Q: Which formula correctly calculates the payout ratio? $$\text{Payout Ratio} = \frac{\text{Cash dividends declared on common shares}}{\text{Net income available to common shareholders}}$$

$$\text{Payout Ratio} = \frac{\text{Cash dividends declared on common shares}}{\text{Net income available to common shareholders}}$$

Question 1

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Unlimited liability of shareholders

Question 2

A company issues 10,000 common shares for $8 per share. What is the journal entry to record this transaction?

Accepted Answer

Cash $$80,000; Common Shares 80$$,000

Question 3

Which of the following statements about preferred shares is TRUE?

Accepted Answer

Preferred shares usually do not have voting rights

Question 4

A corporation declares a cash dividend of $0.75 per share on 40,000 common shares. What is the total amount of dividends declared?

Accepted Answer

$30,000

Question 5

Which date is used to determine which shareholders are eligible to receive a declared dividend?

Accepted Answer

Record date

Question 6

What is the effect of a stock split on total shareholders’ equity?

Accepted Answer

No effect

Question 7

A company has 50,000 common shares outstanding and declares a 10% stock dividend when the market price is $15 per share. What is the amount debited to Dividends Declared?

Accepted Answer

$75,000

Question 8

Which of the following is a reason for a corporation to repurchase its own common shares?

Accepted Answer

To increase earnings per share

Question 9

If a corporation repurchases common shares above their average cost, which account is debited for the excess paid over average cost?

Accepted Answer

Retained Earnings

Question 10

Which of the following is TRUE regarding the presentation of shareholders’ equity under IFRS?

Accepted Answer

Accumulated other comprehensive income is reported

Question 11

A company has net income of $$120,000, preferred dividends of 20$$,000, and 50,000 weighted average common shares outstanding. What is the basic earnings per share (EPS)?

$$	ext{EPS} = \frac{	ext{Net income} - 	ext{Preferred dividends}}{	ext{Weighted average common shares}}$$

Accepted Answer

$2.00

Question 12

Which formula correctly calculates the payout ratio?

$$	ext{Payout Ratio} = \frac{	ext{Cash dividends declared on common shares}}{	ext{Net income available to common shareholders}}$$

Accepted Answer

$$	ext{Payout Ratio} = \frac{	ext{Cash dividends declared on common shares}}{	ext{Net income available to common shareholders}}$$

Question 13

A company with 100,000 shares outstanding completes a 3-for-1 stock split. How many shares will be outstanding after the split?

Accepted Answer

300,000

Question 14

Which of the following is NOT a financial impact of a stock dividend?

Accepted Answer

Decrease in total shareholders’ equity

Question 15

Which account is credited when a stock dividend is distributed?

Accepted Answer

Common Shares

Question 16

Under IFRS, which statement is required to show changes in total shareholders’ equity for the period?

Accepted Answer

Statement of Changes in Equity

Question 17

A company has net income of $$200,000, common shareholders’ equity of 1$$,000,000, and preferred dividends of $$20,000. What is the return on common shareholders’ equity?

$$	ext{Return on Common Shareholders' Equity} = \frac{	ext{Net income} - 	ext{Preferred dividends}}{	ext{Average common shareholders' equity}}$

Accepted Answer

18%

Question 18

Which of the following is TRUE regarding the effect of a cash dividend on the accounting equation?

Accepted Answer

Assets and retained earnings decrease

Question 19

Which of the following is included in Accumulated Other Comprehensive Income (AOCI) under IFRS?

Accepted Answer

Revaluation gains and losses of property, plant, and equipment

Reporting and Analyzing Shareholders’ Equity (Chapter 11) – Study Notes

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