Question 1

Which of the following journal entries shows the correct accounting treatment for share issue costs?

Accepted Answer

A)  Dr Deferred asset: Cr Cash 
B)  Dr Cash: Cr Deferred asset 
C)  Dr Share capital: Cr: Cash 
D)  Dr Cash: Cr Share capital 
A)  Dr Deferred asset: Cr Cash 
B)  Dr Cash: Cr Deferred asset 
C)  Dr Share capital: Cr: Cash 
D)  Dr Cash: Cr Share capital

Question 2

If a company's constitution does not contain rules governing the forfeiture of shares, then the company:

Accepted Answer

A)  may forfeit shares but not reissue them. 
B)  cannot forfeit shares. 
C)  may forfeit shares and reissue them at a later date. 
D)  can register the shares in the name of another shareholder, but cannot receive payment from that shareholder. 
A)  may forfeit shares but not reissue them. 
B)  cannot forfeit shares. 
C)  may forfeit shares and reissue them at a later date. 
D)  can register the shares in the name of another shareholder, but cannot receive payment from that shareholder.

Question 3

ABC Ltd was registered as a company on 1 July 2017. On 4 July 2017, ABC Ltd issued a prospectus offering 250 000 ordinary shares at an issue price of $3.50 each, payable $2.50 on application and $1.00 on allotment. Applications closed on 1 August 2017 with the company having received applications for 300 000 shares. The shares were allotted on 15 August 2017, with the over-subscription amount being refunded to unsuccessful applicants. All allotment money was received by 31 August 2017. Following the allotment, the balance in the share capital account would be:

Accepted Answer

A)  $750 000 credit. 
B)  $875 000 credit. 
C)  $625 000 credit. 
D)  $1 050 000 credit. 
A)  $750 000 credit. 
B)  $875 000 credit. 
C)  $625 000 credit. 
D)  $1 050 000 credit.

Question 4

Bellvista Limited issued 20 000 share options to subscribe for ordinary shares. The exercise price on the options was $5 per share. If all options were exercised by the due date, the following journal entry would be recorded for the issue of the shares. $\begin{array}{llll}
\text { Share capital - ordinary }  & \text { Dr } & 100000 & \
\text { Cash } & \mathrm{Cr} & & 100000
\end{array}$

$\begin{array}{llll}
\text { Share options - ordinary } & \text { Dr } & 100000 & \
\text { Share capital - ordinary } & \mathrm{Cr} & & 100000
\end{array}$

$\begin{array}{llll}
\text { Share options reserve } & \text { Dr } & 100000 & \
\text { Cash } & \mathrm{Cr} & & 100000
\end{array}$

$\begin{array}{llll}
\text { Cash } & \mathrm{Dr} & 100000 & \
\text { Share capital - ordinary } & \mathrm{Cr} & & 100000
\end{array}$

Accepted Answer

The answer of Bellvista Limited issued 20 000 share options...

Question 5

In the case of a share issue being oversubscribed, any amount kept by the company for future calls is credited to a Calls in Advance account, which is reported in the equity section of the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 6

If a company uses its surplus cash reserves to buy-back its own shares, the total equity of the company will increase by the equivalent amount of cash spent.

Accepted Answer

A) True 
 B)False

Question 7

A share option is an instrument that gives the holder the right but not the obligation to:

Accepted Answer

A)  buy a certain number of shares in the company by a specified date at a stipulated price. 
B)  sell a variable number of shares in the company by a specified date at a stipulated price. 
C)  receive a certain dividend declared by the company by a specified date. 
D)  receive a bonus issue of shares in a proportion as notified by the company. 
A)  buy a certain number of shares in the company by a specified date at a stipulated price. 
B)  sell a variable number of shares in the company by a specified date at a stipulated price. 
C)  receive a certain dividend declared by the company by a specified date. 
D)  receive a bonus issue of shares in a proportion as notified by the company.

Question 8

According to ASX Listing Rule 7.1, the proportion of existing capital that a listed company can issue in any one year without the prior approval of the ordinary shareholders is:

Accepted Answer

A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
A)  5%. 
B)  10%. 
C)  15%. 
D)  20%.

Question 9

If a company forfeits shares and the company's constitution is silent in relation to reissue of the shares, the company is entitled to keep any balance in the account after reissue, payment of unpaid calls and interest and administrative costs.

Accepted Answer

A) True 
 B)False

Question 10

Prior to the allotment/issue of shares, the balance in the application account represents a liability of the company to the applicants.

Accepted Answer

A) True 
 B)False

Question 11

Any unpaid calls are accounted for as a receivable in a company's financial statements.

Accepted Answer

A) True 
 B)False

Question 12

A company's share capital consists of 100 000 ordinary shares issued at $4 and paid to $2 per share. On 1 February, a first call of $1 was made on the ordinary shares. By 28 February, call money was received on 90 000 shares. On 31 March, the shares on which calls were outstanding were forfeited. The company's constitution provided for any surplus on resale to be returned to the shareholders whose shares were forfeited. On 15 April, the forfeited shares were reissued as paid to $4.00 for a payment of $3.50 per share. The entry to record the reissue of the forfeited shares is: $\begin{array}{llrr}
\text {Cash } & \mathrm{Dr} &35000\
\text { Forfeited shares } & \mathrm{Dr} & 5000 & \
\quad \text { Share capital - ordinary } & \mathrm{Cr} & & 40000 \
\
\text { Cash } & & 5000  \
\text { Forfeited shares } & \mathrm{Dr} &  35000  & \
\quad \text { Share capital - ordinary } & \mathrm{Dr} &&40000 \
\
\text { Cash } & \mathrm{Cr} &5000 &  \
\quad \text { Share capital - ordinary } & \mathrm{Dr} && 35000 \
\
\text { Share capital } & \mathrm{Cr} & 35000 \
\text { Frrfeited shares } & \mathrm{Dr} && 35000 &
\end{array}$

Accepted Answer

The answer of A company's share capital consists of 100...

Question 13

Interest paid to shareholders on calls in advance is:

Accepted Answer

A)  credited to retained earnings. 
B)  recorded as an expense. 
C)  debited to retained earnings. 
D)  recorded as revenue. 
A)  credited to retained earnings. 
B)  recorded as an expense. 
C)  debited to retained earnings. 
D)  recorded as revenue.

Question 14

The journal entry to record the amount receivable when a call is made by the company is:

Accepted Answer

A)  DR Call CR Share capital 
B)  DR Allotment CR Share capital 
C)  DR Share capital CR Call 
D)  DR Cash trust CR Call 
A)  DR Call CR Share capital 
B)  DR Allotment CR Share capital 
C)  DR Share capital CR Call 
D)  DR Cash trust CR Call

Question 15

If a company makes a renounceable rights issue, the shareholders are not allowed to sell their rights, but must either accept or reject the offer to purchase additional shares in the company.

Accepted Answer

A) True 
 B)False

Question 16

XYZ Ltd was registered as a company on 1 July 2017. On 4 July 2017, ABC Ltd issued a prospectus offering 200 000 ordinary shares at an issue price of $5.00 each, payable $3.00 on application and $2.00 on allotment. Applications closed on 1 August 2017 with the company having received applications for 220 000 shares. After application but prior to allotment, the balance in the application account would be:

Accepted Answer

A)  $600 000 credit. 
B)  $1 000 000 credit. 
C)  $660 000 debit. 
D)  $660 000 credit. 
A)  $600 000 credit. 
B)  $1 000 000 credit. 
C)  $660 000 debit. 
D)  $660 000 credit.

Question 17

Only fully paid-up preference shares can be redeemed by a company.

Accepted Answer

A) True 
 B)False

Question 18

A company forfeited 10 000 shares that had been paid to $2 but on which a $1 call was outstanding. The company's constitution provided for any surplus on reissue to be returned to the forfeiting shareholders. The forfeited shares were reissued as paid to $4.00 for a payment of $3.50 per share. Costs of reissue amounted to $2000. The amount of the surplus repaid to the shareholders whose shares were forfeited is:

Accepted Answer

A)  $15 000. 
B)  $13 000. 
C)  $10 000. 
D)  $38 000. 
A)  $15 000. 
B)  $13 000. 
C)  $10 000. 
D)  $38 000.

Question 19

If the balance in a forfeited shares account is refundable to the owners of those shares, then the account is classified as a component of:

Accepted Answer

A)  revenue. 
B)  liabilities. 
C)  equity. 
D)  expense. 
A)  revenue. 
B)  liabilities. 
C)  equity. 
D)  expense.

Question 20

According to the Corporations Act, dividends may:

Accepted Answer

A)  only be paid to shareholders once a year. 
B)  only be paid out of the current year's profits of a company. 
C)  be declared and paid to shareholders irrespective of whether a company has accumulated losses. 
D)  be paid if the company has an excess of assets over liabilities. 
A)  only be paid to shareholders once a year. 
B)  only be paid out of the current year's profits of a company. 
C)  be declared and paid to shareholders irrespective of whether a company has accumulated losses. 
D)  be paid if the company has an excess of assets over liabilities.

Which of the following journal entries shows the correct accounting treatment for share issue costs?

If a company's constitution does not contain rules governing the forfeiture of shares, then the company:

In the case of a share issue being oversubscribed, any amount kept by the company for future calls is credited to a Calls in Advance account, which is reported in the equity section of the statement of financial position.

If a company uses its surplus cash reserves to buy-back its own shares, the total equity of the company will increase by the equivalent amount of cash spent.

A share option is an instrument that gives the holder the right but not the obligation to:

According to ASX Listing Rule 7.1, the proportion of existing capital that a listed company can issue in any one year without the prior approval of the ordinary shareholders is:

If a company forfeits shares and the company's constitution is silent in relation to reissue of the shares, the company is entitled to keep any balance in the account after reissue, payment of unpaid calls and interest and administrative costs.

Prior to the allotment/issue of shares, the balance in the application account represents a liability of the company to the applicants.

Any unpaid calls are accounted for as a receivable in a company's financial statements.

Interest paid to shareholders on calls in advance is:

The journal entry to record the amount receivable when a call is made by the company is:

If a company makes a renounceable rights issue, the shareholders are not allowed to sell their rights, but must either accept or reject the offer to purchase additional shares in the company.

Only fully paid-up preference shares can be redeemed by a company.

If the balance in a forfeited shares account is refundable to the owners of those shares, then the account is classified as a component of:

According to the Corporations Act, dividends may:

Nature and Regulation of Companies

Business Combinations

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Financial Statements Into a Presentation Currency

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Company Income Tax

Property, Plant Equipment

Filters

Exam 2: Financing Company Operations

Which of the following journal entries shows the correct accounting treatment for share issue costs?

If a company's constitution does not contain rules governing the forfeiture of shares, then the company:

In the case of a share issue being oversubscribed, any amount kept by the company for future calls is credited to a Calls in Advance account, which is reported in the equity section of the statement of financial position.

If a company uses its surplus cash reserves to buy-back its own shares, the total equity of the company will increase by the equivalent amount of cash spent.

A share option is an instrument that gives the holder the right but not the obligation to:

According to ASX Listing Rule 7.1, the proportion of existing capital that a listed company can issue in any one year without the prior approval of the ordinary shareholders is:

If a company forfeits shares and the company's constitution is silent in relation to reissue of the shares, the company is entitled to keep any balance in the account after reissue, payment of unpaid calls and interest and administrative costs.

Prior to the allotment/issue of shares, the balance in the application account represents a liability of the company to the applicants.

Any unpaid calls are accounted for as a receivable in a company's financial statements.

Interest paid to shareholders on calls in advance is:

The journal entry to record the amount receivable when a call is made by the company is:

If a company makes a renounceable rights issue, the shareholders are not allowed to sell their rights, but must either accept or reject the offer to purchase additional shares in the company.

Only fully paid-up preference shares can be redeemed by a company.

If the balance in a forfeited shares account is refundable to the owners of those shares, then the account is classified as a component of:

According to the Corporations Act, dividends may:

Nature and Regulation of Companies

Business Combinations

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Financial Statements Into a Presentation Currency

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Company Income Tax

Property, Plant Equipment

Filters