Ch7 Complete Test Bank The Financing Of Business - Question Bank | Intro to Accounting 2e P. Scott by Peter Scott. DOCX document preview.
Chapter 7: The Financing of Business
Test Bank
Type: multiple choice question
Title: Chapter 07 Question 01
1) Which one of the following is not a characteristic of bank overdrafts?
a. Repayable on demand
Heading reference: Bank finance: all businesses
b. Short term finance
Heading reference: Bank finance: all businesses
c. A contractual arrangement
Heading reference: Bank finance: all businesses
d. A limit is imposed by the bank
Heading reference: Bank finance: all businesses
Type: multiple response question
Title: Chapter 07 Question 02
2) Which types of finance are available to sole traders? Please select all that apply.
Heading reference:
Capital introduced: sole traders and partnerships
Bank finance: all businesses
Other types of long-term finance: public limited companies
a. Bank loans and overdrafts
b. Preference share capital
c. Cash provided from the sole trader’s own resources
d. Bonds
Type: multiple choice question
Title: Chapter 07 Question 03
3) Which one of the following statements does not describe a bank loan?
a. Regular repayments made up of interest and capital.
Heading reference: Bank finance: all businesses
b. Repayable immediately if repayments of capital and interest are not made on time.
Heading reference: Bank finance: all businesses
c. Variable amounts are borrowed for variable periods of time.
Heading reference: Bank finance: all businesses
d. A contractual arrangement.
Heading reference: Bank finance: all businesses
Type: true-false
Title: Chapter 07 Question 04
4) Debentures, bonds and loan notes are long-term loans with a variable rate of interest and a variable repayment date.
a. True
Heading reference: Other types of long-term finance: public limited companies, Debenture loans/bonds/loan notes
b. False
Heading reference: Other types of long-term finance: public limited companies, Debenture loans/bonds/loan notes
Type: multiple response question
Title: Chapter 07 Question 05
5) Which of the following are characteristics of bonds, debentures and loan notes? Please select all that apply.
Heading reference: Other types of long-term finance: public limited companies, Debenture loans/bonds/loan notes
a. Fixed term
b. Secured on the assets of the borrowing company
c. Variable rate of interest
d. Long term loans
Type: multiple response question
Title: Chapter 07 Question 06
6) Which of the following are characteristics of share capital? Please select all that apply.
Heading reference: Other types of long-term finance: public limited companies
a. A source of very long-term finance.
b. Available to all types of business organisation, both incorporated and unincorporated.
c. May be in the form of ordinary shares or preference shares.
d. Shareholders receive dividends in proportion to the size of their shareholding in a company.
Type: true-false
Title: Chapter 07 Question 07
7) Payment of interest on borrowings is compulsory whereas dividend payments are optional.
a. True
Heading reference: Share capital: limited companies
b. False
Heading reference: Share capital: limited companies
Type: true-false
Title: Chapter 07 Question 08
8) Dividends are the cost of borrowing money whereas interest is the cost of raising finance through the issue of shares.
a. True
Heading reference: Bank finance: all businesses, Other types of long-term finance: public limited companies
b. False
Heading reference: Bank finance: all businesses, Other types of long-term finance: public limited companies
Type: true-false
Title: Chapter 07 Question 09
9) Dividends are a share of the profit paid out to the shareholders.
a. True
Heading reference:
Share capital: limited companies
Dividends
Distributable and non-distributable reserves
b. False
Heading reference:
Share capital: limited companies
Dividends
Distributable and non-distributable reserves
Type: true-false
Title: Chapter 07 Question 10
10) Dividends are an expense for limited liability companies.
a. True
Heading reference:
Share capital: limited companies
Dividends
Distributable and non-distributable reserves
b. False
Heading reference:
Share capital: limited companies
Dividends
Distributable and non-distributable reserves
Type: true-false
Title: Chapter 07 Question 11
11) Ordinary shareholders take on the highest risks when they buy ordinary shares in a company.
a. True
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. False
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Type: multiple choice question
Title: Chapter 07 Question 12
12) Which one of the following is not a feature of ordinary shares?
a. The right to vote in general meetings.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. The right to receive a fixed and regular dividend.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
c. The potential for the ordinary shares to increase in value many times higher than the price originally paid for them.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
d. Issued by all limited liability companies whether public or private.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Type: multiple choice question
Title: Chapter 07 Question 13
13) Jessica Limited has total assets of £12,000,000 and total liabilities of £8,000,000 when the company goes into liquidation. The issued share capital of the company comprises of 8,000,000 ordinary shares of 50 pence each and 1,000,000 5% preference shares of £1 each. Jessica Limited’s assets are eventually sold for £11,000,000 and this cash is used to pay off the liabilities of £8,000,000 in full. How much money will be divided between Jessica Limited’s ordinary shareholders?
a. £2,000,000
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. £3,000,000
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
c. £4,000,000
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
d. £11,000,000
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Type: multiple choice question
Title: Chapter 07 Question 14
14) Which one of the following statements does not describe a characteristic of preference shares?
a. Preference shareholders have no right to vote in company general meetings.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. Preference shareholders receive their dividends from the company before ordinary shareholders are paid any dividend.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
c. Preference shares represent a riskier investment than ordinary shares.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
d. Preference shareholders will not receive any dividends if their company does not have any distributable retained earnings.
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Dividends
Type: true-false
Title: Chapter 07 Question 15
15) Preference shares are so called because holders of preference shares receive preferential treatment from the issuing company.
a. True
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. False
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Type: multiple choice question
Title: Chapter 07 Question 16
16) Tyla Limited has total assets of £15,000,000 and total liabilities of £10,000,000 when the company goes into liquidation. The issued share capital of the company is £20,000,000 which is made up of 18,000,000 ordinary shares of £1 each and 4,000,000 4% preference shares of £0.50 each. Tyla Limited’s assets are eventually sold for £10,600,000 and this cash is used to pay off the liabilities of £10,000,000 in full. How much cash will be repaid on each preference share?
a. Nil
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
b. 15 pence
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
c. 30 pence
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
d. 50 pence
Heading reference:
Share capital: limited companies
Preference share capital
Ordinary share capital
Type: multiple choice question
Title: Chapter 07 Question 17
17) Folly Limited wishes to raise £300,000 in cash. How many shares will the company have to issue to raise £300,000 if the shares have a par value of 50 pence and the shares are issued at a premium of 25 pence?
a. 300,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
b. 400,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
c. 600,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
d. 1,200,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
Type: multiple choice question
Title: Chapter 07 Question 18
18) Ronaldo Limited wishes to raise £1,200,000 in cash. How many shares will the company have to issue to raise £1,200,000 if the shares have a par value of 75 pence and the shares are issued at a premium of 125 pence?
a. 600,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
b. 960,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
c. 1,200,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
d. 1,600,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
Type: multiple choice question
Title: Chapter 07 Question 19
19) Paolo Limited is issuing 200,000 ordinary shares with a par value of 50 pence each at a premium of 250 pence per share together with 100,000 preference shares with a par value of 50 pence each at a premium of 10 pence per share. How much cash is Paolo Limited looking to raise from this share issue?
a. £150,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
b. £160,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
c. £560,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
d. £660,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
Type: multiple choice question
Title: Chapter 07 Question 20
20) Carola Limited is issuing 250,000 ordinary shares with a par value of 25 pence each at a premium of 150 pence per share together with 150,000 preference shares with a par value of 50 pence. How much cash will Carola Limited raise from this share issue?
a. £137,500
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
b. £437,500
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
c. £450,000
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
d. £512,500
Heading reference: Share capital: share issues at par value, Share capital: shares issued at a premium
Type: multiple choice question
Title: Chapter 07 Question 21
21) Aemilia Limited issues 350,000 ordinary shares of 25 pence each at a premium of 175 pence per share for cash. What is the correct double entry to record this issue of share capital in the books of account of Aemilia Limited?
a. Debit share capital £700,000, Credit cash (bank account) £700,000.
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: share issues at par value
Share capital: shares issued at a premium
b. Debit share capital £87,500, Debit share premium £712,500, Credit cash (bank account) £700,000.
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: share issues at par value
Share capital: shares issued at a premium
c. Debit cash (bank account) £700,000, Credit share capital £700,000.
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: share issues at par value
Share capital: shares issued at a premium
d. Debit cash (bank account) £700,000, Credit share capital £87,500. Credit share premium £612,500
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: share issues at par value
Share capital: shares issued at a premium
Type: multiple choice question
Title: Chapter 07 Question 22
22) Which one of the following statements does not describe a bonus issue of shares?
a. An issue of shares at a discount to the current market price to existing shareholders
Heading reference: Share capital: bonus issues
b. A capitalization of distributable reserves by the issue of shares to existing shareholders.
Heading reference: Share capital: bonus issues
c. A free issue of shares to existing shareholders which raises no new cash for the issuing company.
Heading reference: Share capital: bonus issues
d. An issue of shares that increases the number of shares in issue while reducing distributable reserves.
Heading reference: Share capital: bonus issues
Type: multiple choice question
Title: Chapter 07 Question 23
23) Which one of the following represents the correct double entry to record a bonus issue of shares?
a. Debit cash
Credit share capital
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
b. Debit share capital
Credit cash
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
c. Debit share capital
Credit retained earnings
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
d. Debit retained earnings
Credit share capital
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
Type: multiple choice question
Title: Chapter 07 Question 24
24) Timmy Plc is making a bonus issue of 2 new ordinary shares for every 5 already held. The shares have a par value of 5 pence. Timmy plc currently has 500,000,000 ordinary shares in issue. What is the correct double entry required to record this transaction in the company’s books of account?
a. Debit share capital £10,000,000
Credit retained earnings £10,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
b. Debit retained earnings £10,000,000
Credit share capital £10,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
c. Debit share capital £200,000,000
Credit retained earnings £200,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
d. Debit retained earnings £200,000,000
Credit share capital £200,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
Type: true-false
Title: Chapter 07 Question 25
25) Bonus issues of shares involve the capitalisation of reserves.
a. True
Heading reference: Share capital: bonus issues
b. False
Heading reference: Share capital: bonus issues
Type: true-false
Title: Chapter 05 Question 26
26) Bonus shares are issued to existing shareholders at the current market price.
a. True
Heading reference: Share capital: bonus issues
b. False
Heading reference: Share capital: bonus issues
Type: true-false
Title: Chapter 05 Question 27
27) Bonus shares are issued to existing shareholders to raise additional cash for an entity.
a. True
Heading reference: Share capital: bonus issues
b. False
Heading reference: Share capital: bonus issues
Type: multiple choice question
Title: Chapter 07 Question 28
28) Livia Plc makes a bonus issue of 1,000,000 new ordinary shares. Livia Plc’s ordinary shares each have a par value of 50 pence and a current market value of 200 pence. What is the correct double entry to record this bonus issue of shares in the company’s books of account?
a. Debit retained earnings £2,000,000
Credit share capital £2,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
b. Debit retained earnings £2,000,000
Credit share capital £500,000
Credit share premium £1,500,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
c. Debit retained earnings £500,000
Credit share capital £500,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
d. Debit retained earnings £1,000,000
Credit share capital £1,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Share capital: bonus issues
Type: multiple choice question
Title: Chapter 07 Question 29
29) XYZ Plc is making a rights issue. The current market price of the shares is 350 pence and the directors are proposing to make the rights issue at a price of 205 pence per share. The par value of the ordinary shares is 25 pence so the shares are being issued at a premium of 180 pence each. 12,000,000 ordinary shares are to be issued in the rights issue. How much cash will the rights issue raise?
a. £3,000,000
Heading reference: Rights issues: pricing
b. £21,600,000
Heading reference: Rights issues: pricing
c. £24,600,000
Heading reference: Rights issues: pricing
d. £42,000,000
Heading reference: Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 30
30) Which one of the following statements describes a rights issue?
a. A free issue of shares to existing shareholders which raises no new cash for the issuing company.
Heading reference: Share capital: bonus issues, Rights issues: pricing
b. An issue of shares at a discount to existing shareholders.
Heading reference: Rights issues: pricing
c. A distribution of profits to existing shareholders.
Heading reference: Rights issues: pricing, Dividends
d. An issue of shares to existing shareholders at a discount to the current market price.
Heading reference: Share capital: rights issues, Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 31
31) DEF Plc currently has 5,000,000 ordinary shares in issue and is making a rights issue to its shareholders of 2 new shares for every 5 currently held. The current market price of the shares is 400 pence and the rights issue will be made at a 40% discount to the current market price. The par value of the shares is £1. How much cash will the rights issue raise?
a. £2,000,000
Heading reference: Rights issues: pricing
b. £3,200,000
Heading reference: Rights issues: pricing
c. £4,800,000
Heading reference: Rights issues: pricing
d. £8,000,000
Heading reference: Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 32
32) Rights issues are made at a discount to the current market price of the shares but at a premium to the par value of the shares issued. Which one of the following represents the correct double entry to record a rights issue of shares?
a. Debit cash
Credit share capital
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
b. Debit retained earnings
Credit share capital
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
c. Debit cash
Credit share capital
Credit share premium
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
d. Debit retained earnings
Credit share capital
Credit share premium
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 33
33) Tammy Plc has made a rights issue of 2 million new ordinary shares for cash. Each ordinary share of the company has a par value of 50 pence. The current share price is 450 pence and the rights issue price is 320 pence. What is the correct double entry required to record this transaction in the company’s books of account?
a. Debit cash £1,000,000
Credit share capital £1,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
b. Debit cash £6,400,000
Credit share capital £1,000,000
Credit share premium £5,400,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
c. Debit cash £7,400,000
Credit share capital £1,000,000
Credit share premium £6,400,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
d. Debit cash £9,000,000
Credit share capital £1,000,000
Credit share premium £8,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 34
34) Frannie Plc has made a rights issue of 5 million new ordinary shares to raise cash. Each ordinary share of the company has a par value of 20 pence and the shares were issued at a premium of 280 pence. The current share price is 500 pence. What is the correct double entry required to record this transaction in the company’s books of account?
a. Debit cash £14,000,000
Credit share premium £14,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
b. Debit cash £14,000,000
Credit share capital £1,000,000
Credit share premium £13,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
c. Debit cash £15,000,000
Credit share capital £1,000,000
Credit share premium £14,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
d. Debit cash £25,000,000
Credit share capital £1,000,000
Credit share premium £24,000,000
Heading reference:
The T Account
Posting accounting transactions to T accounts
Rights issues: pricing
Type: multiple choice question
Title: Chapter 07 Question 35
35) Amie Plc’s rights issue raises cash of £5,000,000. Share capital is credited with £1,500,000 and share premium is credited with £3,500,000. 10 million shares were issued in the rights issue. What was the rights issue price per share?
a. 15 pence
Heading reference: Rights issues: pricing
b. 30 pence
Heading reference: Rights issues: pricing
c. 35 pence
Heading reference: Rights issues: pricing
d. 50 pence
Heading reference: Rights issues: pricing
Type: multiple choice question
Title: Chapter 05 Question 36
36) Tiddle plc raised £12,000,000 from a recent rights issue. The par value of each share issued was £2.00 and the market price of one share before the rights issue was £6.00. After the rights issue, the share premium account increased by £5,600,000. How many shares were issued in the rights issue?
a. 2,000,000
Heading reference: Rights issues: pricing
b. 2,800,000
Heading reference: Rights issues: pricing
c. 3,200,000
Heading reference: Rights issues: pricing
d. 6,000,000
Heading reference: Rights issues: pricing
Type: multiple choice question
Title: Chapter 05 Question 37
37) Witter plc raised £42,000,000 from a recent rights issue. The par value of each share issued was £0.60 and the market price of one share before the rights issue was £10.00. After the rights issue, the share premium account increased by £37,800,000. What was the rights issue price of the shares issued?
a. £5.40
Heading reference: Rights issues: pricing
b. £6.00
Heading reference: Rights issues: pricing
c. £7.00
Heading reference: Rights issues: pricing
d. £10.00
Heading reference: Rights issues: pricing
Type: true-false
Title: Chapter 05 Question 38
38) Existing shareholders have the right of first refusal when a company makes a rights issue of shares.
a. True
Heading reference: Share capital: rights issues
b. False
Heading reference: Share capital: rights issues
Type: multiple choice question
Title: Chapter 07 Question 39
39) From which one of the following reserves can dividends be paid to shareholders?
a. Ordinary share capital
Heading reference: Distributable and non-distributable reserves
b. Retained losses
Heading reference: Distributable and non-distributable reserves
c. Share premium
Heading reference: Distributable and non-distributable reserves
d. Retained earnings
Heading reference: Distributable and non-distributable reserves
Type: multiple choice question
Title: Chapter 07 Question 40
40) Molls Limited has issued share capital of £350,000 made up of £100,000 in £1 preference shares and £250,000 in 50 pence ordinary shares. The preference dividend rate is 6% and Molls Limited pays an interim dividend of 4 pence per share and a final dividend of 9 pence per share during the financial year ended 31 August 2021. What is the total dividend that will be deducted from retained earnings for the financial year to 31 August 2021?
a. £32,500
Heading reference: Dividends
b. £38,500
Heading reference: Dividends
c. £65,000
Heading reference: Dividends
d. £71,000
Heading reference: Dividends
Type: multiple choice question
Title: Chapter 07 Question 41
41) JMJ Limited has an issued share capital of £700,000 made up of 200,000 preference shares of £1 each and 500,000 ordinary shares of £1 each. During the financial year ended 31 October 2021. JMJ paid the preference dividend of 5% and an ordinary dividend of 7.5 pence per share. The profit for the year was £105,000 and the retained earnings at the start of the year were a retained loss of £25,000. What is the balance on retained earnings at 31 October 2021?
a. £32,500
Heading reference: Dividends
b. £42,500
Heading reference: Dividends
c. £47,500
Heading reference: Dividends
d. £82,500
Heading reference: Dividends
Type: true-false
Title: Chapter 07 Question 42
42) Although not an expense, dividends paid are still a deduction in the statement of profit or loss.
a. True
Heading reference: Dividends
b. False
Heading reference: Dividends
Type: multiple choice question
Title: Chapter 07 Question 43
43) Wither Limited has an issued share capital of £4,000,000 made up of 2,000,000 preference shares of £1 each and £2,000,000 of ordinary share capital. The ordinary shares have a par value of 50 pence each. The dividend rate on the preference shares is 4%. During the financial year ended 31 December 2021, Wither Limited paid total dividends of £300,000. What is the dividend per ordinary share in the year ended 31 December 2021?
a. 5.50 pence
Heading reference: Dividends
b. 7.50 pence
Heading reference: Dividends
c. 11.00 pence
Heading reference: Dividends
d. 15.00 pence
Heading reference: Dividends
Type: multiple choice question
Title: Chapter 07 Question 44
44) At 1 November 2020, Forum Limited’s retained earnings stood at £540,000. The profit for the year ended 31 October 2021 was £108,000. The company had 2,000,000 ordinary shares in issue at 1 November 2020. The par value of the ordinary shares is 25 pence. On 1 May 2021, Forum Limited undertook a 2 for 5 bonus issue. At 31 October 2021, the balance on the retained earnings account was £288,000. What was the total dividend payment made during the financial year ended 31 October 2021?
a. £52,000
Forum Limited: retained earnings account | |||
£ | £ | ||
Dividend paid = balancing figure | 160,000 | Retained earnings b/f at 1 November 2020 | 540,000 |
Bonus issue: 2,000,000 ÷ 5 x 2 x £0.25 | 200,000 | Profit for the year | 108,000 |
Retained earnings c/f at 31 October 2021 | 288,000 | ||
648,000 | 648,000 | ||
Your answer has failed to account for the profit for the year in calculating the dividend paid for the year.
Heading reference:
3 Dividends paid
Share capital: bonus issues
Dividends
b. £144,000
Forum Limited: retained earnings account | |||
£ | £ | ||
Dividend paid = balancing figure | 160,000 | Retained earnings b/f at 1 November 2020 | 540,000 |
Bonus issue: 2,000,000 ÷ 5 x 2 x £0.25 | 200,000 | Profit for the year | 108,000 |
Retained earnings c/f at 31 October 2021 | 288,000 | ||
648,000 | 648,000 | ||
Your answer has made the following incorrect calculation: £540,000 – £108,000 – £288,000 = £144,000. You have also ignored the bonus issue that was made during the year.
Heading reference:
3 Dividends paid
Share capital: bonus issues
Dividends
c. £160,000
Forum Limited: retained earnings account | |||
£ | £ | ||
Dividend paid = balancing figure | 160,000 | Retained earnings b/f at 1 November 2020 | 540,000 |
Bonus issue: 2,000,000 ÷ 5 x 2 x £0.25 | 200,000 | Profit for the year | 108,000 |
Retained earnings c/f at 31 October 2021 | 288,000 | ||
648,000 | 648,000 | ||
Heading reference:
3 Dividends paid
Share capital: bonus issues
Dividends
d. £360,000
Forum Limited: retained earnings account | |||
£ | £ | ||
Dividend paid = balancing figure | 160,000 | Retained earnings b/f at 1 November 2020 | 540,000 |
Bonus issue: 2,000,000 ÷ 5 x 2 x £0.25 | 200,000 | Profit for the year | 108,000 |
Retained earnings c/f at 31 October 2021 | 288,000 | ||
648,000 | 648,000 | ||
Your answer has failed to account for the bonus issue during the year in calculating the dividend paid for the year.
Heading reference:
3 Dividends paid
Share capital: bonus issues
Dividends
Type: true-false
Title: Chapter 07 Question 45
45) Debit retained earnings, credit share capital, credit share premium account is the correct double entry to record an issue of bonus shares.
a. True
Heading reference: Share capital: bonus issues
b. False
Heading reference: Share capital: bonus issues
Type: multiple choice question
Title: Chapter 07 Question 46
46) Dither Limited has an issued share capital of £1,450,000. Share capital consists of 800,000 preference shares of 50 pence each and £1,050,000 of ordinary share capital made up of 25 pence shares. During the financial year ended 30 November 2021, Dither Limited paid total dividends of £335,000. 7.50 pence dividend per ordinary share was paid during the year. What is the dividend rate on the preference shares?
a. 2.50%
Heading reference: Dividends
b. 5.00%
Heading reference: Dividends
c. 6.70%
Heading reference: Dividends
d. 30.00%
Heading reference: Dividends
Type: true-false
Title: Chapter 07 Question 47
47) Debit retained earnings, credit share capital, credit share premium account is the correct double entry to record a rights issue of shares.
a. True
Heading reference: Rights issues: pricing
b. False
Heading reference: Rights issues: pricing