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BAT Quiz - Financing (Equity)



Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

The dominant form of business organization in Canada in terms of dollar sales volume, earnings, and employees is
a.
the sole proprietorship.
b.
the partnership.
c.
the corporation.
d.
not known.
 

 2. 

Shareholders of a corporation directly elect
a.
the president of the corporation.
b.
the board of directors.
c.
the controller of the corporation.
d.
all of the employees of the corporation.
 

 3. 

Which one of the following would not be considered an advantage of the corporate form of organization?
a.
Limited liability of owners
b.
Separate legal existence
c.
Continuous life
d.
Government regulation
 

 4. 

The ability of a corporation to obtain capital is
a.
enhanced because of limited liability and ease of share transferability.
b.
less than a partnership.
c.
restricted because of the limited life of the corporation.
d.
about the same as a partnership.
 

 5. 

Which of the following statements concerning taxation is accurate?
a.
Partnerships pay provincial income taxes but not federal income taxes.
b.
Corporations pay federal income taxes but not provincial income taxes.
c.
Corporations pay federal and provincial income taxes.
d.
Only the owners must pay taxes on corporate income.
 

 6. 

Which of the following statements is not considered a disadvantage of the corporate form of organization?
a.
Additional taxes
b.
Government regulations
c.
Limited liability of shareholders
d.
Separation of ownership and management
 

 7. 

Which one of the following is not an ownership right of a shareholder in a corporation?
a.
To vote in the election of directors
b.
To declare dividends on the common shares
c.
To share in assets upon liquidation
d.
To share in corporate earnings
 

 8. 

If no par shares are issued, then
a.
the par value is automatically $1 per share.
b.
the entire proceeds are considered to be legal capital.
c.
there is no legal capital.
d.
the corporation is automatically in violation of its state charter.
 

 9. 

The term residual claim refers to a shareholder's right to
a.
receive dividends.
b.
share in assets upon liquidation.
c.
acquire additional shares when offered.
d.
exercise a proxy vote.
 

 10. 

Which of the following factors does not affect the initial market price of a share?
a.
The company's anticipated future earnings
b.
The legal capital of the share
c.
The current state of the economy
d.
The expected dividend rate per share
 

 11. 

Retained earnings
a.
is unique to the corporate form of business.
b.
is an optional account in the partnership form of business.
c.
reflects cash paid in by shareholders to date.
d.
is closed at the end of the year.
 

 12. 

Dividends are declared out of
a.
Share Capital.
b.
Contributed Capital in Excess of Stated Value.
c.
Retained Earnings.
d.
Reacquired Shares.
 

 13. 

Retained earnings is
a.
always equal to the amount of cash that the corporation has generated from operations.
b.
a part of the contributed capital of the corporation.
c.
a part of the shareholders' claim on the total assets of the corporation.
d.
closed at the end of each accounting period.
 

 14. 

If common shares are issued for an amount greater than stated value, the excess should be credited to
a.
Cash.
b.
Retained Earnings.
c.
Contributed Capital in Excess of Stated Value.
d.
Legal Capital.
 

 15. 

If shares are issued for a non-cash asset, the asset should be recorded on the books of the corporation at
a.
fair market value.
b.
cost.
c.
zero.
d.
a nominal value.
 

 16. 

If shares with a stated value are issued for a non-cash asset that has a market value in excess of the stated value, the account
a.
Contributed Capital in Excess of Stated Value is credited.
b.
Contributed Capital in Excess of Stated Value is debited if a debit balance exists in the account.
c.
Contributed Capital in Excess of Stated Value is debited if a credit balance exists in the account.
d.
Retained Earnings is credited.
 

 17. 

Which of the following is not a right or preference associated with preferred shares?
a.
The right to vote
b.
First claim to dividends
c.
Preference to corporate assets in case of liquidation
d.
To receive dividends in arrears before common shareholders receive dividends
 

 18. 

Contributed Capital in Excess of Stated Value
a.
is credited when no par shares do not have a stated value.
b.
is reported as part of contributed capital on the balance sheet.
c.
represents the amount of legal capital.
 

 19. 

Dividends in arrears on cumulative preferred shares
a.
never have to be paid.
b.
must be paid before common shareholders can receive a dividend.
c.
should be recorded as a current liability until they are paid.
d.
enable the preferred shareholders to share equally in corporate earnings with the common shareholders.
 

 20. 

Dividends in arrears on cumulative preferred shares
a.
are considered to be a noncurrent liability.
b.
are considered to be a current liability.
c.
only occur when preferred dividends have been declared.
d.
should be disclosed in the notes to the financial statements.
 

 21. 

Two classifications appearing in the contributed capital section of the balance sheet are
a.
preferred shares and common shares.
b.
contributed capital and retained earnings.
c.
share capital and additional contributed capital.
d.
share capital and retained earnings.
 

 22. 

Which one of the following is not necessary in order for a corporation to pay a cash dividend?
a.
Adequate cash
b.
Approval of shareholders
c.
Declaration of dividends by the board of directors
d.
Retained earnings
 

 23. 

The date on which a cash dividend becomes a binding legal obligation is on the
a.
declaration date.
b.
date of record.
c.
payment date.
d.
last day of the fiscal year end.
 

 24. 

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to
a.
decrease total liabilities and shareholders' equity.
b.
increase total expenses and total liabilities.
c.
increase total assets and shareholders' equity.
d.
decrease total assets and shareholders' equity.
 

 25. 

The effect of a stock dividend is to
a.
decrease total assets and shareholders' equity.
b.
change the composition of shareholders' equity.
c.
decrease total assets and total liabilities.
d.
increase the book value per common share.
 

 26. 

Which one of the following events would not require a formal journal entry on a corporation's books?
a.
2-for-1 stock split
b.
100% stock dividend
c.
2% stock dividend
d.
$1 per share cash dividend
 

 27. 

Regular dividends are declared out of
a.
Contributed Capital in Excess of Par Value.
b.
Preferred Shares.
c.
Common Shares.
d.
Retained Earnings.
 

 28. 

Dividends Payable is classified as a
a.
long-term liability.
b.
contra shareholders' equity account to Retained Earnings.
c.
current liability.
d.
shareholders' equity account.
 

 29. 

Common Stock Dividends Distributable is
a.
a revenue account.
b.
an asset account.
c.
a liability account.
d.
a type of shareholders’ equity account.
 

 30. 

The declaration of a stock dividend will
a.
increase contributed capital.
b.
change the total of shareholders' equity.
c.
increase total liabilities.
d.
increase total assets.
 

 31. 

A stock split
a.
will change the value per share..
b.
will increase total contributed capital.
c.
will increase the total value of the shares.
d.
will have no effect on the value per share.
 

 32. 

A prior period adjustment that corrects income of a prior period requires that an entry be made to
a.
an income statement account.
b.
a current year revenue or expense account.
c.
the retained earnings account.
d.
an asset account.
 

 33. 

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
a.
decrease total assets and total shareholders' equity.
b.
increase shareholders' equity and decrease total liabilities.
c.
decrease total retained earnings and increase total liabilities.
d.
reduce the amount of retained earnings available for dividend declarations.
 

 34. 

Prior period adjustments are reported
a.
on the current year's statement of retained earnings.
b.
on the current year's cash flow statement
c.
on the current year's income statement.
 

 35. 

A prior period adjustment for understatement of net income
a.
will be credited to the Retained Earnings account.
b.
will be debited to the Retained Earnings account.
c.
will show as a gain on the current year's Income Statement.
d.
will show as an asset on the current year's Balance Sheet.
 

 36. 

When a change in accounting principle occurs,
a.
nothing should be done.
b.
the new principle should be used in reporting the results of operations of the current year, and the cumulative income effect of prior years should be reflected on the statement of retained earnings as an adjustment to the opening balance.
c.
the cumulative effect of the change in principle should be reflected on the income statement as of the beginning of the next year.
d.
the cumulative effect of the change in accounting principle should be classified as an extraordinary item on the income statement.
 

 37. 

The issuing of additional common shares (all else being equal) would have the following effect on earnings per share:
a.
increase.
b.
decrease.
c.
not be affected.
d.
be impossible to calculate.
 



 
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