Question 1

Which of the following is NOT a main feature of a corporation?

Accepted Answer

Unlimited liability for shareholders

Question 2

A company issues 2,000 common shares at $15 per share. What is the journal entry to record this transaction?

Accepted Answer

Cash XX 
 Common Share Capital XX

Question 3

Which of the following best describes the impact of a stock dividend on shareholders’ equity?

Accepted Answer

No change in total shareholders’ equity

Question 4

A company declares a cash dividend of $0.50 per share on 10,000 outstanding shares. What is the journal entry on the date of declaration?

Accepted Answer

Retained Earnings XX 
 Dividends Payable XX

Question 5

Which formula is used to calculate Return on Equity (ROE)?

Accepted Answer

$$ ROE = \frac{Net\ income}{Average\ common\ shareholders'\ equity} $$

Question 6

If a company repurchases its own shares, what is the most likely reason?

Accepted Answer

To return excess cash to shareholders

Question 7

Which of the following transactions would NOT be reported on the balance sheet?

Accepted Answer

Declaration of a cash dividend

Question 8

A company has 5,000 preferred shares ($$10 par value) and 20,000 common shares outstanding. If preferred dividends in arrears are 1$$,000 and the company declares $12,000 in total dividends, how much will be paid to preferred shareholders?

Accepted Answer

$$6,000$$

Question 9

Which of the following is a right of common shareholders?

Accepted Answer

Right to vote at shareholders’ meetings

Question 10

What is the effect of a stock split on the market price per share and total shareholders’ equity?

Accepted Answer

Market price per share decreases; total shareholders’ equity remains unchanged

Question 11

Which of the following must be disclosed in the equity section of the balance sheet under IFRS?

Accepted Answer

Number of authorized, issued, and outstanding shares

Question 12

A company issues 1,000 shares at $$20 per share. The shares have a par value of 10. $$What is the amount credited to Common Share Capital?

Accepted Answer

$$20,000$$

Question 13

Which of the following is a disadvantage of the corporate form of business organization?

Accepted Answer

Double taxation of earnings

Question 14

Which of the following is true regarding preferred shares?

Accepted Answer

They usually have a fixed dividend rate

Question 15

A company declares a 10% stock dividend when the market price is $25 per share and there are 5,000 shares outstanding. What is the total value transferred from retained earnings to share capital?

Accepted Answer

$$12,500$$

Question 16

Which of the following best describes the book value per common share?

Accepted Answer

$$ Book\ value\ per\ share = \frac{Shareholders'\ equity\ -\ Preferred\ shareholders'\ equity}{Number\ of\ common\ shares\ outstanding} $$

Question 17

Which of the following is NOT a reason for a company to repurchase its own shares?

Accepted Answer

To increase the number of shares outstanding

Question 18

Which of the following is a required disclosure for equity under IFRS?

Accepted Answer

Accumulated other comprehensive income

Question 19

A company has 1,000 common shares outstanding. The shares were originally issued for $$10 each. The current market price is quoted at 21 $$per share. However, the company paid $18 per share to repurchase 200 shares. What is the impact of this transaction on total shareholders’ equity?

Accepted Answer

Decrease by $3,600

Question 20

Which of the following is NOT a component of shareholders’ equity?

Accepted Answer

Bonds payable

Shareholders' Equity: Structure, Transactions, and Analysis

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