multiple choice. choose the best answers to the Questions

1)Which of the following statements is false?

A.The conversion of preference shares into ordinary share results in no change in total shareholders' equity.

B.The purchase of treasury share often reduces the amount of retained earnings which can legally be paid out as dividends.

C.Issuing ordinary share in exchange for equipment would reduce the debt to equity ratio.

D.The conversion of preference shares into ordinary share results in a change in total shareholders' equity.

2)On incorporation, Dee Inc. issued stock at a price in excess of its par value. No other stock transactions occurred except treasury stock was acquired for an amount exceeding this issue price. If Dee, immediately retired the stocks acquired, what is the effect of the acquisition on the following?

Net Common Stock Additional Paid-in Capital Retained Earnings

A.No effect DecreaseNo effect

B.Decrease DecreaseDecrease

C.Decrease No effectDecrease

D.No effect DecreaseDecrease

3)A retained earnings appropriation is used to

A.Smooth periodic income

B.Restrict earnings available for dividends

C.Absorb a fire loss when a company is self-insured

D.Provide for a contingent loss that is probable and measurable

4)Which dividend when declared does not create a liability?

A.

Cash dividend

C.

Scrip dividend

B.

Share dividend

D.

Property dividend

5)At what amount per share should retained earnings be reduced for a 20% stock dividend?

A.

Zero

C.

Market value at the date of declaration

B.

Par value

D.

Market value at the date of issuance

6)If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?

A.

Par value of the shares

C.

Fair value of the shares on the date of issuance

B.

Fair value of the shares on the date of record

D.

Fair value of the shares on the date of declaration

7)Dividends in arrears are

A.Dividends on common stock that have not been declared

B.Dividends on preferred stock that have been declared but not paid

C.Cumulative preferred dividends that have not been declared for a given period of time

D.Noncumulative preferred dividends that has not been declared for a given period of time

8)Choose the most correct statement regarding a 2-for-1 share split and a 100% share dividend.

A.Neither affect par value

B.Both double the number of share outstanding

C.Both cause the same reduction in retained earnings

D.Both cause significant increase in the ordinary shares account

9)Share premium could not arise from

A.

Donated capital

C.

Distribution of "large" bonus issue

B.

resale of treasury stock

D.

Distribution of "small" bonus issue

10)What is the corporation's legal capital?

A.It is the portion of the paid-in capital arising from the issuance of capital stock that cannot be returned to the stockholders in any form during the lifetime of the corporation.

B.In case of par value stock, legal capital is the aggregate par value of all shares issued and subscribed.

C.In case of no-par value stock, legal capital is the aggregate stated value of shares issued and subscribed plus any excess over stated value.

D.All of the above statements would describe the concept of legal capital.

11)The retained earnings account represents the cumulative balance of periodic net income, dividend distribution, retroactive adjustments and other capital adjustments. One of the following refers to appropriated retained earnings:

A.This is known as a debit balance in the retained earnings.

B.This results when the deficit exceeds the total of all the stockholders' equity account.

C.This represents that portion that is free and can be declared as dividends to stockholders.

D.This represents that portion that is restricted and hence cannot be declared as dividends.

12)Motherhood Company declared a 10% stock dividend. The declaration

A.Would decrease both retained earnings and total stockholders' equity

B.Would decrease retained earnings but would have no effect on total stockholders' equity

C.Would have no effect on retained earnings but would decrease total stockholders' equity

D.Would have no effect both retained earnings and total stockholders' equity

13)Unlike a share split, a bonus issue requires a formal journal entry in the financial accounting records because

A.Bonus issue increase the book value of an individual's shareholdings

B.Bonus issue increase the shareholders' equity in the issuing firm

C.Bonus issue is payable on the date they are declared

D.Bonus issue represents a transfer from retained earnings to share capital

14)The retirement of the treasury shares

A.

Decreases share outstanding

C.

Decreases shares issued

B.

Decreases shares authorized

D.

Has no effect on shares issued

15)Which feature of preference shares makes the security more like debt than an equity instrument?

A.

Participating

C.

Redeemable

B.

Voting

D.

Noncumulative

16)When preference shares ratably with the ordinary shareholders in any profit distribution beyond the prescribed rate this is known as the

A.

Cumulative feature

C.

Callable feature

B.

Participating feature

D.

Redeemable feature

17)Which dividends do not reduce equity?

A.

Cash dividend

C.

Property dividends

B.

Share dividend

D.

Liquidating dividends

18)When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par ordinary shares subscribed should be recorded as

A.No par ordinary share

B.Additional paid-in capital when the subscription is recorded

C.Additional paid-in capital when the subscription is collected

D.Additional paid-in capital when the ordinary shares are issued

19)Which statement is incorrect regarding equity

A.Equity is the residual interest in the assets of the equity after deducting all its liabilities.

B.Equity may be sub-classified in the balance sheet.

C.The amount at which equity is shown in the balance is depended on the measurement of assets and liabilities.

D.All the statement are correct.

20)A company declared a cash dividend on its ordinary shares in December 2009, payable in January 2010. accumulated profits would

A.

Increase on the date of declaration

C.

Not be affected on the date of payment

B.

Not be affected on the date of declaration

D.

Decrease on the date of payment