Q: Which of the following best describes the equation for shareholders' equity?

$$\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$$

Question 1

Which of the following best describes the equation for shareholders' equity?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Shareholders' Equity}$$

Question 2

A company issues 5 million shares of $$1 par value common stock for 8 $$per share. What is the correct journal entry for this transaction?

Accepted Answer

Cash $$40M; Common Stock 5M$$; Paid-in Capital—Excess of Par $35M

Question 3

Which of the following is NOT a component of shareholders' equity?

Accepted Answer

Bonds Payable

Question 4

A company buys back 1 million shares at $$7 per share. The shares were originally issued at 10 $$per share ($$1 par, 9 $$excess of par). Using the retirement method, what happens to the $3 per share difference?

Accepted Answer

Credited to Paid-in Capital—Share Repurchase

Question 5

Which right protects a shareholder from losing their proportional ownership when new shares are issued?

Accepted Answer

Preemptive right

Question 6

If a company declares a cash dividend, which journal entry is made on the declaration date?

Accepted Answer

Debit Retained Earnings, Credit Dividends Payable

Question 7

A company issues shares for noncash consideration. At what value should the shares be recorded?

Accepted Answer

Fair value at the grant date

Question 8

Which of the following statements about treasury stock is TRUE?

Accepted Answer

Treasury shares are issued but not outstanding and do not receive dividends.

Question 9

A company has $$50 million in ending accumulated other comprehensive income (AOCI) and reports 15 $$million in other comprehensive income for the year. What was the beginning AOCI balance?

Accepted Answer

$$35$$ million

Question 10

Which of the following best explains why a corporation might repurchase its own shares?

Accepted Answer

To support the share price by reducing supply

Question 11

A company issues 4 million $$1-par common shares (market value 10) $$and 2 million $$5-par preferred shares for a lump sum of 100 $$million. Only the common shares have a known market value. How much is allocated to preferred shares?

Accepted Answer

$$60$$ million

Question 12

Which of the following is TRUE regarding cumulative preferred shares?

Accepted Answer

Unpaid dividends accumulate and must be paid before common dividends.

Question 13

If a company retires shares at a price above their original issue price, which account absorbs the excess cost after paid-in capital—share repurchase is depleted?

Accepted Answer

Retained Earnings

Question 14

Which of the following is a FALSE statement about retained earnings?

Accepted Answer

Retained earnings represent cash available for dividends.

Question 15

A company declares a 100% stock dividend on 100 million shares with a $12 market price. After the dividend, how many shares are outstanding and what is the approximate new market price per share?

Accepted Answer

200 million shares; $6 per share

Question 16

Which of the following accounts is NEVER affected by transactions in a company's own shares (buybacks or resales)?

Accepted Answer

Income Statement Accounts

Question 17

A company with cumulative, nonparticipating preferred stock declares dividends of $$8M, 20M$$, and $$150M over three years. The annual preference is 16M. $$How much do common shareholders receive in year 3?

Accepted Answer

$$130$$ million

Question 18

Which of the following best describes the effect of a stock split?

Accepted Answer

Increases the number of shares and reduces the par value per share, with no change in total equity.

Question 19

Under IFRS, the term 'share premium' is equivalent to which U.S. GAAP account?

Accepted Answer

Paid-in Capital—Excess of Par

Question 20

Which of the following is a reason a company might choose to hold repurchased shares as treasury stock rather than retire them?

Accepted Answer

To potentially reissue the shares in the future for employee compensation or mergers

Shareholders' Equity: Ownership, Share Transactions & Dividends

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