1.

share dividends increase the proportionate interest of the shareholders because of the increase in
their shareholdings.

2. for most companies, the amount and timing of dividend declarations are determined by the
shareholders at their annual meeting.

3. retained earning consist of fund to be distributed to shareholders.

4. a liquidating dividend is usually paid when a corporation is going out of business or reducing its
operations.

5. dividends are contractual obligations of the corporation which must be paid at regular intervals.

6. in case of liquidation, the claims of the preference share holders are given preferences over the
claims.

7. retained earnings represent cash readily available for dividends.

8. dividends in arrears refer to passed preference dividends which must be satisfied before any
dividends maybe paid on ordinary shares.

9. in most cases, corporation pay out dividends equal to profit unless specific restrictions, either legal or
financial, are stated in the annual report.

10. the date on a statement of changes in shareholders’ equity is for the period of the time rather than
for a specific point in time.

11. cash dividends are declared by the board of directors with the concurrence of the shareholders of
the corporation.

12. dividends are expenses since they decrease shareholders’ equity.

13. liquidating dividends are paid when a corporation is permanently reducing its size or going out of a
business.

14. a share dividend will cause an increase in total share capital at the date the dividend is declared.

15. in a share split, the par value of all shares in the issued class is increased in proportion to the
additional shares issued.

16. dividends in arrears pertain to non-cumulative preference shares.

17. a restriction on retained earnings is recorded with a debt.

18. a property dividend is often referred to as a dividend in kind.

19. Cumulative preference shares entitle the holder to receive all current and previously postponed
dividends after the ordinary share dividends are distributed.

20. a person owning stock on the date of the record will receive share dividends that have been
declared.
21. retained earnings represent cash generated from profitable operations that have been retained in
the business.

22. a restriction in retained earnings leaves total retained earning unchanged.

23. after the declaration of share dividends, the shareholders have a greater proportional interest in the
asset of the corporation than before.

24. a possible reason to restrict retained earning would be to reserve a certain amount for dividends on
ordinary shares.

25. dividends on cumulative preference shares do not become a liability of the corporation until they
declared by the board of directors.

1. the purchase of treasury stock does not affect shareholders’ equity.

2. a dividend that represents a return to the shareholders of a part of their share capital rather than a
distribution out of retained earnings is called a liquidating dividend.

3. a debit balance in the retained earnings account is referred to as a debit.

4. a share dividend will cause an increase in the total number of shares issued and outstanding.

5. correction of errors and prior period adjustments both result in either a debit or a credit to retained
earnings.

6. dividends in arrears are liabilities of the corporation.

7. a share dividend does not affect the total amount of shareholders’ equity.

8. no entry is required on the date of the record for a cash dividend.

9. property dividends are charged to retained earnings at cost or book value of the non-cash asset
distributed.

10. a share dividend is a pro rata distribution of cash to a corporation’s shareholders.

11. a 2-for-1 share split will have the same effect on the numbers of shares outstanding as a 200% share
dividend.

12. dividends usually cannot be paid on ordinary shares unless the regular dividend has been paid to
preference shareholders.

13. a share split normally increases total shareholders’ equity.

14. cumulative preference shares entitle the holders to participate with the holders of ordinary shares
pro-rata in the remainder after the ordinary shareholders have received their initial shares.

15. the declaration of a cash dividend causes an increase in a corporation’s liabilities at the date of
record.
16. a share dividend reduces the retained earnings balance and permanently capitalizes the reduced
portion of the retained earnings.

17. a share split results in a transfer of the market value of the share from retained earnings to share
capital.

18. a retained earnings appropriation reduces the total shareholder’s equity shown on the statement of
financial position.

19. share split and share dividends are accounted for differently.

20. prior period adjustment are corrections of errors made in financial statement of the prior periods.
These should be shown in the current year statement’s of recognize income and expense.

21. dividends are declared by the shareholders.

22. cash dividends payable is closed to retained earnings at the end of the period.

23. the retained earnings balance of corporation is part of its share capital.

24. a share dividend exceeding 25% is properly treated as a share split.

25. retained earnings is a component of contributed capital.

1. which of the following might appear as an item in a statement of changes in equity?

Gain on disposal of properties

Appropriation for treasury stock

Equity dividends proposed after the reporting date

Issue of share capital

3. which of the following statements about financial statements are correct?

In preparing the statement of cash flows, either the direct or the indirect method may be used. Both
lead to the same figure for net cash from operating activities

Loan notes can be classified as current or non-current liabilities

Financial statement must disclose a corporations total expense for depreciation, if material.

A corporation must disclose by a note the details of all adjusting events effected in the financial
statements.

4. which of the following may appear as separate items in a statement of changes in equity?

Dividend in equity shares paid during the period

Loss on sale of investment

Proceeds of an issue of ordinary shares

5. which of the following items could appear in a statement of cash flows?

Proceeds of issue of shares

Proposed dividends

Irrecoverable debts written off

Dividends received
6. In preparing the cash flows from operating activities section of a statement of cash flows (using the
indirect method) which of the following statement are correct?

Loss on sale of operating non-current assets should be deducted from profit before tax

Increase in inventory should be deducted from operating profits

Increase in payable should be added to operating profits

Depreciation expense should be added to profit before tax

9. in preparing a statement of cash flows, which of the following items could form part of cash flows
from financial activities?

Proceeds of sale of premises

Dividends received

Bonus issue of shares

Settlement of notes payable

1. the book value of ordinary shares is the same as

Par value

Liquidation value

Net worth

Net tangible asset value per share

5. a corporation has 6% participating preference shares. What does the 6% mean?

Maximum dividend payment

Minimum dividend payment

Actual dividend payment

6. which of the following corporation accounts are not affected by the payment of a cash dividend?

Shareholders equity
Total asset

Long-term liabilities

Retained earnings

7. which of the following transactions does not decrease working capital?

Paying a cash dividend

Declaring a cash dividend

Purchasing the corporations own stock using the proceeds from newly issued long term debt

Leasing long-term equipment, which is transacted as a capital lease

8. a share split by a corporation affects which account on the statement of financial position?

Retained earnings

Shareholders equity

Share premium

Par value

1. when preference shareholders have the right to receive a specified dividend and to receive more after
a matching dividend percentage is given to ordinary shareholders, the preference shares are said to be

Callable

Cumulative

Convertible

participating

3. dividends shall be declared and paid out of

Profits earned in selling no-par value shares

Retained earnings

Share capital

5. a deficit appears on the statement of financial position

As a deduction from income taxes payable

As a deduction form total share capital

Among the liabilities

Among the asset

To adjust the market price of the corporations shares to a level where more individuals can afford to
invest in the stock

To spread shareholder base by increasing the number of outstanding shares

To decrease the number of shares outstanding thereby increasing proportionately the par value

7. the income summary account of a proprietorship is closed to the owner’s capital account; for a
corporation, income summary is closed to

Retained earnigs

Ordinary shares share premium

Donated capital

8. the journal entry to record the declaration of a large share dividend includes

A debit to retained earnings for the market value of the shares to be distributed

A credit to share distributable for the fair value of the shares to be distributed

A credit to share premium for the difference between the fait market value and the par value of the
shares to be distributed

A debit to retained earnings for the par value of the shares to be distributed

9. which of the following will result in an increase in the retained earnings account?

Positive prior period adjustment

Share dividend declared

Cash dividends declared

Loss for the period

10. which of the following combination of dates accurately describes when journal entries are required
to record dividends?

11. a restriction on retained earnings

Reduces retained earnings available for the declaration of dividends

Can be reported by an entry appropriating retained earnings

Has no effect on total retained earnings

12. the number of ordinary shares outstanding would be decrease by the

13. a share dividend

Decreases shareholders equity

Leaves total shareholders equity uncharged

15. how would retained earnings be affected by the declaration of each of the following?

16. when a small share dividend is declared, retained earnings is debited for

Zero in not affected by the declaration of a small share dividend

The liquidation value of the shares to be distributed

The fair market value of the shares to be distributed

The par value of the shares to be distributed