Question 1

Current earnings can predict future dividends and share prices.

Accepted Answer

A) True 
 B)False

Question 2

The ROE ratio measures:

Accepted Answer

A)  return shareholders receive in dividends for each dollar of their investment.
B)  return shareholders receive in dividends and stock price growth for each dollar of their investment.
C)  amount earned by the company on each dollar contributed by shareholders and generated and reinvested by the company.
D)  amount earned by the company on each dollar obtained from equity and debt financing.E) C) and D)
F) None of the above

Question 3

A corporation's charter establishes the market value of the company's shares.

Accepted Answer

A) True 
 B)False

Question 4

A lender may limit the ability of a company to pay future dividends in order to ensure that loan proceeds are used for purposes that will increase the company's profits and ability to repay the loans.Which of the following statements is true in this regard?

Accepted Answer

A)  The circumstance described in the statement is an example of a loan covenant.
B)  The lender may require instant repayment of debt if the loan proceeds are instead used to finance the payment of dividends.
C)  Such restrictions must be reported in the notes to the financial statements.
D)  All of the answers are acceptable.E) B) and C)
F) A) and D)

Question 5

If a company's EPS and ROE rise:

Accepted Answer

A)  it could mean that net income is rising or it could mean that the number of outstanding shares is falling.The first is sustainable; the second cannot be continued indefinitely.
B)  it means that the company is becoming more profitable and shareholders will see greater returns.
C)  it means that the company's tax liability will rise in the future and cause a decline in profitability.
D)  it could mean that net income is rising or it could mean that the number of outstanding shares is falling.In either case,shareholders can expect greater future returns indefinitely.E) B) and C)
F) A) and C)

Question 6

A company has net income of $5.6 million.Shareholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to shareholders' equity came from net income.The ROE ratio is approximately:

Accepted Answer

A)  1.15
B)  0.16
C)  0.87
D)  6.64 E) A) and D)
F) B) and D)

Question 7

The declaration date for a dividend is the date on which the company:

Accepted Answer

A)  debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B)  debits Dividend Expense and credits Cash for the dividend amount.
C)  debits Dividends Payable and credits Cash for the dividend amount.
D)  establishes who will receive the dividend payment.E) None of the above
F) B) and C)

Question 8

Which of the following statements would explain why a company may want to repurchase its shares?

Accepted Answer

A)  To demonstrate to investors that it believes its own shares are worth purchasing.
B)  To obtain shares to reissue to employees as part of an employee stock option plan.
C)  To obtain shares that can be reissued as payment for purchase of another company.
D)  All of the answers are acceptable.E) None of the above
F) B) and D)

Question 9

Treasury shares:

Accepted Answer

A)  are more common in Canada,than they are in the United States.
B)  are more common in the United States,than they are in Canada.
C)  are illegal in Canada and the United States.
D)  are equally common in Canada and the United States.E) B) and C)
F) None of the above

Question 10

Oak Leaf Emporium (OLE)reported shareholders' equity of $35.8 million at its 2015 fiscal year-end.From 2016 until 2018,net income fluctuated from $4.5 million,to a loss of $5.7 million,to a gain of $1.3 million.During this time the average number of shares remained constant at 10.8 million.Share prices also fluctuated from a high of $8.45 in 2016,to a low of $6.10 in 2018; prices were $0.13 higher in 2017.During the same time period,shareholders equity was $52.1 million,$46.4 million,and $47.5 million,respectively,for 2016 - 2018.Calculate OLE's return on equity (ROE),and price/earnings (P/E)ratios for 2016.

Accepted Answer

ROE = $4.5/[($52.1 +...

Question 11

Some companies do not pay dividends even when the company is profitable.

Accepted Answer

A) True 
 B)False

Question 12

Shareholders' equity does not include which of the following:

Accepted Answer

A)  the present value of future dividends to be paid.
B)  the total issued value of common shares.
C)  retained earnings.
D)  Contributed surplus.E) All of the above
F) A) and B)

Question 13

A current dividend preference means that:

Accepted Answer

A)  preferred shareholders are paid dividends before common shareholders are paid dividends.
B)  unpaid dividends to preferred shareholders accumulate and must be paid before common shareholders receive dividends.
C)  preferred shareholders are paid their full fixed dividend rate each period as long as the company is in operation.
D)  unpaid cash dividends to preferred shareholders must be replaced with stock dividends during the current period.E) B) and C)
F) A) and D)

Question 14

The rights of common shareholders to receive a proportionate share of assets on liquidation is pre-emptive rights

Accepted Answer

A) True 
 B)False

Question 15

Common shares have stated liquidation value just like preferred shares.

Accepted Answer

A) True 
 B)False

Question 16

Limited Liability Companies (LLCs) are like general partnerships in that:

Accepted Answer

A)  income tax is not paid by the company itself.
B)  the business has a separate legal identity.
C)  liability is limited.
D)  all of the answers are acceptable.E) A) and D)
F) C) and D)

Question 17

A company has outstanding 10 million shares of $2 par common shares and 1 million shares of $4 par preferred shares.The preferred shares have $0.32 dividend per share.The company declares $300,000 in total dividends for the year.Which of the following is true if the preferred shareholders have a current and cumulative dividend preference?

Accepted Answer

A)  Preferred shareholders will receive the entire $300,000,and they must also be paid $20,000 before the end of the current accounting period.Common shareholders will receive nothing.
B)  Preferred shareholders will receive $24,000 (8% of the total dividends) .Common shareholders will receive the remaining $276,000.
C)  Preferred shareholders will receive the entire $300,000,and they must also be paid the rest sometime in the future before common shareholders will receive anything.
D)  Preferred shareholders will receive the entire $300,000,but will receive nothing more relating to this dividend declaration.Common shareholders will receive nothing.E) A) and B)
F) A) and C)

Question 18

Which of the following is the first chance given to existing shareholders to buy newly issued shares before they are offered to others?

Accepted Answer

A)  Residual claim
B)  Pre-emptive rights
C)  Voting rights
D)  Stock dividend rightsE) A) and B)
F) All of the above

Question 19

The XYZ Corporation sells 1 million shares of common shares,no par value,for $17 per share.One year later the corporation repurchases 100,000 shares at a market price of $14 a share.
For each transaction,prepare the journal entry and show the effect on assets,liabilities and shareholders' equity.

Accepted Answer

Original issuance of...

Question 20

The effect of a stock dividend is to:

Accepted Answer

A)  decrease total assets and shareholders' equity.
B)  change the composition of shareholders' equity.
C)  decrease total assets and total liabilities.
D)  increase the market value per share of common shares.E) B) and D)
F) A) and C)

Exam 11: Shareholders Equity

Some companies do not pay dividends even when the company is profitable.

Correct Answer
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The declaration date for a dividend is the date on which the company:

Correct Answer
verified

A current dividend preference means that:

Correct Answer
verified

Treasury shares:

Correct Answer
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Which of the following statements would explain why a company may want to repurchase its shares?

Correct Answer
verified

The rights of common shareholders to receive a proportionate share of assets on liquidation is pre-emptive rights

Correct Answer
verified

Limited Liability Companies (LLCs) are like general partnerships in that:

Correct Answer
verified

The XYZ Corporation sells 1 million shares of common shares,no par value,for $17 per share.One year later the corporation repurchases 100,000 shares at a market price of $14 a share. For each transaction,prepare the journal entry and show the effect on assets,liabilities and shareholders' equity.

Correct Answer
verified
Original issuance of...
View Answer

The ROE ratio measures:

Correct Answer
verified

Current earnings can predict future dividends and share prices.

Correct Answer
verified

The effect of a stock dividend is to:

Correct Answer
verified

Correct Answer
verified
ROE = $4.5/[($52.1 +...
View Answer

A lender may limit the ability of a company to pay future dividends in order to ensure that loan proceeds are used for purposes that will increase the company's profits and ability to repay the loans.Which of the following statements is true in this regard?

Correct Answer
verified

A company has net income of $5.6 million.Shareholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to shareholders' equity came from net income.The ROE ratio is approximately:

Correct Answer
verified

A corporation's charter establishes the market value of the company's shares.

Correct Answer
verified

Shareholders' equity does not include which of the following:

Correct Answer
verified

Correct Answer
verified

Which of the following is the first chance given to existing shareholders to buy newly issued shares before they are offered to others?

Correct Answer
verified

Common shares have stated liquidation value just like preferred shares.

Correct Answer
verified

If a company's EPS and ROE rise:

Correct Answer
verified

Exam 11: Shareholders Equity

Some companies do not pay dividends even when the company is profitable.

Correct AnswerverifiedShow Answer

The declaration date for a dividend is the date on which the company:

Correct AnswerverifiedShow Answer

A current dividend preference means that:

Correct AnswerverifiedShow Answer

Treasury shares:

Correct AnswerverifiedShow Answer

Which of the following statements would explain why a company may want to repurchase its shares?

Correct AnswerverifiedShow Answer

The rights of common shareholders to receive a proportionate share of assets on liquidation is pre-emptive rights

Correct AnswerverifiedShow Answer

Limited Liability Companies (LLCs) are like general partnerships in that:

Correct AnswerverifiedShow Answer

The XYZ Corporation sells 1 million shares of common shares,no par value,for $17 per share.One year later the corporation repurchases 100,000 shares at a market price of $14 a share. For each transaction,prepare the journal entry and show the effect on assets,liabilities and shareholders' equity.

Correct AnswerverifiedOriginal issuance of...View AnswerShow Answer

The ROE ratio measures:

Correct AnswerverifiedShow Answer

Current earnings can predict future dividends and share prices.

Correct AnswerverifiedShow Answer

The effect of a stock dividend is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedROE = $4.5/[($52.1 +...View AnswerShow Answer

A lender may limit the ability of a company to pay future dividends in order to ensure that loan proceeds are used for purposes that will increase the company's profits and ability to repay the loans.Which of the following statements is true in this regard?

Correct AnswerverifiedShow Answer

A company has net income of $5.6 million.Shareholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to shareholders' equity came from net income.The ROE ratio is approximately:

Correct AnswerverifiedShow Answer

A corporation's charter establishes the market value of the company's shares.

Correct AnswerverifiedShow Answer

Shareholders' equity does not include which of the following:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the first chance given to existing shareholders to buy newly issued shares before they are offered to others?

Correct AnswerverifiedShow Answer

Common shares have stated liquidation value just like preferred shares.

Correct AnswerverifiedShow Answer

If a company's EPS and ROE rise:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Original issuance of...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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ROE = $4.5/[($52.1 +...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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