Shareholders' Equity Quiz Questions 2014(Answers)

SHAREHOLDERS’ EQUITY

QUIZ QUESTIONS

1. What is a share? (1 mark)

A unit of ownership that represents an equal proportion of a company’s capital. It entitles the holder 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)

Speed, price, direction, prospectus

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)

31/05/2013

|Cash | |11 687.50 | |

| |Share Capital - Ordinary | |11 687.50 |

|(25,000 / 5 x $2.75 x 85%) |

|(issue of 4250 shares with issue price of $2.75) |

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

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, fully paid $140 000

15 000 Ordinary B...