Deck 7: Business Organisations and the Financing of Business

Question 1

Ronaldo Limited wishes to raise £1,200,000 in cash. How many shares will the company have to issue to raise £1,200,000 if the shares have a par value of 75 pence and the shares are issued at a premium of 125 pence?

A) 600,000
B) 960,000
C) 1,200,000
D) 1,600,000

Answer 1

A

Question 2

Aemilia Limited issues 350,000 ordinary shares of 25 pence each at a premium of 175 pence per share for cash. What is the correct double entry to record this issue of share capital in the books of account of Aemilia Limited?

A) Debit share capital £700,000, Credit cash (bank account) £700,000.
B) Debit share capital £87,500, Debit share premium £712,500, Credit cash (bank account) £700,000.
C) Debit cash (bank account) £700,000, Credit share capital £700,000.
D) Debit cash (bank account) £700,000, Credit share capital £87,500. Credit share premium £612,500

Answer 2

D

Question 3

Which one of the following represents the correct double entry to record a bonus issue of shares?

A) Debit cash
B) Debit share capital
C) Debit share capital
D) Debit retained earnings

Answer 3

D

Question 4

Timmy Plc is making a bonus issue of 2 new ordinary shares for every 5 already held. The shares have a par value of 5 pence. Timmy plc currently has 500,000,000 ordinary shares in issue. What is the correct double entry required to record this transaction in the company's books of account?

A) Debit share capital £10,000,000
B) Debit retained earnings £10,000,000
C) Debit share capital £200,000,000
D) Debit retained earnings £200,000,000

Question 5

Livia Plc makes a bonus issue of 1,000,000 new ordinary shares. Livia Plc's ordinary shares each have a par value of 50 pence and a current market value of 200 pence. What is the correct double entry to record this bonus issue of shares in the company's books of account?

A) Debit retained earnings £2,000,000
B) Debit retained earnings £2,000,000
C) Debit retained earnings £500,000
D) Debit retained earnings £1,000,000

Question 6

Rights issues are made at a discount to the current market price of the shares but at a premium to the par value of the shares issued. Which one of the following represents the correct double entry to record a rights issue of shares?

A) Debit cash
B) Debit retained earnings
C) Debit cash
D) Debit retained earnings

Question 7

Tammy Plc has made a rights issue of 2 million new ordinary shares for cash. Each ordinary share of the company has a par value of 50 pence. The current share price is 450 pence and the rights issue price is 320 pence. What is the correct double entry required to record this transaction in the company's books of account?

A) Debit cash £1,000,000
B) Debit cash £6,400,000
C) Debit cash £7,400,000
D) Debit cash £9,000,000

Question 8

Frannie Plc has made a rights issue of 5 million new ordinary shares to raise cash. Each ordinary share of the company has a par value of 20 pence and the shares were issued at a premium of 280 pence. The current share price is 500 pence. What is the correct double entry required to record this transaction in the company's books of account?

A) Debit cash £14,000,000
B) Debit cash £14,000,000
C) Debit cash £15,000,000
D) Debit cash £25,000,000

Question 9

Amie Plc's rights issue raises cash of £5,000,000. Share capital is credited with £1,500,000 and share premium is credited with £3,500,000. 10 million shares were issued in the rights issue. What was the rights issue price per share?

A) 15 pence
B) 30 pence
C) 35 pence
D) 50 pence

Question 10

At 1 November 2018, Forum Limited's retained earnings stood at £540,000. The profit for the year ended 31 October 2019 was £108,000. The company had 2,000,000 ordinary shares in issue at 1 November 2018. The par value of the ordinary shares is 25 pence. On 1 May 2019, Forum Limited undertook a 2 for 5 bonus issue. At 31 October 2019, the balance on the retained earnings account was £288,000. What was the total dividend payment made during the financial year ended 31 October 2019?

A) £52,000
B) £144,000
C) £160,000
D) £360,000