Question 1

On 1 July 2017, a company redeemed its $200 000 debenture liability using its available cash on hand. The terms of the debenture issue provided that a premium of 5% was to be paid on redemption of the debentures. Which of the following is the entry to record the redemption? $\begin{array}{llr}
\text { Debentures } & \text { Dr } & 210000 \
\text { Redemption revenue} & \mathrm{Cr} & 10000\
\text { Cash } & \mathrm{Cr} & & 200000
\end{array}$

$\begin{array}{llll}
\text { Debentures } & \mathrm{Dr} & 210000 & \
\text { Cash } & \mathrm{Cr} & & 210000
\end{array}$

$\begin{array}{llrl}
\text { Expense on redemption of debentures } & \text { Dr } & 10000 & \
\text { Debentures } & \mathrm{Dr} & 200000 & \
\text { Cash } & \mathrm{Cr} & & 210000
\end{array}$

$\begin{array}{llr}
\text { Debentures } & \text { Dr } & 200000 \
\text { Premium on redemption } & \mathrm{Cr} && 10000\
\text { Cash } & \mathrm{Cr} & &190000
\end{array}$

Accepted Answer

The answer of On 1 July 2017, a company redeemed...

Question 2

Where share options are issued and subsequently lapse, the cost of the lapsed options is transferred to a Lapsed Options Reserve account.

Accepted Answer

A) True 
 B)False

Question 3

ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of $2.50 each, payable $1.50 per share on application. The company received applications for 110 000 shares. Which of the following entries correctly records the application money?

Accepted Answer

A)   DR Application $165 000 CR Cash trust $165 000
B)   DR Cash trust $250 000 CR Application $250 000
C)   DR Cash trust $165 000 CR Application $165 000
D)   DR Cash trust $275 000 CR Application $275 000E) A) and B)
F) A) and C)

Question 4

According to the Corporations Act, dividends can only be paid out of the profits earned by a company.

Accepted Answer

A) True 
 B)False

Question 5

Share options issued at no cost to the recipient are accounted for in the same way as a rights issue.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued?

Accepted Answer

A)   Increase cash trust account: increase share capital account
B)   Increase application account: decrease share capital account
C)   Increase share capital account: decrease cash trust account
D)   Increase cash trust account: increase application accountE) A) and D)
F) None of the above

Question 7

A bonus issue of shares to existing shareholders has which of the following impacts on the equity of a company?

Accepted Answer

A)   Total equity increases.
B)   Total equity decreases.
C)   No overall change in total equity.
D)   Only the amount of issued share capital changes.E) All of the above
F) A) and D)

Question 8

When making a transfer from a general reserve to retained earnings, which of the following journals could be used?

Accepted Answer

A)   DR General reserve CR Retained earnings
B)   DR Retained earnings CR General reserve
C)   DR Share capital CR General reserve
D)   DR General reserve CR Share capitalE) B) and C)
F) A) and D)

Question 9

A rights issue gives all existing shareholders the right to an additional number of shares in proportion to their current shareholding.

Accepted Answer

A) True 
 B)False

Question 10

Share issue costs such as professional adviser's fees and brokerage fees must be reported as an expense in the income statement.

Accepted Answer

A) True 
 B)False  False

Question 11

Many investors may wish to purchase debentures or notes offering the ability to be converted into fully paid shares at the maturity date, in lieu of a cash payment.

Accepted Answer

A) True 
 B)False

Question 12

If the minimum number of applications specified in the disclosure document is not received, all application money must be refunded to applicants. The minimum number of applications must be received within:

Accepted Answer

A)   4 months after the date of the disclosure document.
B)   1 month after the receipt of the first application money by the company.
C)   13 months after the date of the disclosure document.
D)   75 days from the date that ASIC gives its approval of the disclosure document.E) A) and C)
F) B) and C)

Question 13

Brown Limited was incorporated on 1 July 2017. A prospectus offering 200 000 shares at $3.00 each was released and closed fully subscribed. The share issue was underwritten by a broker for $25 000 and other costs of the share issue amounted to $13 000. The net share capital on the statement of financial position is:

Accepted Answer

A)   $575 000.
B)   $162 000.
C)   $587 000.
D)   $562 000.E) C) and D)
F) B) and D) D

Question 14

In relation to a revaluation surplus, an entity:

Accepted Answer

A)   cannot use this surplus for the payment of future dividends.
B)   can transfer this surplus to retained earnings when the asset is derecognised or used.
C)   cannot transfer this surplus to any other reserve account.
D)   can transfer the surplus to the current period profit or loss when the asset is disposed of.E) A) and B)
F) A) and D) B

Question 15

Redeemable preference shares are always considered to be compound financial instruments that contain both equity and liability components.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is not correct in relation to cumulative preference shares?

Accepted Answer

A)   Holders of cumulative preference shares are guaranteed a dividend every year.
B)   Undeclared cumulative preference share dividends accumulate, or carry forward, to future periods.
C)   The accumulated amount of any cumulative preference share dividend plus the current year's preference dividend must be paid before any dividend can be paid to ordinary shareholders.
D)   Cumulative preference share dividends that are not declared in the year they are due are called dividends in arrears.E) B) and C)
F) A) and D)

Question 17

If a company has not reached a minimum subscription level within 90 days of the date of the disclosure document, the money paid in by applicants must be refunded by the company within 1 month in accordance with the requirements of ss 724(1) and (2) of the Corporations Act.

Accepted Answer

A) True 
 B)False

Question 18

Debentures may be issued at a nominal value, a premium or a discount.

Accepted Answer

A) True 
 B)False

Question 19

In respect to the issue of shares by companies, which of the following statements is incorrect?

Accepted Answer

A)   Companies can convert ordinary shares into preference shares.
B)   Companies can only issue ordinary shares.
C)   Companies can issue any specified number of shares at any price.
D)   Companies can issue both ordinary and preference shares.E) B) and D)
F) A) and C)

Question 20

Share splits and share consolidations are only allowed if a company's constitution contains specific provisions relating to such transactions.

Accepted Answer

A) True 
 B)False

Exam 2: Financing Company Operations

Correct Answer
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Where share options are issued and subsequently lapse, the cost of the lapsed options is transferred to a Lapsed Options Reserve account.

Correct Answer
verified

ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of $2.50 each, payable $1.50 per share on application. The company received applications for 110 000 shares. Which of the following entries correctly records the application money?

Correct Answer
verified

According to the Corporations Act, dividends can only be paid out of the profits earned by a company.

Correct Answer
verified

Share options issued at no cost to the recipient are accounted for in the same way as a rights issue.

Correct Answer
verified

Which of the following is the appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued?

Correct Answer
verified

A bonus issue of shares to existing shareholders has which of the following impacts on the equity of a company?

Correct Answer
verified

When making a transfer from a general reserve to retained earnings, which of the following journals could be used?

Correct Answer
verified

A rights issue gives all existing shareholders the right to an additional number of shares in proportion to their current shareholding.

Correct Answer
verified

Share issue costs such as professional adviser's fees and brokerage fees must be reported as an expense in the income statement.

Correct Answer
verified
False

Many investors may wish to purchase debentures or notes offering the ability to be converted into fully paid shares at the maturity date, in lieu of a cash payment.

Correct Answer
verified

If the minimum number of applications specified in the disclosure document is not received, all application money must be refunded to applicants. The minimum number of applications must be received within:

Correct Answer
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Correct Answer
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D

In relation to a revaluation surplus, an entity:

Correct Answer
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B

Redeemable preference shares are always considered to be compound financial instruments that contain both equity and liability components.

Correct Answer
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Which of the following statements is not correct in relation to cumulative preference shares?

Correct Answer
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If a company has not reached a minimum subscription level within 90 days of the date of the disclosure document, the money paid in by applicants must be refunded by the company within 1 month in accordance with the requirements of ss 724(1) and (2) of the Corporations Act.

Correct Answer
verified

Debentures may be issued at a nominal value, a premium or a discount.

Correct Answer
verified

In respect to the issue of shares by companies, which of the following statements is incorrect?

Correct Answer
verified

Share splits and share consolidations are only allowed if a company's constitution contains specific provisions relating to such transactions.

Correct Answer
verified

Exam 2: Financing Company Operations

Correct AnswerverifiedShow Answer

Where share options are issued and subsequently lapse, the cost of the lapsed options is transferred to a Lapsed Options Reserve account.

Correct AnswerverifiedShow Answer

ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of $2.50 each, payable $1.50 per share on application. The company received applications for 110 000 shares. Which of the following entries correctly records the application money?

Correct AnswerverifiedShow Answer

According to the Corporations Act, dividends can only be paid out of the profits earned by a company.

Correct AnswerverifiedShow Answer

Share options issued at no cost to the recipient are accounted for in the same way as a rights issue.

Correct AnswerverifiedShow Answer

Which of the following is the appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued?

Correct AnswerverifiedShow Answer

A bonus issue of shares to existing shareholders has which of the following impacts on the equity of a company?

Correct AnswerverifiedShow Answer

When making a transfer from a general reserve to retained earnings, which of the following journals could be used?

Correct AnswerverifiedShow Answer

A rights issue gives all existing shareholders the right to an additional number of shares in proportion to their current shareholding.

Correct AnswerverifiedShow Answer

Share issue costs such as professional adviser's fees and brokerage fees must be reported as an expense in the income statement.

Correct AnswerverifiedFalse

Many investors may wish to purchase debentures or notes offering the ability to be converted into fully paid shares at the maturity date, in lieu of a cash payment.

Correct AnswerverifiedShow Answer

If the minimum number of applications specified in the disclosure document is not received, all application money must be refunded to applicants. The minimum number of applications must be received within:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

In relation to a revaluation surplus, an entity:

Correct AnswerverifiedB

Redeemable preference shares are always considered to be compound financial instruments that contain both equity and liability components.

Correct AnswerverifiedShow Answer

Which of the following statements is not correct in relation to cumulative preference shares?

Correct AnswerverifiedShow Answer

If a company has not reached a minimum subscription level within 90 days of the date of the disclosure document, the money paid in by applicants must be refunded by the company within 1 month in accordance with the requirements of ss 724(1) and (2) of the Corporations Act.

Correct AnswerverifiedShow Answer

Debentures may be issued at a nominal value, a premium or a discount.

Correct AnswerverifiedShow Answer

In respect to the issue of shares by companies, which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Share splits and share consolidations are only allowed if a company's constitution contains specific provisions relating to such transactions.

Correct AnswerverifiedShow Answer

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False

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D

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B

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