Ch15
A dividend which is a return to shareholders of a portion of their original capital investments is known as a
A. LIQUIDATING DIVIDEND
What effect does the issuance of a 2-for-1 stock split have on each of the following?
A. NO EFFECT and NO EFFECT
Jesse corp owns 4,000,000 shares of James Corp. On december 31, 2012, Jesse distributed these shares as a dividend to its shareholders. This is an example of
A. PROPERTY DIVIDEND
The pre-emptive right enables a shareholder to
A. SHARE PROPORTIONATELY in any new issues of shares in the SAME CLASS
Pryor Corporation issued a 2-for-1 common stock split. The shares had been originally issued at $10 per share. At what amount should retained earnings be capitalized for the additional shares issued?
A. There should be NO CAPITALIZATION of RETAINED EARNINGS
Direct incremental costs incurred to sell shares such as underwriting costs should be accounted for as
A. a REDUCTION of SHARE CAPITAL
The fair value of a property dividend should be determined by referring to
A. estimated realizable values in cash transactions involving similar assets B. quoted market prices C. independent appraisals D. ALL OF THESE ARE ACCEPTABLE
Declaration and issuance of a stock dividend
A. has no effect on total assets, liabilities, or shareholders' equity
The balance in the common stock dividend distributable account should be reported as a(n)
B. ADDITION to CONTRIBUTED CAPITAL
Noncumulative preferred dividends in arrears
B. Are NOT PAID or DISCLOSED
A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to
B. CONTRIBUTED CAPITAL
An entry for dividends is NOT made on the
B. DATE OF RECORD
Which of the following transactions would NOT result in an increase to retained earnings?
B. Issuance of a 3-FOR 1 STOCK SPLIT
The issuer of a 5% common stock dividend to common shareholders should transfer from retained earnings to contributed capital an amount equal to the
B. MARKET VALUE of the SHARES ISSUED
If a corporation wishes to "capitalize" part of their earnings, it may issue a
B. STOCK DIVIDEND
Which type of dividends do NOT reduce shareholders' equity?
B. STOCK DIVIDENDS
A feature common to both stock splits and stock dividends is
B. That there is NO EFFECT on total SHAREHOLDERS' EQUITY
Preferred shares are often issued instead of debt
B. because a corporation's DEBT-TO-EQUITY ratios has become TOO HIGH
The payout ratio can be calculated by
B. dividing CASH DIVIDENDS by NET INCOME less PREFERRED SHARED
The Price earning (PE) ratio is calculated by
B. dividing the MARKET PRICE of the share by EPS
Callable preferred shares
B. may be CALLED or REDEEMED at the OPTION of the issuing CORPORATION
The accounting problem in a lump sum sale of shares is the allocation of the proceeds between the classes of securities. An acceptable method of allocation is
B. relative FAIR VALUE METHOD
The cumulative feature of preferred shares
B. requires that DIVIDENDS NOT PAID in any year must be made up in a later year before DIVIDENDS ARE DISTRIBUTED to COMMON SHAREHOLDERS
When all of the outstanding preferred shares are purchased and retired by the issuing corporation for less than the original issue price, accounting for the retirement increases
B. the CONTRIBUTED CAPITAL of the COMMON SHAREHOLDERS
When shares are purchased or redeemed and cancelled, guidelines have been established for the sequence of accounts to adjust when allocating the cost. Which of the following is the first account to be adjusted?
B. the SHARE CAPITAL account
Which statement is correct regarding real estate income or investment trusts?
B. they are often set up as UNLIMITED purpose TRUST FUNDS
The residual interest in a corporation belongs to the
C. COMMON shareholders
The rate of return on common shareholders' equity shows
C. How many DOLLARS of NET INCOME were earned for EACH dollar INVESTED by the OWNERS
Dividends on cumulative preferred shares
C. MUST be PAID BEFORE DIVIDENDS may be paid on COMMON SHARES
As a minimum, how large in relation to total outstanding shares may a stock distribution be before it should be accounted for as a large stock dividend instead of as a small stock dividend?
C. No less than 20% TO 25%
Cash dividends are paid on the basis of the number of shares
C. OUTSTANDING
Which of the following transaction would NOT result in a decrease to retained earnings?
C. REACQUISITION of SHARES for LESS than the ORIGINAL issue price
Under IFRS, the statement of changes in shareholders equity must include
C. SHARE CAPITAL, AOCI, CONTRIBUTED SURPLUS, and R/E
Dividends are NOT paid on
C. TREASURY SHARES
Which of the following statements about property dividends is FALSE?
C. The ACCOUNTING for a property dividend should be based on the CARRYING VALUE (book value) of the nonmonetary assets transferred.
Assuming a corporation has no contributed surplus booked, when shares are reacquired at a cost greater than their original issue price and cancelled, what account(s) should be debited?
C. The SHARE ACCOUNT for the AVERAGE per share amount and RETAINED EARNINGS for the ADDITIONAL amount
Which of the following is NOT a valid reason for a stock split?
C. To INCREASE the MARKET PRICE to make the stock more attractive
Total shareholders' equity represents
C. a CLAIM against a PORTION of the total ASSETS of the CORPORATION
Which of the following best describes a possible result of the reacquisition and cancellation of shares by a corporation?
C. may DIRECTLY DECREASE but NOT increase RETAINED EARNINGS
According to CBCA, when a company purchases its own shares on the market
C. they MUST be CANCELLED
In jurisdictions where par value shares are legally allowed, the only real significance of par value is
C. to ESTABLISH the MAXIMUM RESPONSIBILITY of a shareholder in the event of INSOLVENCY
When shares are reacquired at a cost less than the average per share value, the difference is credited to
D. CONTRIBUTED SURPLUS
The declaration and issuance of a stock dividend larger than 25% generally
D. DECREASES RETAINED EARNINGS but does NOT change total SHAREHOLDERS' EQUITY
Which of the following statements is NOT generally true about the legality of dividend distributions?
D. DIVIDENDS do NOT need to be formally approved by the BOARD OF DIRECTORS
Shareholders' equity is generally classified into two major categories
D. EARNED CAPITAL and CONTRIBUTED CAPITAL
Subscriptions Receivable are reported as
D. EITHER a CURRENT ASSET or a DEDUCTIONS from shareholders' EQUITY
The liability of shareholders is
D. LIMITED to their PROPERTY or SERVICE INVESTED in the corporation
Aye corp. sells common shares on a subscription basis. The common shares account should be credited when the
D. Last PAYMENT is made and the SHARES ARE ISSUED
How should cumulative preferred dividends in arrears be shown on the balance sheet?
D. by NOT DISCLOSURE ONLY
Hamilton ltd has both common shares and non-participating, non-cumulative preferred shares outstanding. The book value per common share is not affected by
D. the PAYMENT of a previously DECLARED CASH DIVIDEND on the common shares.