Question 1

When a public share issue is made,the offer comes from:
A)the company issuing the shares
B)the Australian Securities and Investments Commission once it has reviewed the prospectus documentation
C)the broker handing the share issue for the company
D)the applicant.

Accepted Answer

D

Question 2

The amount of the surplus payable to the shareholders whose shares were forfeited is:
A)$5 000
B)$500
C)$2 500
D)$3 000.

Accepted Answer

B

Question 3

The costs of issuing equity effectively:
A)reduce the proceeds from the equity issue
B)increase the proceeds from the equity issue
C)are borne by the underwriters of the equity issue
D)are recognised as a deferred asset and carried forward in the balance sheet.

Accepted Answer

Issuing equity involves costs such as underwriting fees, legal fees, and accounting fees. These costs are deducted from the total amount raised by the equity issue, reducing the proceeds received by the company.

Question 4

Without the prior approval of shareholders a company is restricted to private placements of shares,in any one year,of no more than:
A)5% of existing capital
B)10% of existing capital
C)15% of existing capital
D)20% of existing capital.

Accepted Answer

The answer of Without the prior approval of shareholders a...

Question 5

Underwriting and other share issue costs paid to a broker or a financial institution should be reported in a balance sheet as:
A)a liability
B)an asset
C)an increase in retained earnings
D)a reduction of share capital.

Accepted Answer

Underwriting and other share issue costs are typically deducted from the share capital or additional paid-in capital, reducing the amount of equity reported on the balance sheet.

Question 6

In respect to the issue of shares by a company,what is an IPO?
A)Investment in Preference and Ordinary shares
B)Initial Public Offering of shares
C)Investment Prospectus for an issue of Options
D)Instruments Providing Options to ordinary shareholders.

Accepted Answer

An IPO stands for Initial Public Offering of shares which refers to the first time a company offers its shares to the public, giving anyone the opportunity to invest and become a shareholder.

Question 7

The appropriate journal entry to record the cash collected from applicants for shares before the shares are issued is:
A)Increase Cash account: Increase Issued Share Capital account
B)Increase Application account: Decrease Issued Share Capital account
C)Increase Issued Share Capital account: Decrease Cash Trust account
D)Increase Cash Trust account: Increase Application account.

Accepted Answer

When collecting cash from applicants for shares before the shares are issued, the money is typically held in a trust account until the shares are issued. Therefore, the appropriate journal entry would be to increase the Cash Trust account and the Application account (which represents the amount received from the applicants).

Question 8

The entry to record the reissue of forfeited shares is:
A)
B)
C)
D)

Accepted Answer

The answer of The entry to record the reissue of...

Question 9

If the balance in a forfeited shares account is refundable to the owners of those shares,then the forfeited shares account is classified as a component of:
A)income
B)liabilities
C)equity
D)expense.

Accepted Answer

If the balance in a forfeited shares account is refundable to the owners, it represents an obligation to pay back, thus classifying it as a liability.

Question 10

When shares are issued fully payable on application,the journal entries to record the issue (assuming the minimum subscription is reached)are:
A)
B)
C)
D)

Accepted Answer

The answer of When shares are issued fully payable on...

Question 11

The appropriate account to record any excess proceeds received and retained (not refunded)by a company from an oversubscription to a share offer application,is the:
A)Share issue costs account
B)Forfeited Shares account
C)Share capital account
D)Calls in advance account.

Accepted Answer

The answer of The appropriate account to record any excess...

Question 12

Following the allotment the balance in the Share Capital account would be:
A)$100 000 Credit
B)$250 000 Credit
C)$100 000 Debit
D)$250 000 Debit.

Accepted Answer

Allotment of shares increases the share capital of a company. The question states that 25,000 shares were allotted at $10 per share, which means the total amount received by the company is $250,000. This amount will be credited to the Share Capital account, as it represents the amount raised by issuing shares. Therefore, the correct answer is B, which states that the balance in the Share Capital account would be $250,000 credit after the allotment.

Question 13

Which of the following journal entries demonstrates the appropriate accounting treatment for share issue costs?
A)Dr Deferred asset: Cr Cash
B)Dr Cash: Cr Deferred asset
C)Dr Share capital: Cr: Cash
D)Dr Cash: Cr Share capital.

Accepted Answer

The answer of Which of the following journal entries demonstrates...

Question 14

On 1 July 2012,a company redeemed its debenture liability of $100 000 using available cash on hand.The terms of the debenture issue provided that a premium of 10% was to be paid on redemption of the debentures.The entry to record the redemption is:
A)
B)
C)
D)

Accepted Answer

The answer of On 1 July 2012,a company redeemed its...

Question 15

The bonus issue of shares has the following impact on the equity of a company
A)total equity increases
B)total equity decreases
C)one equity account increases and another equity account decreases by an equal amount
D)only the amount of issued share capital changes.

Accepted Answer

Bonus issue means free shares are given to existing shareholders in proportion to their current shareholding. This does not involve any cash outflow from the company, but the total number of shares increases. As a result, the overall equity of the company increases.

Question 16

Following the allotment,the amount transferred from the Cash Trust account to the Cash account would be:
A)$150 000
B)$110 000
C)$100 000
D)$15 000.

Accepted Answer

The amount transferred from the Cash Trust account to the Cash account would be $150,000. This is because the total amount of the allotment is $150,000, and the amount that is not transferred to the Cash account is $10,000.

Question 17

Identify 5 common differences between ordinary and preference shares.

Accepted Answer

The answer of Identify 5 common differences between ordinary and...

Question 18

Bonacurso Limited issued 10 000 share options to subscribe for ordinary shares.The exercise price on the options was $3 per share.If all options were exercised on due date the following journal entry would be recorded:
A)
B)
C)
D)

Accepted Answer

The answer of Bonacurso Limited issued 10 000 share options...

Question 19

After application,and prior to allotment,the balance in the Application account would be:
A)$150 000 Debit
B)$150 000 Credit
C)$165 000 Debit
D)$165 000 Credit.

Accepted Answer

The answer of After application,and prior to allotment,the balance in...

Question 20

The entry to record the forfeiture of shares is:
A)
B)
C)
D)

Accepted Answer

The answer of The entry to record the forfeiture of...

Quiz 2: Financing Company Operations

When a public share issue is made,the offer comes from:

The amount of the surplus payable to the shareholders whose shares were forfeited is:

The costs of issuing equity effectively:

Without the prior approval of shareholders a company is restricted to private placements of shares,in any one year,of no more than:

Underwriting and other share issue costs paid to a broker or a financial institution should be reported in a balance sheet as:

In respect to the issue of shares by a company,what is an IPO?

The appropriate journal entry to record the cash collected from applicants for shares before the shares are issued is:

The entry to record the reissue of forfeited shares is:

If the balance in a forfeited shares account is refundable to the owners of those shares,then the forfeited shares account is classified as a component of:

When shares are issued fully payable on application,the journal entries to record the issue (assuming the minimum subscription is reached) are:

The appropriate account to record any excess proceeds received and retained (not refunded) by a company from an oversubscription to a share offer application,is the:

Following the allotment the balance in the Share Capital account would be:

Which of the following journal entries demonstrates the appropriate accounting treatment for share issue costs?

On 1 July 2012,a company redeemed its debenture liability of $100 000 using available cash on hand.The terms of the debenture issue provided that a premium of 10% was to be paid on redemption of the debentures.The entry to record the redemption is:

The bonus issue of shares has the following impact on the equity of a company

Following the allotment,the amount transferred from the Cash Trust account to the Cash account would be:

Identify 5 common differences between ordinary and preference shares.

Bonacurso Limited issued 10 000 share options to subscribe for ordinary shares.The exercise price on the options was $3 per share.If all options were exercised on due date the following journal entry would be recorded:

After application,and prior to allotment,the balance in the Application account would be:

The entry to record the forfeiture of shares is: