Verified Test Bank Accounting for owners' equity Chapter.13

Chapter 13 Testbank

1. As a residual interest, equity ranks after liabilities in terms of a claim against the assets of a reporting entity.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.
Section: Different classes of shares
Section: Introduction
Topic: Different classes of shares

2. If a partly paid share issue is oversubscribed and the shares are allocated on a pro rata basis, the excess application monies must be refunded to all subscribers.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-03 Be able to provide the journal entries to recognise the issue of both fully paid and partly paid shares by a company and know how to account for both a public and a private issue of shares.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

3. An allotment account, being a receivable account from the subscribers in a share issue, is presented under current assets in the statement of financial position.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

4. A share split is usually funded through retained earnings.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-09 Understand what constitutes a share split and a bonus issue of shares and know the accounting implications of both.
Section: Share splits and bonus issues
Topic: Share splits and bonus issues

5. If an entity performs a share split on a partly paid share, the split must be done in such a way as to divide the uncalled portion equally among the shares issued.

6. If a company is listed in the Australian Securities Exchange and shareholders fail to pay the amount due on allotment, the shares forfeited must be refunded in full to defaulting investors.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-07 Be able to provide the journal entries necessary when shares are forfeited by their owners.
Section: Forfeited shares
Topic: Forfeited shares

7. The owners' equity of an organisation is the same as the shareholders' funds of a company.

8. The AASB framework defines equity as the remedial interest in the assets of the entity after the deduction of its liabilities.

9. An individual's views on measurement techniques for assets and liabilities will have a direct impact on the amount recorded in shareholders' funds.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Introduction
Topic: Introduction

10. When shares were issued at amounts greater than par value this was called a share premium.

11. It used to be normal practice to issue shares at below par value.

12. It is a requirement of the Corporations Act 2001 that companies hold capital contributed on the issue of shares in trust until the application is made.

13. In a public issue of shares, the procedure to be adopted in the case of an oversubscription is normally specified in the prospectus.

14. Ordinary shares receive low dividends because they do not perform very well.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Accounting for distributions
Topic: Accounting for distributions

15. The Corporations Act 2001 requires that where a company redeems preference shares it must do so out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purpose of the redemption.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-06 Be able to provide the journal entries necessary when preference shares are to be redeemed.
Section: Redemption of preference share
Topic: Redemption of preference shares

16. Companies undertake share splits in order to increase their shareholders' funds.

17. Retained earnings can be used (reduced) for the purpose of a bonus issue of shares.

18. Reserves form part of the shareholders' funds.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.
Section: Reserves
Topic: Reserves

19. As a consequence of recent changes to the Corporations Act 2001 (s. 254C), shares of a company are no longer considered to be issued at a premium or a discount.

20. Where new investors are offered the opportunity to buy new shares this will have the effect of diluting the existing shareholders' interest in the company.

21. AASB 101 Presentation of Financial Statements requires an entity to disclose a description of the nature and purpose of each reserve within equity.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Required disclosures for share capital
Topic: Required disclosures for share capital

22. Double entry accounting requires that:

A. the claims held by external parties equal the claims held by the owners.
B. the total assets of an entity equal the total of the claims held by external parties plus those claims held by the owners.
C. the liabilities of the entity equal its total assets plus the claims held by the owners.
D. the recognition of the claims held by owners will match the entity's total assets.

23. A residual interest is:

A. a claim to a fixed percentage return on the amount invested.
B. a priority claim over the assets of the entity as the right of an owner.
C. a claim or right to the net assets of the reporting entity.
D. the minimum entitlement of the holder of the interest.

24. Equity's claim against the assets of the entity:

A. takes priority as owners.
B. is ranked before employee entitlements.
C. is equal to the value of cash reserves held in equity.
D. ranks after liabilities in terms of priority.

25. Share capital:

A. relates to one class of shares, with the remaining equity recorded as reserves or retained profits.
B. represents the amount shareholders are guaranteed to receive if the company is wound up.
C. may relate to one or several classes of shares.
D. may be calculated by subtracting liabilities from assets.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Different classes of shares
Topic: Different classes of shares

26. Accounts that make up owners' equity may include:

A. preference shares.
B. debentures.
C. general reserves.
D. preference shares and general reserves.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.
Section: Introduction
Topic: Introduction

27. A company may elect to issues its shares at any price, which will depend on:

A. the last sales price for the company's shares before the new issue.
B. the market demand.
C. the minimum price that has been paid for the shares over the last reporting period..
D. the amount specified in legislation at which all Australian companies were required to issue shares.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-03 Be able to provide the journal entries to recognise the issue of both fully paid and partly paid shares by a company and know how to account for both a public and a private issue of shares.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

28. The Corporations Law was amended in 1998 in relation to the par value of shares. That amendment has the effect of:

A. making the use of par values optional for companies.
B. requiring companies not to issue shares with a par value.
C. requiring the calculation of the share premium or discounts to be based on an average of the market price for the share over the current reporting period.
D. making the use of par values optional for companies and requiring the calculation of the share premium or discounts to be based on an average of the market price for the share over the current reporting period.

29. Under The Corporations Law as amended in 1998 companies now issue shares at:

A. any price they determine is appropriate in the market.
B. the price determined by the Australian Stock Exchange as the appropriate issue price for the shares.
C. the ASIC-specified level of price relative to a moving average of sales over the preceding 6 months.
D. the average price at which shares have been issued over the last 5 years.

30. A public issue of shares involves:

A. compiling and then issuing a prospectus that outlines the details of the share issue so those interested can make an informed decision.
B. making the general public aware that shares are available for sale at a set price.
C. only issuing a limited number of shares to ensure there is sufficient demand for a full subscription.
D. issuing ordinary shares to all members of the public who are interested.

31. The process for issuing shares is that:

A. they are offered for sale, allotments are received and an assignment made. Monies received on allotment must be held in trust until the assignment is made.
B. they are offered for sale, applications are received and an allotment made. Monies received on application must be held in trust until the allotment is made.
C. applications are received for the issue of shares and an offer of shares is made. Applicants contribute capital that is returned to them if their application is unsuccessful when the shares are assigned.
D. a notice of intention to purchase shares is registered with the stock exchange, which the company receives. The company then offers shares. The applicant may then be allotted shares and at that point must make the cash contribution.

32. Flag Ltd has received applications for 4 million shares during July 2014. The shares are to be issued at a price of $2.75 per share. The 4 million shares are allotted on 15 August 2014. What are the accounting entries required to record these events?

33. In the case of a share issue being oversubscribed, the common approaches include:

A. issue additional shares to meet the excess demand.
B. allocate the shares on a pro rata basis.
C. increase the issue price of the shares.
D. issue additional shares to meet the excess demand and increase the issue price of the shares.

34. In the case of a share issue being oversubscribed, excess application monies:

A. will always be refunded to applicants.
B. may be used to reduce future amounts owing on allotment if the shares are issued on a pro rata basis.
C. must be recorded as revenue in the current financial period.
D. must be placed in a trust account until a refund is requested by applicants.

35. Semaphore Ltd called for subscriptions for 15 million shares. The issue price per share is $2.50 to be paid in two parts: the first payment of $1.00 is to be made on application and the remaining $1.50 is to be paid within 1 month of allotment. At the end of September, when applications close, applications for 19 million shares have been received. The shares are allotted on 1 October on a pro rata basis with the excess application money to be applied against the amount due on allotment. All amounts on allotment are paid by the due date. What are the accounting entries to record these events?

36. Signal Ltd called for subscriptions for 8 million shares. The issue price per share is $3.50 to be paid in three parts: the first payment of $1.00 is to be made on application, $1.50 is to be paid within 1 month of allotment and the remaining $1.00 is to be paid within 3 months of allotment. At the end of July, when applications close, applications for 10 million shares have been received. The shares are allotted on 1 August on a pro rata basis with the excess application money to be applied against the amount due on allotment. The first and final call on the shares is made on 1 October. Assume all amounts on allotment and call are paid by the due date. What are the accounting entries to record these events?

37. Sundowner Ltd called for subscriptions for 2 million shares. The issue price per share is $6.00 to be paid in three parts: the first payment of $3.00 is to be made on application, $2.00 is to be paid within 1 month of allotment and the remaining $1.00 is to be paid within 6 months of allotment. At the end of July, when applications close, applications for 5 million shares have been received. Two million share applicants were unsuccessful, while the remaining 3 million applicants were allotted shares on 1 August on a pro rata basis with the excess application money to be applied against the amount due on allotment. The first and final call on the shares is made on 1 October. Assume all amounts on allotment and call are paid by the due date. What are the accounting entries to record these events?

AACSB: Reflective thinking
Difficulty: Hard
Learning Objective: 13-03 Be able to provide the journal entries to recognise the issue of both fully paid and partly paid shares by a company and know how to account for both a public and a private issue of shares.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

38. When shares are allotted, or a call made on them, allotment and call accounts are created respectively. What is the nature of these accounts and how are they to be disclosed in the financial statements?

A. The accounts are similar in nature to an account receivable and are to be disclosed in the statement of financial position as a current asset.
B. The accounts are similar to a future income benefit and are to be separately disclosed as assets in the statement of financial position.
C. The accounts are similar to an account receivable and are disclosed in the statement of financial position as a reduction against share capital.
D. The accounts are in the nature of a deferred income and are disclosed as a provision for future cash inflows in the statement of financial position.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

39. Normal features of ordinary shares include:

A. they entitle the holder to receive his/her proportion of any ordinary dividends declared.
B. they ensure the holder has priority over unsecured creditors in the case of the company going into liquidation.
C. they confer voting rights.
D. they entitle the holder to receive his/her proportion of any ordinary dividends declared and they confer voting rights.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Different classes of shares
Topic: Different classes of shares

40. Holders of ordinary shares:

A. are assured of dividends each year.
B. may not receive a cash dividend each year but the dividend will accrue and eventually be paid.
C. will always receive a dividend if the company has made a profit in that financial year.
D. receive dividends at the discretion of the board.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Accounting for distributions
Topic: Accounting for distributions

41. The 'participating' in participating preference shares means that the shareholders may:

A. vote at annual meetings.
B. vote at annual meetings if preference dividends have not been paid.
C. participate in a conversion of preference shares into ordinary shares.
D. receive a share of any further profits that are to be distributed to ordinary shareholders after the payment of the preference dividend.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Different classes of shares
Topic: Different classes of shares

42. A redeemable preference share is one that may be:

A. converted into debt at the option of the shareholder.
B. converted into cash at the option of either the company or the shareholder.
C. forgiven any future calls where the company has profits in excess of specified levels.
D. have any dividends converted into further preference shares rather than receiving them in cash.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Different classes of shares
Topic: Different classes of shares

43. Preference shares are often considered to be closer to debt as they:

A. may be issued with the condition that they are redeemable by the company in the future.
B. may guarantee a regular or cumulative payment, similar to interest.
C. may be able to be converted into ordinary shares at a specific date in the future, indicating they are a liability until that time.
D. may guarantee a regular or cumulative payment, similar to interest and may be able to be converted into ordinary shares at a specific date in the future, indicating they are a liability until that time.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.
Section: Different classes of shares
Topic: Different classes of shares

44. Motion Ltd issued $5 million in redeemable preference shares in a private placement on 1 July 2012. The shares are redeemable on 30 June 2016, have no voting rights and offer a fixed rate of return to the holder. The shares are redeemed as expected with a fresh issue of shares. What are the accounting entries and note disclosures to record the transactions on 1 July 2012and 30 June 2016?

Note disclosure: redeemable preference shares have characteristics different to ordinary shares and so have been disclosed separately in the shareholders' funds section of the statement of financial position.

Note disclosure: redeemable preference shares have the characteristics of debt and so have been classified as liabilities in the statement of financial position.

Note disclosure: redeemable preference shares are to be redeemed on 30 June 2008.

45. When a company redeems preference shares:

A. it must ensure it has sufficient cash reserves to do so.
B. it must do so out of profits other than those available for the issuing of dividends.
C. it must issue fresh shares to fund the redemption.
D. none of the given answers is correct.

46. If a company is listed on the Australian Stock Exchange and a shareholder fails to pay amounts owing on shares, the company will:

A. transfer the unpaid amount to a forfeited share reserve that remains part of equity after the cost to reissue the shares has been deducted.
B. transfer the unpaid amount to a forfeited share reserve and refund the amount remaining after the cost of reissuing the shares has been deducted.
C. take action to collect the unpaid amount through the courts.
D. transfer the unpaid amount to a forfeited share account and refund the amount remaining after the cost of reissuing the shares has been deducted.

47. If a company has created a forfeited shares reserve, this means that:

A. the company is not a member of the Australian Stock Exchange and its constitution does not require it to refund amounts already paid by defaulting investors.
B. the company is expecting that the amounts unpaid will be collected in the next period.
C. the company is a member of the Australian Stock Exchange and is required to refund amounts already paid by defaulting investors.
D. the company is holding the amounts already paid by defaulting investors in trust in order to repay them on the request of the investor.

48. Cartoon Ltd is listed on the Australian Stock Exchange. It has 3 million shares issued at a price of $5.50 per share. The investors were required to pay $2.00 on application and $1.00 on allotment. Both these amounts were paid in full. A first and final call of $2.50 was made and was due on 30 August 2013. At the end of November the directors of the company elect to forfeit 50 000 shares on which the holders have failed to pay the call. Cartoon Ltd reissues the shares fully paid up for a price of $4.75 and incurred costs of $1500. What are the entries required to forfeit the shares, reissue the shares, and make a refund if appropriate?

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-07 Be able to provide the journal entries necessary when shares are forfeited by their owners.
Section: Forfeited shares
Topic: Forfeited shares

49. When a share split occurs:

A. current shareholders receive more shares thus increasing their stake in the company.
B. accounting entries are required to record the increase in the number of shares on hand.
C. it must be done so that any uncalled amounts are divided equally when the shares are issued.
D. more shares are available to be purchased by the general public, allowing the company to raise more funds.

50. Share splits are conducted because it is believed that:

A. excess capital leads to reduced return ratios, which the market does not view favourably.
B. increasing the number of shares issued makes the company appear larger and more stable.
C. decreasing the price per share makes them more marketable.
D. investors view this as a bonus because they now have more shares than they previously held.

51. An effect of a bonus issue to all shareholders is to:

A. increase the total amount of shareholders' funds.
B. make the amount that was previously recorded as retained earnings no longer available for the payment of cash dividends.
C. alter the current shareholders' proportionate share of the company's net assets.
D. increase the total assets of the company.

52. Giggles Ltd has 2 million shares issued. The directors have elected, with the support of a resolution passed at a general meeting, to undertake a 1:2 share split so that there will be 4 million issued shares. The shares were originally issued at a price of $2 each. What is the summary entry to record the share split?

None of the given answers is correct.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-09 Understand what constitutes a share split and a bonus issue of shares and know the accounting implications of both.
Section: Share splits and bonus issues
Topic: Share splits and bonus issues

53. Goggle Ltd has 1 million shares issued. The directors have elected to make a '1 for 5' bonus issue. The current market price of the shares is $10 each. What is the summary entry to record the bonus issue?

54. The effect of a bonus issue to all shareholders on (a) net asset backing per share, (b) each shareholder's share of net assets and (c) market capitalisation is:

A. (a) the net asset backing per share will decrease; (b) each shareholder's share of net assets will remain the same; (c) evidence suggests that on average the market capitalisation will increase.
B. (a) the net asset backing per share will increase; (b) each shareholder's share of net assets will increase; (c) evidence suggests that on average the market capitalisation will remain the same.
C. (a) the net asset backing per share will decrease; (b) each shareholder's share of net assets will decrease; (c) evidence suggests that on average the market capitalisation will remain the same.
D. (a) the net asset backing per share will remain the same; (b) each shareholder's share of net assets will decrease; (c) evidence suggests that on average the market capitalisation will decrease.

55. Reserves recorded in the equity section of the statement of financial position:

A. represent an amount of cash put aside for future projects.
B. are created from excess profits that are not available for distribution as dividends.
C. may be established by transferring amounts from retained profits.
D. will not have an impact on the total equity reported in the equity section of the statement of financial position when created.

56. When a rights issue is tradeable it is often referred to as:

A. reducable.
B. rightful.
C. redeemable.
D. renounceable.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-08 Be able to provide the journal entries necessary to account for rights issues and option issues.
Section: Rights issues and share options
Topic: Rights issues and share options

57. The total market capitalisation of a company after a bonus issue is likely to:

A. be lower than it was before the bonus issue.
B. be greater than it was before the bonus issue.
C. be less than it was before the bonus issue.
D. there will be no change.

58. A statement of changes in equity includes:

A. each item of income and expense for the period that, as required by other Australian Accounting Standards, is recognised directly in equity.
B. profit or loss for the period.
C. total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest.
D. each item of income and expense for the period that, as required by other Australian Accounting Standards, is recognised directly in equity, profit or loss for the period, and total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest.

59. A statement of changes in equity:

A. is identical to a statement of comprehensive income.
B. is required to include only the components listed in paragraph 106 of AASB 101.
C. includes the effects of changes in accounting policies recognised in accordance with AASB 108.
D. is required to include only the components listed in paragraph 106 of AASB 101 and includes the effects of changes in accounting policies recognised in accordance with AASB 108.

60. The statement of changes in equity:

A. presents, either on the face of the statement or in the notes, the amounts of dividends recognised as distributions to owners during the period and the related amount per share.
B. is identical to the statement of recognised income and expense.
C. is the same as that required under the former AASB 1018.
D. provides a reconciliation between the expenses outstanding at the start of the period and those outstanding at the end of the period.

61. When an entity issues shares, until such time as the shares are allotted, the amount received must be held in trust. It remains in trust (refer s. 722 of the Corporations Act) until:

A. so directed by ASIC.
B. the shares are issued or transferred; or the money is returned to the applicants.
C. options are issued over the shares.
D. the Board of Directors indicate that the received monies are required by the entity.

62. Where there is a redemption of preference shares 'out of profit':

A. the redemption is recorded in the appropriations section of the profit and loss account.
B. the redemption is recorded as an expense.
C. the redemption is recorded as a liability and is amortised over a maximum of five years.
D. the redemption is not recorded in the current period.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-06 Be able to provide the journal entries necessary when preference shares are to be redeemed.
Section: Redemption of preference share
Topic: Redemption of preference share

63. A forfeited shares account is:

A. a revenue account.
B. an expense account.
C. a liability account.
D. an asset account.

64. Which of the following statements correctly describes this journal entry:

A. The entry is for an entity not listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board.
B. The entry is for an entity listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board.
C. The entry is for an entity not listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares.
D. The entry is for an entity listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares.

65. Which of the following statements correctly describes this journal entry:

A. The issue of options, costing $3.50 each.
B. The issue of options, costing $30 each.
C. The exercise of options, with a current market value per share of $3.50.
D. The exercise of options, initially costing $3 500 000 to issue and with an exercise price for each option of $30.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-08 Be able to provide the journal entries necessary to account for rights issues and option issues.
Section: Rights issues and share options
Topic: Rights issues and share options

66. For each class of share capital, an entity shall disclose either on the face of the statement of financial position or in the notes:

A. shares in the entity held by the entity or its subsidiaries or associates.
B. the number of shares authorised.
C. the number of shares issued but not fully paid.
D. all of the given answers.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Required disclosures for share capital
Topic: Required disclosures for share capital

67. What is the effect of a share split on earnings per share and the number of shares outstanding, respectively?

A. increase; decrease
B. decrease; increase
C. increase; increase
D. no effect; increase

68. The term 'reserves' in the statement of financial position is used to identify:

A. a decline in the fair value of a non-current asset.
B. an amount of retained earnings that is allocated for a specific purpose.
C. the allowance for uncollectible receivables.
D. an amount that is being accumulated to reduce the financial effect of a litigation lawsuit.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Reserves
Topic: Reserves

69. Fraser Ltd issued 10 million shares at a price of $3 on 1 July 2012. The subscribers are required to pay $1 on application, $1 on allotment and the balance on call to be announced at a later date. The share issue was oversubscribed by 2 million shares. On 1 August 2012 the shares were allotted to all subscribers on a pro rata basis. What is the balance of the 'allotment account' and 'share capital' for this share issue on 1 August 2012, respectively?

A. $8 million; $20 million
B. $8 million; $30 million
C. $10 million; $20 million
D. $10 million; $30 million

70. Which of the following is not a required disclosure to be made in relation to each class of share capital?

A. Number of shares authorised.
B. Number of shares issued and fully paid and issued but not fully paid.
C. Par value per share or that the shares have no par value.
D. None of the given answers is correct.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Required disclosures for share capital
Topic: Required disclosures for share capital

71. Which of the following share issue costs does not qualify as a deduction from share capital?

A. Advertising of share issue.
B. Costs of prospectus issue.
C. Administration overheads.
D. Audit expenses associated with the issue of a prospectus.

72. Which of the following would not apply to a preference shares?

A. Higher order of ranking in relation to asset distributions on the winding up of the company.
B. Redeemable at a set date in the future.
C. Can be classified as an expense.
D. Can be converted to ordinary shares.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-05 Know what a preference share is and be able to identify factors that would determine whether particular preference shares should be disclosed as debt or equity.
Section: Different classes of shares
Topic: Different classes of shares

73. Share capital is also referred to as:

A. equity.
B. contributed equity.
C. owners contribution.
D. shareholder equity.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.
Section: Accounting for the issue of share capital
Topic: Accounting for the issue of share capital

74. Shares may be issued for consideration other than cash including:

A. promissory notes.
B. contracts for future services.
C. real or personal property.
D. all of the given answers.

75. AASB 110 Events After the Reporting Period specifically prohibits the recognition of dividends as a liability at the end of the reporting period if:

A. the dividends have been declared before the end of the reporting period.
B. the dividends have been declared after the end of the reporting period.
C. the dividends have been declared during the reporting period.
D. the dividends have not been declared after the end of the reporting period.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 13-04 Be able to provide the journal entries to account for cash and non-cash distributions (dividends).
Section: Accounting for distributions
Topic: Accounting for distributions

76. The forfeited shares account is used to make up any shortfall:

A. to the forfeiting shareholder.
B. the forfeited share reserve.
C. on the issue of the shares.
D. on the cash at bank account.

77. Manly Ltd makes an offer to the general public of 10 000 shares at an issue price of $3.00. Manly Ltd requires a $2.10 per share payment on application then, on allotment, another $0.60 is to be paid, and a further $0.30 final amount is payable as a call at future date to be determined by the board of directors. On application money was received on 12 July for 11 500 shares. On 28 July, 10 000 shares were allotted (i.e. issued) and the surplus application money refunded. Which of the following would be the journal entry to record the refund?

DR	Application	3150
CR	Cash trust	3150

DR	Application	4500
CR	Cash trust	4500

DR	Cash trust	21 000
CR	Cash	21 000

DR	Share refund	3150
CR	Cash	3150

78. Which of the following is ?

A. A bonus issue can only be paid out of retained profits as stock dividends can only be paid from past profits.
B. If one shareholder did not pay a call and this shareholder had 150 shares, the resulting journal entry for the receipt of call money would include: Dr Cash; Cr Call.
C. A share split increases both the number of shares on issue and total shareholders' equity.
D. A share split requires a journal entry to be recognised.

79. Gordon Ltd directors declared a bonus issue for 100 000 shares to be issued at $1.50 each in August. Which of the following is not about the bonus issue?

A. It increases the net assets of the company by $150 000.
B. Cash is unchanged by the bonus issue.
C. Directors can use this opportunity to signal future dividend policy to current and future shareholders.
D. This makes the company's shares 'seem' more affordable, as on a per-share basis they are now cheaper.
E. Total shareholders' equity balance remains unchanged from the bonus issue.

80. A 3:1 share split has been made by an entity during the financial year. Which of the following statements about this share split is not ?

A. The number of shares is tripled.
B. The unit market price of each share is reduced.
C. The value of share capital is tripled.
D. No journal entry is required.
E. The cost to shareholders is zero.

81. Jackson Ltd directors resolve to provide a 1:5 bonus issue to shareholders. At the time of issue there were 500 000 shares issued by Jackson Ltd at a $1 issue price per share. The bonus shares were to be issued at a value of $0.50 each. Which of the following would be included in the journal entry specifically to record just the issue of these shares?

A. Dr Share capital 50 000
B. Dr Revaluation surplus 50 000
C. Cr Share capital 250 000
D. Cr Cash 50 000
E. Dr Bonus issue expense 50 000

Chapter 13 Testbank Summary Category	# of Questions
AACSB: Analytic	1
AACSB: Reflective thinking	80
Difficulty: Easy	57
Difficulty: Hard	2
Difficulty: Medium	22
Learning Objective: 13-01 Understand that the equity of an organisation can consist of several different accounts.	5
Learning Objective: 13-02 Understand that within equity there can be various classes of shares, each affording different rights to holders.	7
Learning Objective: 13-03 Be able to provide the journal entries to recognise the issue of both fully paid and partly paid shares by a company and know how to account for both a public and a private issue of shares.	21
Learning Objective: 13-04 Be able to provide the journal entries to account for cash and non-cash distributions (dividends).	1
Learning Objective: 13-05 Know what a preference share is and be able to identify factors that would determine whether particular preference shares should be disclosed as debt or equity.	1
Learning Objective: 13-06 Be able to provide the journal entries necessary when preference shares are to be redeemed.	4
Learning Objective: 13-07 Be able to provide the journal entries necessary when shares are forfeited by their owners.	7
Learning Objective: 13-08 Be able to provide the journal entries necessary to account for rights issues and option issues.	2
Learning Objective: 13-09 Understand what constitutes a share split and a bonus issue of shares and know the accounting implications of both.	16
Learning Objective: 13-10 Know the disclosure requirements of AASB 101 Presentation of Financial Statements in relation to share capital and reserves.	19
Section: Accounting for distributions	3
Section: Accounting for the issue of share capital	26
Section: Different classes of shares	7
Section: Forfeited shares	7
Section: Redemption of preference share	4
Section: Required disclosures for share capital	3
Section: Reserves	6
Section: Rights issues and share options	2
Section: Share splits and bonus issues	16
Section: Introduction	8
Topic: Accounting for distributions	3
Topic: Accounting for the issue of share capital	26
Topic: Different classes of shares	7
Topic: Forfeited shares	7
Topic: Introduction	7
Topic: Redeemed preference shares	1
Topic: Redemption of preference share	1
Topic: Redemption of preference shares	2
Topic: Required disclosures for share capital	3
Topic: Reserves	6
Topic: Rights issues and share options	2
Topic: Share splits and bonus issues	16

Document Information

Document Type:

DOCX

Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 13 Accounting for owners' equity

Author:

Deegan

Connected Book

Bank Management 6e | Test Bank

By Deegan

Test Bank General

View Product →

Explore recommendations drawn directly from what you're reading

Chapter 11 Accounting for assets

DOCX Ch. 11

Chapter 12 Accounting for liabilities

DOCX Ch. 12

Chapter 13 Accounting for owners' equity

DOCX Ch. 13 Current

Chapter 14 Accounting for income taxes

DOCX Ch. 14

Chapter 15 Accounting for leases

DOCX Ch. 15

$24.99

100% satisfaction guarantee

Buy Full Test Bank

Quick Navigation

Preview Document Info Connected Book Recommendations

Benefits

Immediately available after payment

Answers are available after payment

ZIP file includes all related files

Files are in Word format (DOCX)

Check the description to see the contents of each ZIP file

We do not share your information with any third party

Verified Test Bank Accounting for owners' equity Chapter.13

Document Information

Connected Book

Bank Management 6e | Test Bank

Explore recommendations drawn directly from what you're reading

$24.99

Quick Navigation

Benefits

Report Unauthorized Use

Added to Cart