Question 4 (The issuer classifies redeemable preference shares asfinancial liabilityown equity instrumenteither financial liability or own equity instrumentcontra equityQuestion 5Retained earnings maybe increased in which of the following transactionsSale of shares above par or stated valueReceipt of donation from a shareholderExercise of share warrants by the holderNone of theseQuestion 6The conversion of preference shares into ordinary sharesmay result to an increase in retained earningsresults to gain or lossis accounted for as a derecognition of the preference shares and the recognitionof ordinary sharesmay decrease or increase the entity's total equity

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Dividends declared on redeemable preference shares are recognized O By a debit to retained earnings O By a credit to retained earnings O In a profit or loss In other comprehensive income
Question 1What is the accounting treatment of the direct issue costs of shares of stocks?O Debit to the related share premiuin during organization stage and operating stageDebit to organizational cost during the organization stageDebit to revenue expenditure during the operating stageDebit to accumulated expenses during the operating stageDQuestion 2What is the total number of shares that a corporation may issue under its charter?O Authorized sharesIssued shareso Unissued sharesO Treasury sharesEQuestion 3In case shares are issued for outstanding liabilities, what is the measure of recording share capital and share premium?O Par value of the shares issuedAmount of liabilities set-offFair value of the shares issuedBook value of the shares issued
1. Gains on sale of treasury shares (cost method) should be credited to •Share premium – treasury •Ordinary share •Gain on sale of treasury •Retained earnings 2. When share without par value and stated value are sold, the proceed should be credited to a. Profit or Loss b. Retained Earnings c. Share Capital d. Share premium
S1 The premium on the shares subscribed shall be recorded at the date of issuance of share certificate. S2 Treasury share are stated at acquisition cost and are treated as deduction from shareholders equity. a. Both statements are true b. Both statements are false c. One statement is true, and the other one is false S1 Treasury shares are not entitled to receive dividend. S2 Treasury shares may either be ordinary or preference. a. Both statements are true b. Both statements are false c. One statement is true, and the other one is false
When treasury shares are reissued as dividends, what amount shall becharged to accumulated profits? A. Cost of the treasury sharesB. Par value of the treasury sharesC. Fair value of the treasury shares on the date of declarationD. Fair value of the treasury shares on the date of issuance
4. An ordinary share a. Is an equity instrument that is subordinate to all other classes of equity instrument b. Is a financial instrument or other contract that may entitle its holder to ordinary shares c. Is a financial instrument that gives the holder the right to purchase ordinary shares d. Is any contract that gives rise to both financial asset of one entity and a financial liability or equity instrument of another entity 5. In computing basic earnings per share, the full amount of the required preference dividends on cumulative preference shares for the period shall be a. Ignored b. Deducted from net income only when declared c. Deducted from net income whether declared or not d. Added to net income whether declared or not 6. It is a financial instrument or other contract that may entitle its holder to ordinary shares a. Ordinary share b. Preference share c. Equity instrument d. Potential ordinary share
7. In computing basic earnings per share, the amount of preference dividends on noncumulative preference shares shall be a. Deducted from net income whether declared or not b. Deducted from net income only when declared c. Added to net income only when declared d. Ignored 8. Earnings per share shall be computed on the basis of a. Ordinary shares outstanding at the end of the year b. Ordinary shares outstanding at the beginning of the year c. Ordinary shares outstanding at the middle of the year d. Average ordinary shares outstanding during the year 9. In computing basic earnings per share, an entity would include which of the following? a. Dividends on nonconvertible cumulative preference shares b. Dividends on ordinary shares c. Interest on convertible bonds d. Number of nonconvertible cumulative preference shares
Which of the following is entitled to dividends? Total outstanding liability Total authorized shares Total shares issued Total shares issued, net of treasury shares What is the date on which the fair value of the equity instrument granted is measured? Grant date Report date Measurement date Exercise date
Match each of the following terms with the correct definition: a. additional paid-in capitalb. issued and outstandingc. retained earningsd. treasury stocke. authorized share capitalf. par value Correct Definitions:A. The price at which each share is recorded in the company’s booksB. Held by investorsC. Cumulative amount of profits that have been plowed backD. The difference between the amount of cash raised by an equity issue and the par value of the issueE. The maximum number of shares that can be issued without shareholder approvalF. The amount that the company has spent buying back stock that it has not subsequently resold
Match each of the following terms with the correct definition: a. additional paid-in capitalb. issued and outstandingc. retained earningsd. treasury stocke. authorized share capitalf. par value Correct Definitions:A. The price at which each share is recorded in the company’s booksB. Held by investorsC. Cumulative amount of profits that have been plowed backD. The difference between the amount of cash raised by an equity issue and the par value of the issueE. The maximum number of shares that can be issued without shareholder approvalF. The amount that the company has spent buying back stock that it has not subsequently resold SELECTED FORMULAS PVIFA = PVIF = requity = rassets + (rassets – rdebt) PV of tax shield = = Tc *DWACC = (1-Tc) * *() + *()
1. The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to contributed capital an amount equal to the a. fair value of the shares issued. b. par or stated value of the shares issued. c. book value of the shares issued. d. minimum legal requirements. 2. Statement 1: Treasury shares are a company’s own shares that have been reacquired and retired. Statement 2: The cost method records all transactions in treasury shares at their cost and reports the treasury shares as a deduction from ordinary shares. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect. 3. The declaration and issuance of a share dividend a. increases ordinary shares outstanding and increases total equity. b. increases retained earnings and increases total equity. c. decreases retained earnings but does not change total equity. d. may increase share premium but does not change total…
Which of the following is issued to shareholders to acquired unissued or treasury shares within a specified tie period at a specified price?a. Share optionb. Share warrantc. Stock dividendd. Share subscription

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Question 4 ( The issuer classifies redeemable preference shares as financial liability own equity instrument either financial liability or own equity instrument contra equity Question 5. Retained earnings maybe increased in which of the following transactions