FA - Ch. 13

Jimbo Co has authorised share capital of 2 million ordinary (equity) shares with a par value of 50 cents each. 1.6 million of these have been issued, although only 50% of the par value has been called up.

What is the amount included for ordinary (equity) share capital in Jimbo Co's Statement of Financial Position?

• 1. $400,000

• 1. $500,000

• 1. $800,000

• 1. $1,000,000

Clipo Co has issued share capital of 500,000 $1 ordinary (equity) shares. All shares are fully paid up. On 1 October 20X5, a 2 for 5 rights issue is offered to the shareholders at an issue price per share of $2.60. The shareholders all take up their rights.

What is the effect of the rights issue on the share premium account?

• 1. Increases it by $320,000

• 1. Decreases it by $320,000

• 1. Increases it by $520,000

• 1. Decreases it by $520,000

A company has 50,000, 50 cent 6% irredeemable preference shares that have been in issue for a number of years.

How will the dividend payment be treated in the financial statements for the year ended 31 December 20X8?

• 1. Interest expense of $3,000

• 1. Appropriation of profit of $3,000

• 1. Interest expense of $1,500

• 1. Appropriation of profit of $1,500

Which of the following would cause a company’s profit for the year to increase?

• 1. Issue of 100,000 ordinary (equity) shares at a premium of 2%

• 1. Revaluation of a freehold property from $70,000 to $100,000

• 1. Disposal of a fork-lift truck which originally cost $15,000 and has a carrying amount of $9,250 for $8,500

• 1. Receipt of $25 from a customer previously written off as irrecoverable

In which financial statements will dividends paid during the year be presented?

• 1. Statement of cash flows and statement of comprehensive income

• 1. Statement of cash flows and statement of changes in equity

• 1. Statement of financial position and statement of changes in equity

• 1. Statement of comprehensive income and statement of financial position

Which TWO of the following statements concerning a bonus issue of shares are correct?

• 1. Ordinary (equity) share capital and share premium may increase

• 1. Ordinary (equity) share capital will increase and share premium may decrease

• 1. Retained earnings may be affected by a bonus issue

• 1. Equity will increase

Which TWO of the following statements concerning the capital structure of a limited liability company are true?

• 1. Redeemable preference shares are shown as part of equity

• 1. Loan notes are usually secured on the assets of the company.

• 1. Ordinary (equity) shareholders must be paid a dividend each year.

• 1. Redeemable preference dividends are included under interest expenses.

Zain’s manufacturing company has raised finance at the beginning of 20X3 by issuing $500,000 6% loan stock and 500,000 5% 50-cent redeemable preference shares. The company already had 200,000 4% $1 irredeemable preference shares.

How much should be recorded in interest expenses for the year ended 31 December 20X4?

• 1. $30,000

• 1. $42,500

• 1. $50,500

• 1. $38,000

AB Co issued 400,000 50-cent ordinary (equity) shares for $550,000 for cash. How should this issue be recorded in the equity section of the statement of financial position?

• 1. CR Ordinary (equity) share capital $550,000

• 1. CR Ordinary (equity) share capital $400,000 CR Share premium $150,000

• 1. CR Ordinary (equity) share capital $200,000 CR Share premium $350,000

• 1. CR Ordinary (equity) share capital $550,000 DR Share premium $350,000

Which TWO of the following statements are disadvantages to a company of using a rights issue to raise additional capital?

• 1. It limits the offer of shares to existing shareholders only.

• 1. The shares are offered at a discount so more shares need to be sold.

• 1. The balance of ownership is unchanged if current shareholders use their right to buy shares

• 1. It is cheaper than an issue of shares to the market place.