following shareholders' equity:
Share capital:
Preferred shares, 30,000 shares authorized,
  Common shares, 200,000 shares authorized,
  Required:
a. The board of directors declared a 10% common stock dividend when the market price of the shares was $7 per share. Prepare the necessary journal entries to record the declaration and distribution of the common shares dividend.
b. What effect did the distribution of the common shares dividend have on:
  c. Assuming all required preferred shares dividends have been paid, calculate the book value of a share of common shares before and after the common shares dividend. If Smith Jones owned 100 shares of Koffler's common shares before the stock dividend, what is the total book value of Smith's shares before and after the stock dividend?

Accepted Answer

The answer of Koffler Corp. reported the following shareholders' equity:
Share...

Question 7

Preferred book value is calculated by:

Accepted Answer

Preferred book value is calculated by dividing total preferred equity plus dividends in arrears by the number of preferred shares outstanding. This formula takes into account both the total equity value and any outstanding unpaid dividends on preferred shares.

Question 8

Redemption value is the amount of owners' equity on the books for each share.

Accepted Answer

The answer of Redemption value is the amount of owners'...

Question 9

The following information is available for Aerius Corporation for the current year:  Beginning of year:
 End of year:
 The return on assets for Aerius Corporation is:

Accepted Answer

The answer of The following information is available for Aerius...

Question 10

Shareholders are typically more concerned about the market value of the company's shares than about the redemption value of the shares.

Accepted Answer

Shareholders are invested in the company's growth and profitability, which ultimately affects the market value of the shares. The redemption value only comes into play if the shareholder decides to sell their shares back to the company, which is not a common practice in publicly traded companies.

Question 11

The rate of return on common shareholders' equity is calculated by dividing net income less preferred dividends by average common shareholders' equity.

Accepted Answer

This is the correct formula for calculating the rate of return on common shareholders' equity.

Question 12

Return on equity is a ratio that:

Accepted Answer

The answer of Return on equity is a ratio that:
...

Question 13

The following information is available for Aerius Corporation for the current year:  Beginning of year:
 End of year:
 The return on equity for Aerius Corporation is:

Accepted Answer

The answer of The following information is available for Aerius...

Question 14

The shareholders' equity section of the balance sheet for Vivitas Stevia Corporation is shown below: Share capital:
Preferred shares, 10,000 shares authorized,
7,000 shares issued of $3.50 preferred,
 Common shares, 50,000 shares authorized,
 Assume there are 2 years' dividends in arrears on the preferred shares, including the current year. the book value per share for Vivitas Stevia common shares is:

Accepted Answer

The answer of The shareholders' equity section of the balance...

Question 15

Given the following data for JetNew calculate the book value of a common share.
Share capital:
Preferred shares, 30,000 shares authorized,
  Common shares, 200,000 shares authorized,
  Next calculated the book value of a common share if the preferred shares are $5
cumulative and have two years worth of dividend outstanding.

Accepted Answer

The answer of Given the following data for JetNew calculate...

Question 16

When a company has both common shares and preferred shares, the book value per common share is calculated by:

Accepted Answer

The book value per common share takes into account the common shareholders' equity only, so preferred equity must be subtracted from the total shareholders' equity before dividing by the number of common shares outstanding.

Question 17

Which of the following shows the relationship between net income and average common shareholders' equity?

Accepted Answer

Return on equity (ROE) measures the company's net income in relation to its average common shareholders' equity, indicating the effectiveness of management in generating profits using the capital invested by shareholders. Current ratio and acid-test ratio measure liquidity ratios, while return on assets (ROA) measures the company's ability to generate profits using its assets.

Question 18

The rate of return on total assets is calculated by dividing net income plus interest expense by average total assets.

Accepted Answer

The rate of return on total assets (ROTA) is calculated as (Net Income + Interest Expense) / Average Total Assets.

Question 19

Liquidation value is the price the company agreed to pay to redeem their preferred shares when the shares were originally issued.

Accepted Answer

Liquidation value is the value received by preferred shareholders in the event of liquidation, which is typically calculated as a fixed percentage of the par value of the preferred shares. It is not the price the company agreed to pay to redeem their preferred shares when the shares were originally issued.

Question 20

Define and contrast each of the following share values:

Accepted Answer

The answer of Define and contrast each of the following...

Quiz 10: Shareholders Equity