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Exam 10: Owners Equity

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Question 1

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Jasper Ltd is a public company trading on the Toronto Stock Exchange.The company's shares are currently trading for $26.00 per share.Jasper just released the following information related to its 2014 year-end: $\begin{array}{lrr}&2014&2013\\\text { Total Assets } & \$ 1,567,445 & 1,258,540 \\\text { Total Liabilities } & 545,900 & 533,900 \\\text { Net Income } & 162,600 & 55,600\\\text { Preferred Share Dividends } & \$ 12,000 & \$ 12,000 \\\text { Share Capital - Preferred Shares } & \$ 500,000 & \$ 500,000 \\\text { Share Capital - Common Shares } & \$ 270,000 & \$ 100,000\\\text { Retained Earnings } & \$ 251,545 & \$ 124,640 \\\text { Average number of common shares outstanding } & 30,000 & 20,000\end{array}$ Common shareholders' equity at the end of 2012 was $87,495. Required: A) Did Jasper Ltd pay any common dividends in 2014? If so, how much? B) What was the average issue price of the common shares they issued in 2014? C) What was their book value per share in 2014? D) Calculate the company's earnings per share for 2013 and 2014. E) Calculate the company's return on shareholders' equity for 2013 and 2014.

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B) Increase in share capital - comm...

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Question 2

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For which of the following organizations would the market value of the entity be readily available?

A) A public company
B) A private company
C) A partnership
D) A not-for-profit organization

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Question 3

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Fort Saskatchewan Ltd.is choosing between paying out a stock dividend or a cash dividend.What will be the effect on their current ratio of the two choices? $\begin{array}{ll}&\text { Stock } & \text { Cash } \\&\text { Dividend } & \text { Dividend }\\\hline A.&\text { Unchanged } & \text { Unchanged } \\B.&\text { Unchanged } & \text { Decreased } \\C.&\text { Decreased } & \text { Unchanged } \\D.&\text { Decreased } & \text { Decreased }\end{array}$

Which of the following actions does a company undertake if they want to distribute money to shareholders from the profits earned?

During 2014, Airdrie Company discovered that in 2013 they had forgotten to record depreciation expense of $12,500 on office equipment.What journal entry would they make in 2014? (You may ignore any income tax effects.) A. Dr. Office equipment $\quad 12,500$ Cr. Accumulated depreciation $\quad 12,500$ B. Dr. Retained earnings 12,500 Cr. Accumulated depreciation $\quad 12,500$ C. Dr. Depreciation expense $\quad 12,500$ Cr. Accumulated depreciation $\quad 12,500$ D. Dr. Accumulated depreciation $\quad 12,500$ Cr. Retained earnings $\quad 12,500$

If a company is using leverage successfully, which of the following will result?

Lloydminster Ltd.issued 1,000 stock options to its president when their shares were trading in the market at $20.The exercise price was $22, and the market price when they were exercised was $25.What was the cost borne by the other shareholders when the options were issued?

Which of the following best describes non-participating preferred shares?

Colborne Co.requires a $500,000 investment on which the partners expect to earn $25,000 before considering the cost of financing.The after-tax cost of debt is 6%.If the company decides to finance one-half of the investment with debt, how much greater will the returns to the shareholders be?

Which of the following is an example of a hybrid security?

Which of the following preferred share characteristics allow the issuer to exchange their preferred shares for common shares?

If a company declares a stock dividend, what is the effect on the shareholders' equity section and the ownership position of an individual shareholder? $\begin{array}{ll}&\text { Shareholder's } & \text { Individual } \\&\text { Equity Section } & \text { Ownership Position }\\\hline A.&\text { Unchanged } & \text { Unchanged } \\B.&\text { Unchanged } & \text { Increased } \\C.&\text { Decreased } & \text { Unchanged } \\D.&\text { Decreased } & \text { Increased }\end{array}$

When should cash dividends be recorded?

Which of the following preferred share characteristics allow the shareholder to have increases in their dividends above the stated amount?

A company has a tax rate of 40%.Leverage would be beneficial for the company for each of the following combinations of interest rates and ROA except: $\begin{array}{lll}&\text { Interest rate }&ROA\\\text { A) } & 4 \% & 6 \% \\\text { B) } & 7 \% & 6 \% \\\text { C) } & 14 \% & 10 \% \\\text { D) } & 16 \% & 10 \%\end{array}$

Grand Prairie Company had an unrealized gain on their available-for-sale assets from changes in the market price of the securities.This gain was not included in their net income for the year.Where would it be included in the shareholders' equity section?

Retained earnings would require adjustment for each of the following except:

Lloydminster Ltd.issued 1,000 stock options to its president when their shares were trading in the market at $20.The exercise price was $22, and the market price when they were exercised was $25.How much money did the company receive from the transaction?

When property is distributed as a dividend, when should the assets be re-valued to their market value?

If a company declares a stock dividend, what is the effect on their retained earnings and earnings per share? $\begin{array}{ll}&\text { Retained } & \text { Earnings } \\&\text { Earnings } & \text { per Share }\\\hlineA.&\text { Unchanged } & \text { Unchanged } \\B.&\text { Unchanged } & \text { Decreased } \\C.&\text { Decreased } & \text { Unchanged } \\D.&\text { Decreased } & \text { Decreased }\end{array}$