lecture 6 liabilities and shareholders' equity

When a corporation fails to pay a dividend one year on its ordinary shares it is said to be "in arrears". Choose one of the following answers. True False

!!!!! False because ordinary shares do not have cumulative rights to dividends.

Which of the following is not a characteristics of the ordinary shares of a public listed company? Choose one of the following answers. a) Voting rights in an annual general meeting. b) The shares may be bought or sold at the discretion of the shareholder. c) A cumulative right to dividends. d) The market value of the share at any time may not be equal to the issuance price of the share.

!!!!! c Ordinary shareholders are entitled to dividends only in the year the board of directors declares a dividend. They do not have cumulative rights to dividends.

If a long-term debt is to be paid off in monthly instalments over a 5-year period, the entire principal should be classified as a long-term debt. Choose one of the following answers. True False

!!!!虽然没做错但是还挺tricky的这题 False the portion that is due within one year should be classified as current liability.

In accounting for a contingent liability, if the likelihood of the obligation is probable and the amount can be estimated, a company must: Choose one of the following answers. a) Provide disclosure of the contingent liability in the notes to the financial statements. b) Not recognize the liability until it is certain and the exact amount is known. c) Recognize the liability and report it on the balance sheet. d) Do nothing.

!!!没错但还是要注意，c比a程度更高 c If the potential loss is probable and the amount can be estimated, recognize the liability and report it on the balance sheet as a liability.​

Companies prefer more of the liabilities to be classified as current liabilities than non-current liabilities as the company will appear to be less risky. Choose one of the following answers. True False

False Given a choice, companies prefer to classify liabilities as non-current than current as they will appear to be less risky. Current means the liabilities are due payable very soon and the question arise as to whether there are sufficient resources to settle them?

On the date of declaration of the dividend, we debit Dividends Payable. Choose one of the following answers. True False

False debit Dividends credit dividends payable

Because they have voting rights, ordinary shareholders receive priority over preference shareholders in the distribution of assets in the event the corporation is dissolved. Choose one of the following answers. True False

False ordinary shareholders are the last to be paid in the distribution of assets in the event the corporation is dissolved.

A corporation is a legal entity separate from its owners; it may sue and be sued, but it may not own property in its own name. Choose one of the following answers. True False

False the company can own property in its own name. It is a legal person.

Alpha Corporation has a higher times interest earned ratio than Beta Corporation. From this information, we can assume that Alpha is relatively better able to meet its interest payments. Choose one of the following answers. True False

True The higher ratio the better protection for long-term creditors.

One advantage of issuing bonds instead of stock is that: Choose one of the following answers. a) Interest is tax deductible, whereas dividends are not. b) Bonds have a longer maturity date. c) Interest rates are lower than dividend rates. d) The issuance of bonds does not affect earnings per share.

a

Shares that have been sold and are in the hands of stockholders are called Choose one of the following answers. a) Outstanding b) Issued c) Treasury d) Underwritten

a

If a bond is issued at par on interest payment date: Choose one of the following answers. a) The cash received by the corporation will be less than the face value of the bond. b) The cash received by the corporation will be greater than the face value of the bond. c) The cash received by the corporation will be the same as the face value of the bond. d) Interest receivable will be debited.

c

Kathay Corporation borrowed $60,000 by issuing a 12% per annum, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to: Choose one of the following answers. a) $60,000. b) $60,300. c) $60,600. d) $67,200.

c Liability = principal plus one month's interest = 60,000 + (60,000 x 12% x 1/12)​

Failure to record a liability relating to an expense results in Choose one of the following answers. a) An understatement of net income and an understatement of liabilities. b) An understatement of net income and an overstatement of liabilities. c) An overstatement of net income and an overstatement of liabilities. d) An overstatement of net income and an understatement of liabilities.

d

When treasury shares are sold for less than its cost, the entry should include a debit to: Choose one of the following answers. a) Gain on sale of treasury shares b) Loss on sale of treasury shares c) Retained earnings d) Share capital

d No gain or loss is recognized for treasury shares, the difference between purchase price and cost is debited to share capital or ordinary shares account.

Sue and Guy each own 10,000 shares of S&G Corporation shares which they purchased for $38 per share directly from the corporation. If Sue sells her shares to Guy for $475,000: Choose one of the following answers. a) Shareholders' equity of S&G Corporation increases. b) Assets of S&G Corporation increase. c) Shareholders' equity of S&G Corporation decreases. d) No account of S&G Corporation is affected.

d The transfer of shares between shareholders does not affect the corporation's books.