,Chapter 2: Financing company operations
Multiple-choice questions
1. In respect to the issue of shares by companies, which of the following statements is
incorrect?
a. Companies can convert ordinary shares into preference shares.
*b. Companies can only issue ordinary shares.
c. Companies can issue any specified number of shares at any price.
d. Companies can issue both ordinary and preference shares.
Correct answer: b
Learning objective 2.1
2. According to the Corporations Act, when a company issues shares to the public, the
issue price, terms and rights of the shares are determined by:
a. the Australian Securities Exchange.
*b. the company’s directors.
c. the Australian Investments and Securities Commission.
d. the company’s auditors.
Correct answer: b
Learning objective 2.1
3. Before a company issues shares to the public, the company must:
a. register the prospectus with the Australian Accounting Standards Board.
b. first offer the shares to the existing shareholders.
c. register the prospectus with the Australian Securities Exchange.
*d. provide a disclosure document with an application form attached.
Correct answer: d
Learning objective 2.1
, 4. ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of
$2.50 each, payable $1.50 per share on application. The company received applications
for 110 000 shares. Which of the following entries correctly records the application
money?
a. DR Application $165 000
CR Cash trust $165 000
b. DR Cash trust $250 000
CR Application $250 000
*c. DR Cash trust $165 000
CR Application $165 000
d. DR Cash trust $275 000
CR Application $275 000
Correct answer: c
Learning objective 2.1
5. When a company requests a further payment from shareholders of the unpaid amounts
on their shares, it:
*a. makes a call on the shares.
b. makes a further allotment of those shares.
c. converts the shares into debentures.
d. forfeits the shares.
Correct answer: a
Learning objective 2.1
6. Which of the following is the appropriate journal entry to record the cash collected
from applicants for shares before the shares are actually issued?
a. Increase cash trust account: increase share capital account
b. Increase application account: decrease share capital account
c. Increase share capital account: decrease cash trust account
*d. Increase cash trust account: increase application account
Correct answer: d
Learning objective 2.1
Multiple-choice questions
1. In respect to the issue of shares by companies, which of the following statements is
incorrect?
a. Companies can convert ordinary shares into preference shares.
*b. Companies can only issue ordinary shares.
c. Companies can issue any specified number of shares at any price.
d. Companies can issue both ordinary and preference shares.
Correct answer: b
Learning objective 2.1
2. According to the Corporations Act, when a company issues shares to the public, the
issue price, terms and rights of the shares are determined by:
a. the Australian Securities Exchange.
*b. the company’s directors.
c. the Australian Investments and Securities Commission.
d. the company’s auditors.
Correct answer: b
Learning objective 2.1
3. Before a company issues shares to the public, the company must:
a. register the prospectus with the Australian Accounting Standards Board.
b. first offer the shares to the existing shareholders.
c. register the prospectus with the Australian Securities Exchange.
*d. provide a disclosure document with an application form attached.
Correct answer: d
Learning objective 2.1
, 4. ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of
$2.50 each, payable $1.50 per share on application. The company received applications
for 110 000 shares. Which of the following entries correctly records the application
money?
a. DR Application $165 000
CR Cash trust $165 000
b. DR Cash trust $250 000
CR Application $250 000
*c. DR Cash trust $165 000
CR Application $165 000
d. DR Cash trust $275 000
CR Application $275 000
Correct answer: c
Learning objective 2.1
5. When a company requests a further payment from shareholders of the unpaid amounts
on their shares, it:
*a. makes a call on the shares.
b. makes a further allotment of those shares.
c. converts the shares into debentures.
d. forfeits the shares.
Correct answer: a
Learning objective 2.1
6. Which of the following is the appropriate journal entry to record the cash collected
from applicants for shares before the shares are actually issued?
a. Increase cash trust account: increase share capital account
b. Increase application account: decrease share capital account
c. Increase share capital account: decrease cash trust account
*d. Increase cash trust account: increase application account
Correct answer: d
Learning objective 2.1
