Share Question

SHAREHOLDERS’ EQUITY

QUIZ QUESTIONS

1.

What is a share? (1 mark)

Answer: A share is an unit of ownership that represents an equal proportion

of a company's capital. It entitles its holder (the shareholder) to an equal

claim on the company's profits and an equal obligation for the company's

debts and losses.

2.

Identify two advantages of a private placement of shares as compared with a

public issue. (1 mark)

Answer: 1. The investor can get positive allotment.

2. The investor can get high number of shares.

3. The share value can be lower many a times.

4. The company doesn't need to provide as much disclosure to investors.

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)

Answer:

Date

31 May 2013

Accounting Title

Cash Trust (25,000* 1/5*85%*2.75)

Application

(money received on application hold in trust)

30 June 2013 Cash

Application

(received cash)

4.

Debit ($)

11688

Credit($)

11688

11688

11688

Forrest Ltd has issued 10 000 5% cumulative preference shares. Explain the

meaning of the term “cumulative”. (1 mark)

Answer: When a company fails to pay a dividend, holders of cumulative

preference shares are entitled to receive this missed payment when a

dividend is next declared. This rule is cumulative and they are also entitled to

the current dividend provided sufficient cash is available. These payments

receive priority over the claims of ordinary shareholders.

5.

The share capital of Murdoch Ltd consists of:

56 000 Ordinary...