Question 1

On 1 July 2013,a company redeemed its $200 000 debenture liability using its available cash on hand.The terms of the debenture issue provided that a premium of 5% was to be paid on redemption of the debentures.Which of the following is the entry to record the redemption?
A)
B)
C)
D)

Accepted Answer

When redeeming a debenture liability with a premium, the premium amount is added to the carrying value of the liability. The entry to record this redemption would be to debit the debenture liability account for its carrying value of $200,000 and credit cash for the same amount. Then, the premium of 5% (which is $10,000) is debited to the debenture premium account, while the same amount is credited to the income statement account. Therefore, the correct entry would be debit Debenture Liability $200,000, credit Cash $200,000, debit Debenture Premium $10,000, and credit Income Statement $10,000. This entry corresponds only to option C.

Question 2

Brown Limited was incorporated on 1 July 2013.A prospectus offering 200 000 shares at $3.00 each was released and closed fully subscribed.The share issue was underwritten by a broker for $25 000 and other costs of the share issue amounted to $13 000.The net share capital on the statement of financial position is:
A)$575 000.
B)$162 000.
C)$587 000.
D)$562 000.

Accepted Answer

The answer of Brown Limited was incorporated on 1 July...

Question 3

Prior to the allotment/issue of shares,the balance in the application account represents a liability of the company to the applicants.

Accepted Answer

This is because the money received from the applicants for the shares is held in the company's application account until the shares are actually allotted/issued. Until then, the company has a liability to the applicants to return their money if the shares are not allotted/issued. Once the shares are allotted/issued, the liability is discharged and the money is transferred to the company's share capital account.

Question 4

Any unpaid calls are accounted for as a receivable in a company's financial statements.

Accepted Answer

The answer of Any unpaid calls are accounted for as...

Question 5

It is possible for a company to issue different types of preference shares provided that the rights of each type are specified in its constitution.

Accepted Answer

This is because the company's constitution outlines the rights and privileges that each type of preference share holder is entitled to, which ensures transparency and fairness.

Question 6

A share option is an instrument that gives the holder the right but not the obligation to:
A)buy a certain number of shares in the company by a specified date at a stipulated price.
B)sell a certain number of shares in the company by a specified date at a stipulated price.
C)receive a certain dividend declared by the company by a specified date.
D)receive a bonus issue of shares in a proportion as notified by the company.

Accepted Answer

A share option gives the holder the right, but not the obligation to buy a certain number of shares in the company by a specified date at a stipulated price. This means that the holder has the option to choose whether or not to buy the shares, but if they choose to exercise the option, they must buy the shares at the predetermined price.

Question 7

A rights issue gives all existing shareholders the right to an additional number of shares in proportion to their current shareholding.

Accepted Answer

A rights issue is a type of offering in which a company provides its existing shareholders the opportunity to purchase additional shares of the company's stock at a discounted price. The number of shares that shareholders are entitled to buy is usually proportional to their current holdings.

Question 8

Bellvista Limited issued 20 000 share options to subscribe for ordinary shares.The exercise price on the options was $5 per share.If all options were exercised by the due date,the following journal entry would be recorded for the issue of the shares.
A)
B)
C)
D)

Accepted Answer

The answer of Bellvista Limited issued 20 000 share options...

Question 9

Section 124 of the Corporations Act places a restriction on the private placement of shares,limiting to 15% of existing capital the amount of capital that a company can issue in any one year without prior shareholder approval.

Accepted Answer

Section 124 of the Corporations Act 2001 (Australia) provides companies with the legal capacity and powers of an individual, not restrictions on share placements. The 15% rule is related to ASX Listing Rule 7.1, not Section 124.

Question 10

If a company forfeits shares and the company's constitution is silent in relation to reissue of the shares,the company is entitled to keep any balance in the account after reissue,payment of unpaid calls and interest and administrative costs.

Accepted Answer

According to Section 562(1) of the Companies Act 2006, if a company forfeits shares and the company's constitution is silent in relation to reissue of the shares, the company is entitled to keep any balance in the account after reissue, payment of unpaid calls and interest and administrative costs.

Question 11

Which of the following journal entries shows the correct 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 shows...

Question 12

A bonus issue of shares to existing shareholders has which of the following impacts on the equity of a company?
A)Total equity increases.
B)Total equity decreases.
C)No overall change in total equity.
D)Only the amount of issued share capital changes.

Accepted Answer

A bonus issue of shares to existing shareholders is essentially a reallocation of the company's equity. It converts retained earnings or other reserves into issued share capital, but the total equity of the company remains unchanged because no new funds are brought into the company.

Question 13

Share issue costs such as professional adviser's fees and brokerage fees must be reported as an expense in the income statement.

Accepted Answer

Share issue costs are directly deducted from the proceeds of the share issue and are reported in the equity section of the balance sheet, not as an expense in the income statement.

Question 14

According to ASX Listing Rule 7.1,the proportion of existing capital that a listed company can issue in any one year without the prior approval of the ordinary shareholders is:
A)5%.
B)10%.
C)15%.
D)20%.

Accepted Answer

According to ASX Listing Rule 7.1, a listed company can issue up to 15% of its existing capital in any one year without the prior approval of the ordinary shareholders.

Question 15

In the case of a share issue being oversubscribed,any amount kept by the company for future calls is credited to a Calls in Advance account,which is reported as an addition to share capital in the financial statements.

Accepted Answer

When a share issue is oversubscribed, any amount kept by the company for future calls is credited to a Calls in Advance account. This account is reported as an addition to share capital in the financial statements.

Question 16

If a company has not reached a minimum subscription level within 90 days of the date of the disclosure document,the money paid in by applicants must be refunded by the company within 1 month in accordance with the requirements of ss 724(1)and (2)of the Corporations Act.

Accepted Answer

The answer of If a company has not reached a...

Question 17

In accordance with AASB 138 Intangible Assets,company formation costs such as professional legal and accounting advice qualifies for recognition as an asset.

Accepted Answer

Under AASB 138, company formation costs do not meet the criteria for recognition as an intangible asset because they do not provide future economic benefits controlled by the entity.

Question 18

Underwriting commission fees are treated as expenses as they are not considered to be an integral part of the equity issue transaction.

Accepted Answer

Underwriting commission fees are considered as part of the equity issue transaction and are deducted from the gross proceeds received from the issue. Therefore, they are not treated as expenses.

Question 19

If a company makes a renounceable rights issue,the shareholders are not allowed to sell their rights,but must either accept or reject the offer to purchase additional shares in the company.

Accepted Answer

In a renounceable rights issue, shareholders are allowed to sell their rights to third parties if they choose not to take up the offer to purchase additional shares themselves.

Question 20

Underwriting and other share issue costs paid to a stockbroker or financial institution should be reported in the statement of financial position as a/an:
A)liability.
B)asset.
C)increase in share capital.
D)decrease in share capital.

Accepted Answer

Underwriting and other share issue costs are directly deducted from the proceeds of the share issue, thus reducing the amount credited to share capital. This treatment reflects the costs as a decrease in the net funds received from issuing shares.

Quiz 2: Financing Company Operations

On 1 July 2013,a company redeemed its $200 000 debenture liability using its available cash on hand.The terms of the debenture issue provided that a premium of 5% was to be paid on redemption of the debentures.Which of the following is the entry to record the redemption?

Prior to the allotment/issue of shares,the balance in the application account represents a liability of the company to the applicants.

Any unpaid calls are accounted for as a receivable in a company's financial statements.

It is possible for a company to issue different types of preference shares provided that the rights of each type are specified in its constitution.

A share option is an instrument that gives the holder the right but not the obligation to:

A rights issue gives all existing shareholders the right to an additional number of shares in proportion to their current shareholding.

Bellvista Limited issued 20 000 share options to subscribe for ordinary shares.The exercise price on the options was $5 per share.If all options were exercised by the due date,the following journal entry would be recorded for the issue of the shares.

Section 124 of the Corporations Act places a restriction on the private placement of shares,limiting to 15% of existing capital the amount of capital that a company can issue in any one year without prior shareholder approval.

If a company forfeits shares and the company's constitution is silent in relation to reissue of the shares,the company is entitled to keep any balance in the account after reissue,payment of unpaid calls and interest and administrative costs.

Which of the following journal entries shows the correct accounting treatment for share issue costs?

A bonus issue of shares to existing shareholders has which of the following impacts on the equity of a company?