Multiple Choice Questions on Financial Accounting

Q1.A Company has decided to redeem its preference shares at a premium of
$ 0.25. The preference shares were originally issued at $ 1.15 each.

Prior to the redemption the company's Balance Sheet showed the following

Ordinary shares of $1.00 1000
8% redeemable preference shares of $1.00 600
Share premium 100
Retained Profit 750

How will the reserves appear in the Balance Sheet after the preference shares
Have been redeemed?

Q2 Y ltd purchases the business of J Brown by issuing $1 shares at a premium
Of $0.20. Y ltd agrees to take over J Browns assets and liabilities at the date
Of the acquisition as follows
Fixed assets $150,000
Current assets $ 75000
Creditors $ 5000
Bank loan $20,000

Goodwill is valued at $10,000

How many shares will J Brown receive from Y ltd?

A 158000 B 175000 C 200,000 D 210,000

Q3. The following data is available for XYZ plc

Issued Ordinary shares $1000,000
Nominal value per share $ 1.00
Market value per share $ 2.30
Net profit after taxation $200,000
Retained earnings % of
Net profit after 50

What is the net dividend yield?

A 4.35% B 8.7% C 10% D 20%

Q4.The table shows the capital structure of a company

100,000 Ordinary shares of $ 1 each 100,000

10% debentures 50,000
Reserves 100,000

It increases the debentures by $50,000 and makes a bonus issue of one share for
Every two held. It then makes a rights issue of a further 100,000 shares at $ 1.00

How will these transactions affect the Balance sheet?

Gearing reserves bank
A decrease decrease decrease
B Increase decrease decrease
C increase decrease increase
D decrease increase increase

Q5 A Company's debtors total $27000. There is a collection period of 30 days.

The budget for the coming year provides for an increased turnover of
50% with the relevant collection period being increased to 60 days.

What will the year-end debtors be?
A$ 13500 B 27000 C 40500 D 81000

Q6 The standard time for a job is set at 50 hours. The standard direct labor rate
Is $8.00 per hour? The job was completed in 65 hours at a direct lab our
Cost of $455.

What is the direct lab our rate variance?

A. $55 Adverse B $55 favorable C $65 adverse D $65 favorable

Q7 A project has the following net present values

Discount factor 30% 50%
NPV $52000 -$16000

What is the approximate internal rate of return for the project?

A 35% B 38% C 40% D 45%

Q8 A company's published profit and loss account fives the following
Operating profit $ 4000
Interest expense 200
Taxation 1150
Preference dividends 300
Ordinary dividends 1200

What is the profit figure to be used in the calculation of earnings per ordinary

A $1150 Million B $2350 million C$ 2650 Million D $ 3800 Million

(Please see attachment for full question)


Solution Summary

The solution answers 8 Multiple choice questions on redemption of preference shares, reserves, issue of shares at a premium, Goodwill, debentures, collection period, rate variance, NPV, earnings per ordinary shares.