Q: Which of the following best describes the accounting equation and its relationship to shareholders’ equity?

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

Q: Which of the following is the correct formula for calculating retained earnings at year-end?

$$\text{Retained Earnings}_{\text{end}} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$$

Q: A company declares a 10% stock dividend when there are 50,000 shares outstanding and the market price is $20 per share. What is the value transferred from retained earnings to share capital?

$$100,000 (5$$,000 shares $$ \times $$ $20)

Q: Which of the following is the correct formula for the price-to-earnings (P/E) ratio?

$$P/E = \frac{\text{Market price per share}}{\text{Earnings per share}}$$

Question 1

Which of the following best describes the accounting equation and its relationship to shareholders’ equity?

Accepted Answer

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

Question 2

A company has assets of $$2,000,000 and liabilities of 1$$,500,000. What is the amount of shareholders’ equity?

Accepted Answer

$$500,000$$

Question 3

Which of the following is NOT an advantage of equity financing compared to debt financing?

Accepted Answer

Dividends are tax-deductible

Question 4

A company issues 100,000 shares at $3 per share. What is the journal entry to record this transaction?

Accepted Answer

Dr Cash $$300,000; Cr Common Shares 300$$,000

Question 5

Which of the following is the correct formula for calculating retained earnings at year-end?

Accepted Answer

$$	ext{Retained Earnings}_{	ext{end}} = 	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Question 6

If a company repurchases its shares for more than the average issue price, which accounts are affected and in what order?

Accepted Answer

Contributed Surplus is reduced first, then Retained Earnings

Question 7

Which of the following statements about treasury shares is TRUE?

Accepted Answer

Treasury shares are issued but not outstanding

Question 8

A company declares a 10% stock dividend when there are 50,000 shares outstanding and the market price is $20 per share. What is the value transferred from retained earnings to share capital?

Accepted Answer

$$100,000 (5$$,000 shares $$ 	imes $$ $20)

Question 9

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

Accepted Answer

Increases the number of shares outstanding and decreases the market price per share

Question 10

Which of the following is the correct formula for the price-to-earnings (P/E) ratio?

Accepted Answer

$$P/E = \frac{	ext{Market price per share}}{	ext{Earnings per share}}$$

Question 11

A company has net income of $$1,000,000, preferred dividends of 100$$,000, and average common shareholders’ equity of $4,500,000. What is the return on equity (ROE)?

Accepted Answer

$$\frac{1,000,000 - 100,000}{4,500,000} = 20\%$$

Question 12

Which of the following is NOT a component of shareholders’ equity under IFRS?

Accepted Answer

Dividends Payable

Question 13

A company has 200,000 shares authorized, 100,000 shares issued, and 90,000 shares outstanding. How many treasury shares does the company have?

Accepted Answer

10,000

Question 14

Which of the following is TRUE regarding preferred shares?

Accepted Answer

Preferred dividends must be paid before common dividends

Question 15

If a company pays a cash dividend, what is the effect on the financial statements?

Accepted Answer

Decrease in cash and decrease in retained earnings

Question 16

Which of the following is the correct formula for comprehensive income?

Accepted Answer

$$	ext{Comprehensive Income} = 	ext{Net Income} + 	ext{Other Comprehensive Income}$$

Question 17

A company grants stock options to employees with a total value of $120,000 and a vesting period of 3 years. What is the annual compensation expense recorded?

Accepted Answer

$$40,000$$

Question 18

Which of the following best describes the effect of a stock dividend on shareholders’ equity?

Accepted Answer

Total shareholders’ equity remains unchanged

Question 19

Which of the following is the correct formula for dividend yield?

Accepted Answer

$$	ext{Dividend Yield} = \frac{	ext{Dividends per share}}{	ext{Price per share}}$$

Chapter 11: Shareholders’ Equity – Structure, Transactions, and Analysis

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