Shareholders' Equity Quiz Questions 2014

SHAREHOLDERS’ EQUITY

QUIZ QUESTIONS

1. What is a share? (1 mark)

Ans: The Ownership rights in a copnay are generally represented by share.

2. Identify two advantages of a private placement of shares as compared with a public issue. (1 mark)

Ans: speed, a placement can be effected in a short period of time

price, because a placement is made to other than existing shareholders, and to a market that is potentially more informed and better funded, the issue price of the new shares may be closer to the market price at the date of issue

direction: the shares may be placed with investors who approve of the directions of the company, or who will not interfere in the formation of company policies

prospectus, in some cases, a placement can occur without the need for a detailed prospectus to be prepared

3. The shareholders of Quinninup Ltd hold 25 000 A class ordinary shares, fully paid at $4.50 each. On 17 April 2013, the company directors voted to make a 1 for 5 rights offer to these shareholders. The additional shares were offered at $2.75 each, payable in full one month after acceptance.

The offer closed on 31 May 2013 with 85% of the shareholders accepting. Shares were duly allotted on that date and all monies were received when due.

Required

Prepare journal entries to record these events, show all workings. (2 marks)

Ans:

31/5/2013 Cash (25000/5 x 2.75 x 85%) $11,687.50

Application $11,687.50

Application $11,687.50

Share Capital $11,687.50

4. Forrest Ltd has issued 10 000 5% cumulative preference shares. Explain the meaning of the term “cumulative”. (1 mark)

Ans: if a dividend is not declared in a particular year, the right to the dividend is not lost but carries over to a subsequent year. The dividends are said to be in arrears.

5. The share capital of Murdoch Ltd consists of:

56 000 Ordinary A shares @ $2.50,...