Equity
1. When a corporation issues its ordinary shares in payment for services, the least
appropriate basis for recording the transaction is the
.a. fair value of the services received
.b. par value of the shares issued
.c. fair value of the shares issued
.d. Expert consultant evaluation
2. Which of the following represents the total number of shares that a
corporation may issue under the terms of its chart
a. authorized shares
b. issued shares
c. unissued shares
d. outstanding shares
3. In January 2022, Finley Corporation, a newly formed company, issued
10,000 shares of its $10 par ordinary shares for $15 per share. On July 1,
2022, Finley Corporation reacquired 1,000 shares of its outstanding shares
for $12 per share. The acquisition of these treasury shares
.a. decreased total shareholders’ equity
.b. increased total shareholders’ equity
.c. did not change total shareholders’ equity
d. decreased the number of issued shares
4. When treasury shares are purchased for more than the par value of the
shares and the cost method is used to account for treasury shares, what
account(s) should be debited ?
a. Treasury shares for the par value and share premium for the excess of the
.purchase price over the par value
.b. Share premium for the purchase price
.c. Treasury shares for the purchase price
d. Treasury shares for the par value and retained earnings for the excess of
the purchase price over the par value
5. Cumulative preference dividends in arrears should be shown in a
corporation’s statement of financial position as
.a. an increase in current liabilities
.b. an increase in equity
.c. a footnote
d. an increase in current liabilities for the current portion and non-current
liabilities for the long-term portion
6. Manning Company issued 10,000 shares of its £5 par value ordinary shares having
a fair value of £25 per share and 15,000 shares of its £15 par value
shares having a fair value of £20 per share for a lump sum of preference
£480,000. How much of the proceeds would be allocated to the ordinary
share ?
a. £50,000
b. £218,182
c. £250,000
d. £255,000
7. Pember Corporation started business in 2016 by issuing 200,000 shares of €20 par
ordinary shares for €36 each. In 2021, 20,000 of these shares were
purchased for €52 per share by Pember Corporation and held as treasury shares.
On June 15 ,2022 these 20,000 shares were exchanged for a piece of property that had an
assessed value of €810,000. Pember’s shares are actively traded and had a fair price of €60
on June 15, 2022. The cost method is used to account for treasury shares. The amount of
share premium—treasury resulting from the above events would be
.a. €800,000
.b. €480,000
.c. €390,000
d. €160,000
8. Pierson Corporation owned 10,000 shares of Hunter Corporation. These
were purchased in 2020 for €90,000. On November 15, 2022, shares
a property dividend of one share of Hunter for every ten Pierson declared
shares of Pierson held by a shareholder. On that date, when the market
price of Hunter was €14 per share, there were 90,000 shares of Pierson
outstanding. What gain and net reduction in retained earnings would result
from this property dividen
Net Reduction in
Gain Retained Earnings
a. €0 €126,000
b. €0 € 81,000
c. €45,000 € 81,000
d. €45,000 € 36,000
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9. Hernandez Company has 350,000 shares of €10 par value ordinary shares
outstanding. During the year, Hernandez declared a 10% share dividend
when the market price of the stock was €30 per share. Four months later
Hernandez declared a €.50 per share cash dividend. As a result of the
dividends declared during the year, retained earnings decreased by
.a. €542,500
.b. €525,000
.c. €192,500
d. €175,000
10. Janae Corporation has outstanding 10,000 shares of £10 par value
ordinary shares and retained earnings of £500,000. If Janae declares a 2-for1
share split when the fair value of the shares is £85 per share, the entry
include
.a. A debit to Retained Earnings for £10,000
.b. A credit to Share Premium—Ordinary for £75,000
.c. A debit to cash for £85,000
d. No entry is required for a share split.
