REVIEWER IN SHAREHOLDERS EQUITY
Participating preference shares require that if a company fails to pay a
TRUE OR FALSE
1.A corporation is incorporated in only one country regardless of the number
of countries in which it operates.
2.The preemptive right allows shareholders the right to vote for directors of
the company.
3.Ordinary shares is the residual corporate interest that bears the ultimate
risks of loss.
4.Earned capital consists of contributed capital and retained earnings.
5.True no-par shares should be carried in the accounts at issue price without
any share premium reported.
6.Companies allocate the proceeds received from a lump-sum sale of
securities based on the securities’ par values.
7.Companies should record shares issued for services or noncash property at
either the fair value of the shares issued or the fair value of the consideration
received.
8.Treasury shares are a company’s own shares that have been reacquired
and retired.
9.The cost method records all transactions in treasury shares at their cost and
reports the treasury shares as a deduction from ordinary shares.
10.When a corporation sells treasury shares below its cost, it usually debits
the difference between cost and selling price to Share Premium—Treasury.
11.
dividend in any year, it must make it up in a later year before paying any
ordinary dividends.
12.Callable preference shares permit the corporation at its option to redeem
the outstanding preference shares at stipulated prices.
13.The laws of some jurisdictions require that corporations restrict their
contributed capital from distribution to shareholders.
14.Many companies pay dividends in amounts equal to their legally available
retained earnings.
15.All dividends, except for liquidating dividends, reduce the total
shareholders’ equity of a corporation.
16.Dividends payable in assets of the corporation other than cash are called
property dividends or dividends in kind.
17.When a share dividend is less than 20-25 percent of the ordinary shares
outstanding, a company is required to transfer the fair value of the shares
issued from retained earnings.
18.Share splits and large share dividends have the same effect on a
company’s retained earnings and total shareholders’ equity.
19.The rate of return on ordinary share equity is computed by dividing net
income by the average ordinary equity.
20.The payout ratio is determined by dividing cash dividends paid to ordinary
shareholders by net income available to ordinary shareholders.
MULTIPLE CHOICE
21.The residual interest in a corporation belongs to the
a.management.
b.creditors.
c.ordinary shareholders.
d.preference shareholders.

26.Categories of equity include all of the following except

22.The pre-emptive right of an ordinary shareholder is the right to
a.Non-controlling interest.
a.share proportionately in corporate assets upon liquidation.
b.Accumulated other comprehensive income.
b.share proportionately in any new issues of stock of the same class.
c.Liquidating dividends.
c.receive cash dividends before they are distributed to preference
d.Treasury shares.
shareholders.
d.exclude preference shareholders from voting rights.
S27.Shareholders of a business enterprise are said to be the residual
owners.The term residual owner means that shareholders
23.The pre-emptive right enables a shareholder to
a.are entitled to a dividend every year in which the business earns a profit.
a.share proportionately in any new issues of shares of the same class.
b.have the rights to specific assets of the business.
b.receive cash dividends before other classes of stock without the pre-
c.bear the ultimate risks and uncertainties and receive the benefits of
emptive right.
enterprise ownership.
c.sell ordinary shares back to the corporation at the option of the shareholder.
d.can negotiate individual contracts on behalf of the enterprise.
d.receive the same amount of dividends on a percentage basis as the
preference shareholders.
28.Total shareholders' equity represents
a.a claim to specific assets contributed by the owners.
S24.Special characteristics of the corporate form that affect accounting
b.the maximum amount that can be borrowed by the enterprise.
include the
c.a claim against a portion of the total assets of an enterprise.
a.influence of corporate law.
d.only the amount of earnings that have been retained in the business.
b.use of the share system.
c.development of a variety of ownership interests.
29.A primary source of shareholders' equity is
d.All of the above are correct.
a.income retained by the corporation.
b.appropriated retained earnings.
25.Hiro Corp. issues shares which bear the ultimate risks of loss and receive
c.contributions by shareholders.
the benefit of success. These shares are not guaranteed dividends nor assets
d.both income retained by the corporation andcontributions by holders.
upon dissolution. These shares are considered

30.Equity is generally classified into two major categories:

a.contributed capital and appropriated capital. 34.A "secret reserve" will be created if
b.appropriated capital and retained earnings. a.inadequate depreciation is charged to income.
c.retained earnings and unearned capital. b.a capital expenditure is charged to expense.
d.earned capital and contributed capital. c.liabilities are understated.
d.shareholders' equity is overstated.
31.The accounting problem in a lump sum issuance is the allocation of
proceeds between the classes of securities.An acceptable method of P35.Which of the following represents the total number of shares that a
allocation is the corporation may issue under the terms of its charter?
a.pro forma method. a.authorized shares
b.proportional method. b.issued shares
c.incremental method. c.unissued shares
d.either the proportional method or the incremental method. d.outstanding shares

32.When a corporation issues its ordinary shares in payment for services, the S36.Sharesthat have a fixed per-share amount printed on each share
leastappropriate basis for recording the transaction is the certificate are called
a.fair value of the services received. a.stated value shares.
b.par value of the shares issued. b.fixed value shares.
c.fair value of the shares issued. c.uniform value shares.
d.Any of these provides an appropriate basis for recording the transaction. d.par value shares.

33.Direct costs incurred to sell shares such as underwriting costs should be S37.Which of the following is not a legal restriction related to profit
accounted for as distributions by a corporation?
1.a reduction of share premium. a.The amount distributed to owners must be in compliance with the laws
2.an expense of the period in which the shares are issued. governing corporations.
3.an intangible asset b.The amount distributed in any one year can never exceed the net income
reported for that year.
a.1 c.Profit distributions must be formally approved by the board of directors.
b.2 d.Dividends must be in full agreement with the capital contracts as to
c.3 preferences and participation.
d.1 or 3
38.Ordinary no-par shares
a.Are considered illegal. a.Treasury shares for the par value and share premiumfor the excess of the
b.Are subject to high taxes. purchase price over the par value.
c.Are always sold at a premium. b.have premiumfor the purchase price.
d.All of the choices are correct. c.Treasury shares for the purchase price.
d.Treasury shares for the par value and retained earnings for the excess of
39.Dunn Trading Co. issued 2,500 ordinary shares, The shares have a ₤2 par the purchase price over the par value.
value and sold for ₤12 per share. Dunn incurred ₤3,000 to sell the shares
related to underwriting costs and legal fees. Dunn Trading Co. will record the 43.“Gains" on sales of treasury (using the cost method) should be credited to
₤3,000 as a.share premium—treasury.
a.A debit to Share Premium—Ordinary. b.share capital.
b.A debit to Financing Expense. c.retained earnings.
c.A credit to Share Premium—Ordinary. d.other income.
d.A credit to Share Capital—Ordinary.
44.PorterCorp. purchased its own par value shares on January 1, 2010for
S40.In January 2012, FinleyCorporation, a newly formed company, issued $20,000 and debited the treasury shares account for the purchase price.The
10,000 shares of its $10 par ordinary shares for $15 per share. On July 1, shares were subsequently sold for $12,000.The $8,000 difference between
2012, FinleyCorporation reacquired 1,000 shares of its outstanding shares for the cost and sales price should be recorded as a deduction from
$12 per share. The acquisition of these treasury shares a.share premium—treasury to the extent that previous net "gains" from sales
a.decreased total shareholders' equity. of the same class of stock are included therein; otherwise, from retained
b.increased total shareholders' equity. earnings.
c.did not change total shareholders' equity. b.share premium—treasury without regard as to whether or not there have
d.decreased the number of issued shares. been previous net "gains" from sales of the same class of shares included
therein.
P41.Treasury shares are c.retained earnings.
a.shares held as an investment by the treasurer of the corporation. d.net income.
b.shares held as an investment of the corporation.
c.issued and outstanding shares. 45.How should a "gain" from the sale of treasury shares be reflected when
d.issued but not outstanding shares. using the cost method of recording treasury shares transactions?
a.As other income shown on the income statement.
42.When treasury shares are purchased for more than the par value of the b.As share premium from treasury share transactions.
shares and the cost method is used to account for treasury shares, what c.As an increase in the amount shown for share capital.
account(s) should be debited?
d.As an increase in the retained earnings amount. c.excluded from the statement of financial position.
d.included as a contra item in shareholders' equity.
46.Which of the following best describes a possible result of treasury share
transactions by a corporation? S50.Cumulative preference dividends in arrears should be shown in a
a.May increase but not decrease retained earnings. corporation's statement of financial position as
b.Mayincrease net income if the cost method is used. a.an increase in current liabilities.
c.May decrease but not increase retained earnings. b.an increase in equity.
d.May decrease but not increase net income. c.a footnote.
d.an increase in current liabilities for the current portion and non-current
47.Which of the following features of preference shares makes the security liabilities for the long-term portion.
more like debt than an equity instrument?
a.Participating 51.The features most frequently associated with preference shares include all
b.Voting of the following except
c.Redeemable a.Callable at the option of the shareholder.
d.Noncumulative b.Convertible into ordinary shares.
c.Non-voting.
48.The cumulative feature of preference shares d.Preference as to assets in the event of liquidation.
a.limits the amount of cumulative dividends to the par value of the preference
shares. 52.When preference shares share ratably with the ordinary shareholders in
b.requires that dividends not paid in any year must be made up in a later year any profit distributions beyond the prescribed rate this is known as the
before dividends are distributed to ordinary shareholders. a.Cumulative feature.
c.means that the shareholder can accumulate preference shares until it is b.Participating feature.
equal to the par value of ordinary shares at which time it can be converted c.Callable feature.
into ordinary shares. d.Redeemable feature.
d.enables a preference shareholder to accumulate dividends until they equal
the par value of the shares and receive the shares in place of the cash 53.Liquidating dividends
dividends. a.Are prohibited under IFRS.
b.Require a credit to Share Capital—Ordinary.
P49.According to IFRS, redeemable preference shares should be c.Reduce amounts paid-in by shareholders.
a.included with ordinaryshares. d.All of the choices are correct.
b.included as a liability.
54.At the date of the financial statements, ordinary shares issued would c.liquidating dividend.
exceed ordinary shares outstanding as a result of the d.cash dividend.
a.declaration of a share split.
b.declaration of a share dividend. 59.A dividend which is a return to shareholders of a portion of their original
c.purchase of treasury shares. investments is a
d.payment in full of subscribed shares. a.liquidating dividend.
b.property dividend.
55.An entry is not made on the c.liability dividend.
a.date of declaration. d.participating dividend
b.date of record.
c.date of payment. 60.A mining company declared a liquidating dividend. The journal entry to
d.An entry is made on all of these dates. record the declaration must include a debit to
a.Retained Earnings.
56.Cash dividends are paid on the basis of the number of shares b.Share Premium.
a.authorized. c.Accumulated Depletion.
b.issued. d.Accumulated Depreciation.
c.outstanding.
d.outstanding less the number of treasury shares. 61.If management wishes to "capitalize" part of the earnings, it may issue a
a.cash dividend.
57.Which of the following statements about property dividends is not true? b.share dividend.
a.A property dividend is usually in the form of securities of other companies. c.property dividend.
b.A property dividend is also called a dividend in kind. d.liquidating dividend.
c.The accounting for a property dividend should be based on the carrying
value (book value) of the nonmonetary assets transferred. 62.Which dividends do notreduce equity?
d.All of these statements are true. a.Cash dividends
b.Share dividends
58.HouserCorporation owns 4,000,000 shares of Baha Corporation. On c.Property dividends
December 31, 2012, Houser distributed these shares as a dividend to its d.Liquidating dividends
shareholders. This is an example of a
a.property dividend. 63.The declaration and issuance of a share dividend larger than 25% of the
b.share dividend. shares previously outstanding
a.increases ordinary shares outstanding and increases total equity.
b.decreases retained earnings but does not change total equity.
c.may increase or decrease share premium but does not change total equity.
d.increases retained earnings and increases total equity.
64.QuirkCorporation issued a 100% share dividend of its ordinary shares
which had a par value of $10 before and after the dividend. At what amount
should retained earnings be capitalized for the additional shares issued?
a.There should be no capitalization of retained earnings.
b.Par value
c.Fair value on the declaration date
d.Fair value on the payment date
65.The issuer of a 5% ordinary share dividend to ordinary shareholders
preferably should transfer from retained earnings to contributed capital an
amount equal to the
a.fair value of the shares issued.
b.book value of the shares issued.
c.minimum legal requirements.
d.par or stated value of the shares issued.
66.At the date of declaration of a small ordinary share dividend, the entry
should not include
a.a credit to Ordinary ShareDividend Payable.
b.a credit to Share Premium—Ordinary.
c.a debit to Retained Earnings.
d.All of these are acceptable.
67.The balance in Ordinary Share Dividend Distributable should be reported
as a(n)
a.deduction from share capital—ordinary.
b.addition to share capital—ordinary.
c.current liability.
d.contra current asset.
68.A feature common to both share splits and share dividends is
a.a transfer to earned capital of a corporation.
b.that there is no effect on total equity.
c.an increase in total liabilities of a corporation.
d.a reduction in the contributed capital of a corporation.
69.What effect does the issuance of a 2-for-1 share split have on each of the
following?
70.Which one of the following disclosures should be made in the equity
section of the statement of financial position, rather than in the notes to the
financial statements?
a.Dividend preferences
b.Liquidation preferences
c.Call prices
d.Conversion or exercise prices
71.The rate of return on ordinary share is calculated by dividing
a.net income less preference dividends by average ordinary shareholders’
equity.
b.net income by average ordinary shareholders’ equity.
c.net income less preference dividends by ending ordinary shareholders’
equity.
d.net income by ending ordinary shareholders’ equity.

72.The payout ratio can be calculated by dividing

a.dividends per share by earnings per share.
b.cash dividends by net income less preference dividends.
c.cash dividends by market price per share.
76.Trading on the equity is:
d.dividends per share by earnings per share and dividing cash dividends by
a.The ratio of the company’s cash dividends to net income.
net income less preference dividends.
b.A return on assets that is higher than the cost of financing these assets.
c.The amount each share would receive if the company were liquidated.
73.YoungerCompany has outstanding both ordinary shares and
d.The “Revaluation Surplus” related to increases or decreases in items such
nonparticipating, non-cumulative preference shares. The liquidation value of
as property, plant, and equipment.
the preference shares is equal to its par value. The book value per share of
the ordinary shares is unaffected by
*77.Dividends are not paid on
a.the declaration of a share dividend on preference payable in preference
a.noncumulative preference shares.
shares when the market price of the preference is equal to its par value.
b.nonparticipating preference shares.
b.the declaration of a share dividend on ordinary shares payable in ordinary
c.treasury shares.
shares when the market price of the ordinary shares is equal to its par value.
d.Dividends are paid on all of these.
c.the payment of a previously declared cash dividend on the ordinary shares.
d.a 2-for-1 split of the ordinary shares.
*78.Noncumulative preferred dividends in arrears
a.are not paid or disclosed.
P74.Ordinary shareholders' equity divided by the number of shares
b.must be paid before any other cash dividends can be distributed.
outstanding is called
c.are disclosed as a liability until paid.
a.book value per share.
d.are paid to preference shareholders if sufficient funds remain after payment
b.par value per share.
of the current preference dividend.
c.stated value per share.
d.market value per share.
*79.How should cumulative preference dividends in arrears be shown in a
corporation's statement of financial position?
75.Which of the following is a required statement under IFRS?
a.Note disclosure
b.Increase in shareholders' equity
c.Increase in current liabilities
d.Increase in current liabilities for the amount expected to be declared within
the year or operating cycle, and increase in non-current liabilities for the b.$218,182
balance c.$250,000
d.$255,000
COMPUTATION
83.NortonCompany issues 4,000 shares of its $5 par value ordinary
shareshaving a fair value of $25 per share and 6,000 shares of its $15 par
value preference shares having a fair value of $20 per share for a lump sum
of $192,000. What amount of the proceeds should be allocated to the
preference shares?
a.$172,000
b.$120,000
c.$104,727
d.$90,000

80.The total equity of Hale Corporation is

84.BerryCorporation has 50,000 shares of $10 par ordinary shares
a.$8,600,000.
authorized. The following transactions took place during 2010, the first year of
b.$8,750,000.
the corporation’s existence: Sold 5,000 ordinary shares for $18 per share.
c.$7,100,000.
Issued 5,000 ordinary shares in exchange for a patent valued at $100,000.At
d.$7,250,000.
the end of the Berry’s first year, total contributed capital amounted to
a.$40,000.
81.The total contributed capital related to the ordinary sharesis
b.$90,000.
a.$4,300,000.
c.$100,000.
b.$4,850,000.
d.$190,000.
c.$5,250,000.
d.$4,700,000.
85.Glavine Company issues 6,000 shares of its $5 par value ordinary shares
having a market value of $25 per share and 9,000 shares of its $15 par value
82.ManningCompany issued 10,000 shares of its $5 par value ordinary
preference shares having a fair value of $20 per share for a lump sum of
shares having a fair value of $25 per share and 15,000 shares of its $15 par
$288,000. The proceeds allocated to the ordinary sharesis
value preference shares having a fair value of $20 per share for a lump sum
a.$30,000
of $480,000.How much of the proceeds would be allocated to the ordinary
b.$130,909
shares?
c.$150,000
a.$50,000
d.$157,091 share. The shares have a stated value of €5 per share. When Hiro prepares
the journal entry to record the issuance of the shares which of the following
86.Wheeler Company issued 5,000 shares of its $5 par value ordinary shares will be recorded?
having a market value of $25 per share and 7,500 shares of its $15 par value a.Debit Share Capital—Ordinary €5,000.
preference shares having a market value of $20 per share for a lump sum of b.Credit Share Capital—Ordinary €15,000.
$240,000. The proceeds allocated to the preference shares is c.DebitShare Premium—Ordinary €15,000.
a.$215,000 d.Credit Share Premium—Ordinary €10,000
b.$150,000
c.$130,909 90.Five years ago, Dunn Trading Co. issued 2,500 ordinary shares. The
d.$109,091 shares have a ₤2 par value and sold at that time for ₤12 per share. On
January 1, 2012, Dunn Trading Co. Purchased 1,000 of these shares for ₤24
87.Hiro Corp. issues 1,000 €5 par value ordinary shares and 1,000 €20 par per share. On September 30, 2012, Dunn reissued 500 of the shares for ₤28
value preference shares for a lump sum of €60,000. At the issue date, the per share. The journal entry to record the reissuance will include
ordinary shares were selling for €36 and the preference shares were selling a.A debit to Treasury Shares ₤12,000.
for €28. The Share Premium—Ordinary account will be credited for b.A credit to Share Premium—Treasury₤2,000.
a.€31,000 c.A credit to Treasury Shares ₤14,000.
b.€36,000 d.A credit to cash ₤14,000.
c.€26,250
d.€28,750 91.Pember Corporation started business in 2005by issuing 200,000 shares of
$20 par ordinary shares for $36 each. In 2010, 20,000 of these shares were
88.Hiro Corp. issues 1,000 €5 par value ordinary shares and 1,000 €20 par purchased for $52 per share by Pember Corporation and held as treasury
value preference shares for a lump sum of €60,000. At the issue date, the shares. On June 15, 2011, these 20,000 shares were exchanged for a piece
ordinary shares were selling for €36 and the preference shares were selling of property that had an assessed value of $810,000.Perber’s shares are
for €28. How much is recorded in Hiro’s statement of financial position for the actively traded and had a fair price of $60 on June 15, 2011. The cost method
preference shares? is used to account for treasury shares. The amount of share premium—
a.€31,000 treasury resulting from the above events would be
b.€36,000 a.$800,000.
c.€26,250 b.$480,000.
d.€28,750 c.$390,000.
d.$160,000.
89.On January 1 Hiro Corp. issues 1,000 no-par ordinary shares for €15 per
92.On September 1, 2012, Valdez Company reacquired 12,000 shares of
its$10 par value ordinary shares for $15 per share. Valdez uses the cost 95.An analysis of equity of HahnCorporation as of January 1, 2012, is as
method to account for treasury shares. The journal entry to record the follows:
reacquisition of the shares should debit
a.Treasury Shares for $120,000.
b.Share Capital—Ordinary for $120,000.
c.Share Capital—Ordinary for $120,000 and Share Premium—Ordinary for
$60,000.
d.Treasury Shares for $180,000.

93.Gannon Company acquired 6,000 shares of its own ordinary shares at $20
per share on February 5, 2010, and sold 3,000 of these shares at $27 per
share on August 9, 2011. The fair value of Gannon's ordinary shares was $24
per share at December 31, 2010, and $25 per share at December 31, 2011.
The cost method is used to record treasury shares transactions. What
account(s) should Gannon credit in 2011to record the sale of 3,000 shares?
a.Treasury Shares for $81,000.
b.Treasury Shares for $60,000 and Share Premium—Treasury for $21,000.
c.Treasury Shares for $60,000 and Retained Earnings for $21,000.
d.Treasury Shares for $72,000 and RetainedEarnings for $9,000.
94.LongCo. issued 100,000 shares of $10 par ordinary shares for $1,200,000.
Long acquired 8,000 shares of its own shares at $15 per share. Three months
later Long sold 4,000 of these shares at $19 per share. If the cost method is
used to record treasury shares transactions, to record the sale of the 4,000
treasury shares, Long should credit
a.Treasury Shares for $76,000.
b.Treasury Shares for $40,000 and Share Premium—Treasury for $36,000.
c.Treasury Shares for $60,000 and SharePremium—Treasury Stock for
$16,000.
d.Treasury Sharesfor $60,000 and Share Premium—Ordinary for $16,000.
Hahn uses the cost method of accounting for treasury shares and during
2010entered into the following transactions:
Acquired 2,500 of its shares for $75,000.
Sold 2,000 treasury shares at $35 per share.
Sold the remaining treasury shares at $20 per share.
Assuming no other equity transactions occurred during 2012, what should
Hahn report at December 31, 2012, as total share premium?
a.$895,000
b.$900,000
c.$905,000
d.$915,000
96.PercyCorporation was organized on January 1, 2012, with an authorization
of 1,200,000 ordinary shares with a par value of $6 per share. During 2012,
the corporation had the following capital transactions:
Percy used the cost method to record the purchase and reissuance of the
treasury shares. What is the total amount of share premium as of December
31, 2012?
a.$-0-.
b.$2,070,000.
c.$2,700,000.
d.$3,330,000.
During 2011, the following transactions occurred relating to equity:
97.SosaCo.'s equity at January 1, 2012 is as follows: 3,000 shares were reacquired at $28 per share.
3,000 shares were reacquired at $35 per share.
1,800 shares of treasury shares were sold at $30 per share.

For the year ended December 31, 2011, Oaksreported net income of
$450,000.Assuming Oaksaccounts for treasury under the cost method, what
should it report as total equity on its December 31, 2011, statement of
During 2012, Sosa had the following share transactions: Acquired 6,000 financial position?
shares of its shares for $270,000. a.$1,965,000.
Sold 3,600 treasury shares at$50 a share. b.$1,961,400.
Sold the remaining treasury shares at $41 per share. c.$1,957,800.
d.$1,515,000.
No other share transactions occurred during 2012. Assuming Sosa uses the
cost method to record treasury share transactions, the total amount of all 99.On December 1, 2012, AbelCorporation exchanged 20,000 shares of its
share premium accounts at December 31, 2012 is $10 par value ordinary shares held in treasury for a used machine. The
a.$891,600. treasury shares were acquired by Abel at a cost of $40 per share, and are
b.$870,000. accounted for under the cost method. On the date of the exchange, the
c.$908,400. ordinary shares had a fair value of $55 per share (the shares were originally
d.$927,600. issued at $30 per share). As a result of this exchange, Abel's total equity will
increase by
98.Presented below is the equity section of OaksCorporation at December a.$200,000.
31, 2010: b.$800,000.
c.$1,100,000.
d.$900,000.
100.Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative 103.Everwood Co. issues 10,000 shares of £10 par value convertible
preference shares and 100,000 shares of $1 par value ordinary shares preference shares for £12 cash per share. Each share is convertible into 4
outstanding at December 31, 2011, and December 31,2010. The board of ordinary shares. On this date the £1 par value ordinary shares are selling for
directors declared and paid a $5,000 dividend in 2010. In 2011, $24,000 of £3 per share. Approximately 2 years later, Everwood’s shareholders convert
dividends are declared and paid. What are the dividends received by the their preference shares into ordinary shares. On the date of conversion the
preference shareholders in2011? preference shares are selling for £16 and the ordinary shares are selling for
a.$17,000 £5 per share. The journal entry on the date of issuancewill include which of
b.$12,000 the following?
c.$7,000 a.Credit Share Capital—Preference £20,000.
d.$6,000 b.Credit Share Premium—Ordinary £20,000.
c.Credit Share Capital—Preference £100,000.
101.Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative d.Debit Share Premium—Ordinary £20,000.
preference shares and 20,000 shares of $1 par value ordinary shares
outstanding at December 31, 2011. There were no dividends declared in 104.Everwood Co. issues 10,000 shares of £10 par value convertible
2009. The board of directors declares and pays a $45,000 dividend in 2010 preference shares for £12 cash per share. Each share is convertible into 4
and in 2011. What is the amount of dividends received by the ordinary ordinary shares. On this date the £1 par value ordinary shares are selling for
shareholders in 2011? £3 per share. Approximately 2 years later, Everwood’s shareholders convert
a.$15,000 their preference shares into ordinary shares. On the date of conversion the
b.$25,000 preference shares are selling for £16 and the ordinary shares are selling for
c.$45,000 £5 per share. The journal entry on the date of conversion will include which of
d.$0 the following?
a.Credit Share Capital—Preference £20,000.
102.Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 b.Credit Share Premium—Ordinary £80,000.
shares of 7%, $100 par value cumulative preference shares outstanding. It is c.Credit Share Capital—Ordinary£100,000.
one year in arrears on its preference shares. How much cash will Colson d.CreditShare Premium—Ordinary £160,000.
distribute to the ordinary shareholders?
a.$76,000. 105.Pierson Corporation owned 10,000 shares of Hunter Corporation. These
b.$84,000. shares were purchased in 2009 for $90,000. On November 15, 2011, Pierson
c.$118,000. declared a property dividend of one share of Hunter for every ten shares of
d.None. 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 netreduction in retained earnings would result from this property
dividend?
106.Stinson Corporation owned 30,000 shares of Matile Corporation. These
shares were purchased in 2009 for $270,000. On November 15, 2011,
Stinson declared a property dividend of one share of Matile for every ten
shares of Stinson held by a shareholder. On that date, when the market price
of Matile was $14 per share, there were 270,000 shares of Stinson
outstanding. What gain and net reduction in retained earnings would result
from this property dividend?
107.Winger Corporation owned 900,000 shares of Fegan Corporation. On
December 31, 2012, when Winger's account "Investment in Fegan
Corporation" had a carrying value of $5 per share, Winger distributed these
shares to its shareholders as a dividend. Winger originally paid $8 for each
share. Fegan has 3,000,000 shares issued and outstanding, which are traded
on a national stock exchange. The quoted market price for a Fegan share
was $7 on the declaration date and $9 on the distribution date. What would
be the reduction in Winger's equity as a result of the above transactions?
a.$3,600,000.
b.$4,500,000.
c.$7,200,000.
d.$8,100,000.
108.GibbsCorporation owned 20,000 shares of Oliver Corporation’s $5 par
value ordinary shares. These shares were purchased in 2009 for $180,000.
On September 15, 2011, Gibbs declared a property dividend of one share of
Oliver for every ten shares of Gibbs held by a shareholder. On that date,
when the market price of Oliver was $14 per share, there were 180,000
shares of Gibbs outstanding. What NET reduction in retained earnings would
result from this property dividend?
a.$90,000
b.$252,000
c.$72,000
d.$162,000
109.Melvern’s Corporation has an investment in 5,000 shares of Wallace
Company ordinary shares with a cost of $218,000. These shares are used in
a property dividend to shareholders of Melvern’s. The property dividend is
declared on May 25 and scheduled to be distributed on July 31 to
shareholders of record on June 15. The market valueper Wallace share is
$63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this
property dividend on retained earnings is a reduction of
a.$340,000.
b.$330,000.
c.$315,000.
d.$218,000.
110.HernandezCompany 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 a.$56,000.
dividends declared during the year, retained earnings decreased by b.$62,000.
a.$1,242,500. c.$66,000.
b.$525,000. d.$72,000.
c.$192,500.
d.$175,000. 113.The equity of HowellCompany at July 31, 2012 is presented below:

111.On June 30, 2012, when ErmlerCo.'s stock was selling at $65 per share,
its equity accounts were as follows:

On August 1, 2012, the board of directors of Howell declared a 15% share

If a 100% share dividend were declared and distributed, share capital— dividend on ordinary shares, to be distributed on September 15th. The market
ordinary would be price of Howell's ordinary shares was $35 on August 1, 2012, and $38 on
a.$3,000,000. September 15, 2012. What is the amount of the debit to retained earnings as
b.$3,600,000. a result of the declaration and distribution of this share dividend?
c.$6,000,000. a.$800,000.
d.$7,800,000. b.$840,000.
c.$912,000.
112.The equity section of GunkelCorporation as of December 31, 2010, was d.$600,000.
as follows: 114.On January 1, 2012, Dodd, Inc., declared a 10% ordinary share dividend
when the fair value of the ordinary shareswas $20 per share. Equity before
the share dividend was declared consisted of:

On March 1, 2011, the board of directors declared a 15% share dividend, and
accordingly 1,500 additional shares were issued. On March 1, 2011, the fair
value of the share was $6 per share. For the two months ended February 28,
2011, Gunkel sustained a net loss of $10,000.What amount should Gunkel What was the effect on Dodd’s retained earnings as a result of the above
report as retained earnings as of March 1, 2011? transaction?
a.$120,000 decrease Masterson declared a $.60 per share cash dividend. As a result of the
b.$240,000 decrease dividends declared during the year,retained earnings decreased by
c.$400,000 decrease a.$1,020,600
d.$200,000 decrease b.$756,000
c.$264,600
115.On January 1, 2012, CulverCorporation had 110,000 shares of its $5 par d.$252,000
value ordinary sharesoutstanding. On June 1, the corporation acquired
10,000 shares to be held in the treasury. On December 1, when the market 118.At the beginning of 2011, Hamilton Company had retained earnings of
price of the shares was $8, the corporation declared a 10% share dividend to $150,000. During the year Hamilton reported net income of $75,000, sold
be issued to shareholders of record on December 16, 2012. What was the treasury shares at a “gain” of $27,000, declared a cash dividend of $45,000,
impact of the 10% share dividend on the balance of the retained earnings and declared and issued a small share dividend of 1,500 shares ($10 par
account? value) when the fair value of the shares was $30 per share. The amount of
a.$50,000 decrease retained earnings available for dividends at the end of 2011 was:
b.$80,000 decreasec a.$184,500.
.$88,000 decrease b.$162,000.
d.No effect c.$157,500.
d.$135,000.
116.At the beginning of 2011, Flaherty Company had retained earnings of
$200,000. During the year Flaherty reported net income of $100,000, sold 119.Mingenback Company has 560,000 shares of $10 par value ordinary
treasury shares at a “gain” of $36,000, declared a cash dividend of $60,000, shares outstanding. During the year Mingenback declared a 5% share
and declared and issued a small share dividend of 3,000 shares ($10 par dividend when the market price of the shares was $48 per share. Two months
value) when the fair value of the shares was $20 per share. The amount of later Mingenback declared a $.60 per share cash dividend. As a result of the
retained earnings available for dividends at the end of 2011 was dividends declared during the year, retained earnings decreased by:
a.$180,000. a.$336,000.
b.$210,000. b.$352,800.
c.$216,000. c.$1,344,000.
d.$246,000. d.$1,696,800.

117.Masterson Company has 420,000 shares of $10 par value ordinary 120.Janae Corporation has outstanding 10,000 shares of £10 par value
sharesoutstanding. During the year Masterson declared a 5% share dividend ordinary shares and retained earnings of £500,000. If Janae declares a 10
when the market price of the shares was $36 per share. Three months later percent share dividend when the fair value of the shares is £85 per share, the
entry includes: d.Cannot be determined based on the information provided.
a.A debit to Retained Earnings for £10,000.
b.A credit to Share Premium—Ordinary for £75,000. 124.Nikos Company paid cash dividends of €210,000 and reported net
c.A debit to cash for £85,000. income of €620,000. Its average ordinary shareholders’ equity is €2,000,000
d.No entry is required for a share dividend. and it has 200,000 ordinary shares outstanding. Preference dividends of
€100,000 were declared and paid during the period. The payout for the Nikos
121.Janae Corporation has outstanding 10,000 shares of £10 par value Company is approximately:
ordinary shares and retained earnings of £500,000. If Janae declares a 2-for- a.40%.
1 share split when the fair value of the shares is £85 per share, the entry b.50%.
includes: c.34%.
a.A debit to Retained Earnings for £10,000. d.Cannot be determined based on the information provided.
b.A credit to Share Premium—Ordinary for £75,000.
c.A debit to cash for £85,000. Questions 125 and 126 are based on the following information.
d.No entry is required for a share split.
Layne Corporation had the following information in its financial statements for
122.Nikos Company has cash dividends of €210,000 and net income of the years ended 2010 and 2011:
€620,000. Its ordinary shareholders’ equity is €2,000,000 and it has 200,000
ordinary shares outstanding. The book value per share for the Nikos
Company is:
a.€10/share.
b.€1.05/share.
c.€3.10/share.
d.Cannot be determined based on the information provided.

123.Nikos Company paid preference dividends of €210,000 and reported net 125.What is the payout ratio for Layne Corporation for the year ended 2011?
income of €620,000. Its average ordinary shareholders’ equity is €2,000,000 a.24.7%
and it has 200,000 ordinary shares outstanding. The rate of return on ordinary b.16.1%
share equity for the Nikos Company is approximately: c.10.3%
a.31%. d.8.6%
b.21%.
c.42%. 126.What is the book value per share for Layne Corporation for the year
ended 2011? 129.Mays, Inc. had net income for 2010of $2,120,000 and earnings per share
a.$12.00 on ordinary share of $5. Included in the net income was $300,000 of bond
b.$11.90 interest expense related to its long-term debt. The income tax rate for
c.$11.33 2010was 30%. Dividends on preference share were $400,000. The payout
d.$10.67 ratio on ordinary share was 25%. What were the dividends on ordinary share
in 2010?
Questions 127 and 128 are based on the following information. a.$430,000.
Sealy Corporation had the following information in its financial statements for b.$530,000.
the years ended 2010 and 2011: c.$482,500.
d.$645,000.

130.Presented below is informationrelated to Orender, Inc.:

127.What is the rate of return on ordinary share equity for Sealy Corporation
for the year ended 2011?
What is Orender’s rate of return on ordinary share equity for 2011?
a.6.5%
a.20.0%
b.6.0%
b.10.7%
c.5.6%
c.18.2%
d.5.2%
d.21.3%

128.What is the price-earnings ratio for Sealy Corporation for the year ended
Use the following information for questions 131 and 132.The following data
2011?
are provided:
a.16.1
b.16.7
c.19.4
d.21.1
 2010 and 2011:

Additional information:
On May 1, 2011, 3,000 shares of ordinary sharewere issued. The prefer
dividends were notdeclared during 2011. The market price of the ordinary
133.What is the payout ratio for TurnerCorporation for the year ended 2011?
sharewas $50 at December 31, 2011.131.The rate of return on ordinary
a.12.1%
shareequity for 2011 is
b.16.0%
a.90 ÷ 400.
c.36.3%
b.90 ÷ 440.
d.41.3%
c.80 ÷ 400.
d.80 ÷ 440.
134.What is the book value per share for Turner Corporation for the year
ended 2011?
132.The book value per share at 12/31/11 is
a.$19.17
a.430 ÷ 12.
b.$20.00
b.200 ÷ 12.
c.$10.43
c.330 ÷ 12.
d.$24.00
d.440 ÷ 11.

Use the following information for questions 135 through 137.

Use the following information for questions 133 and 134. Turner Corporation
had the following information in its financial statements for the year ended
Written, Inc. has outstanding 300,000 shares of $2 par ordinary shares and
60,000 shares of no-par 8% preference shares with a stated value of $5. The
preference shares are cumulative and nonparticipating. Dividends have been
paid in every year except the past two years and the current year.

*135.Assuming that $150,000 will be distributed as a dividend in the current

year, how much will the ordinary shareholders receive?
a.Zero. have been paid every year except last year and the current year. If the
b.$78,000. preference shares are cumulative and nonparticipating and $250,000 is
c.$102,000. distributed, the ordinary shareholders will receive
d.$126,000. a.$0.
b.$170,000.
*136.Assuming that $63,000 will be distributed as a dividend in the current c.$210,000.
year, how much will the preference shareholders receive? d.$250,000.
a.$21,000.
b.$24,000. 140.Acorporation was organized in January 2009 with authorized capital of
c.$48,000. $10 par value ordinary shares. On February 1, 2012, shares were issued at
d.$63,000. par for cash. On March 1, 2012, the corporation's attorney accepted 7,000
ordinary shares in settlement for legal services with a fair value of $90,000.
*137.Assuming that $183,000 will be distributed, and the preference shares Share premium would increase on
are also participating, how much will the ordinary shareholders receive?
a.$111,000.
b.$90,000.
c.$93,000.
d.$48,000.

*138.Yoder, Inc. has 50,000 shares of $10 par value ordinary shares and 141.On July 1, 2012, NallCo. issued 2,500 shares of its $10 par ordinary
25,000 shares of $10 par value, 6%, cumulative, participating preference shares and 5,000 shares of its $10 par convertible preference shares for a
shares outstanding. Dividends on the preference shares are one year in lump sum of $125,000. At this date Nall's ordinary shares were selling for $24
arrears. Assuming that Yoder wishes to distribute $135,000 as dividends, the per share and the convertible preference shares for $18 per share. The
ordinary shareholders will receive amount of the proceeds allocated to Nall's preference shares should be
a.$30,000. a.$62,500.
b.$55,000. b.$75,000.
c.$80,000. c.$90,000.
d.$105,000. d.$68,750.

*139.MannCo. has outstanding 50,000 shares of 8% preference shares with a 142.Horton Co. was organized on January 2, 2012, with 500,000 authorized
$10 par value and 125,000 shares of $3 par value ordinary shares. Dividends shares of $10 par value ordinary shares.During 2012, Horton had the
following capital transactions:
January 5—issued 375,000 shares at $14 per share.
July 27—purchased 25,000 shares at $11 per share.
November 25—sold 15,000 shares of treasury shares at $13 per share.
Horton used the cost method to record the purchase of the treasury shares.
What would be the balance in the Share Premium—Treasury account at
December 31, 2012?
a.$0.
b.$15,000.
c.$30,000.
d.$45,000.
143.In 2010, HobbsCorp. acquired 9,000 $1 par value ordinary shares at $18
per share. In 2011, Hobbsissued 4,000 of these shares at $25 per share.
Hobbsuses the cost method to account for its treasury shares transactions.
What accounts and what amounts should Hobbscredit in 2011to record the
issuance of the 4,000 shares?
144.At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10
par ordinary sharesat $11 per share. During the current year, Sauderacquired
20,000 ordinary shares at a price of $16 per share and accounted for them by
the cost method. Subsequently, these shares were reissued at a price of $12
per share. There have been no other issuances or acquisitions of its own
ordinary shares. What effect does the reissuance of the shares have on the
following accounts?
145.FarmerCorp. owned 20,000 shares of EatonCorp. purchased in 2007for
$240,000. On December 15, 2010, Farmer declared a property dividend of all
of its EatonCorp. shares on the basis of one share of Eaton for every 10
ordinary shares of Farmer held by its shareholders. The property dividend
was distributed on January 15, 2011. On the declaration date, the aggregate
market price of the Eaton shares held by Farmer was $400,000. The entry to
record the declaration of the dividend would include a debit to Retained
Earnings of
a.$0.
b.$160,000.
c.$240,000.
d.$400,000.
146.A corporation declared a dividend, a portion of which was liquidating.
How would this distribution affect each of the following?
147.On May 1, 2012, ZiekCorp. declared and issued a 10% ordinary shares
dividend. Prior to this dividend, Ziek had 100,000 ordinary shares of $1 par
value issued and outstanding. The fair value of Ziek's ordinary shares was d.$142,000.
$20 per share on May 1,2012. As a result of this share dividend, Ziek's total
equity *150.At December 31, 2010and 2011, PlankCorp. had outstanding 2,000
a.increased by $200,000. shares of $100 par value 8% cumulative preference shares and 10,000
b.decreased by $200,000. shares of $10 par value ordinary shares. At December 31, 2010, dividends in
c.decreased by $10,000. arrears on the preference shares were $8,000. Cash dividends declared in
d.did not change. 2011totaled $30,000. What amounts were payable on each class of stock?

148.How would the declaration and subsequent issuance of a 10% share

dividend by the issuer affect each of the following when the fair value of the
shares exceeds the par value of the shares?

149.On December 31, 2010, the equity section of Arndt, Inc., was as follows:

On March 31, 2011, Arndt declared a 10% share dividend, and accordingly
900 additional shares were issued, when the fair value was $18 per share.
For the three months ended March 31, 2011, Arndt sustained a net loss of
$32,000. The balance of Arndt’s retained earnings as of March 31, 2011,
should be
a.$125,800.
b.$133,000.
c.$134,800.