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    Multiple Choice Questions on Financial Accounting

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    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
    $000

    Ordinary shares of $1.00 1000
    8% redeemable preference shares of $1.00 600
    Share premium 100
    Retained Profit 750
    2450

    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
    Information.
    $Million
    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
    Share?

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

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    Solution Preview

    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
    $000

    Ordinary shares of $1.00 1000
    8% redeemable preference shares of $1.00 600
    Share premium 100
    Retained Profit 750
    2450

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

    Capital Redemption Reserves Share Premium Retained Profit
    000 000 000

    A 600 100 nil
    B 600 10 90
    C 750 nil 100
    D 750 10 150

    Premium for preference shares will be 600 X $ 0.25= $ 150
    Share premium is 100 initially. This will reduce to zero as premium is initially paid from this account.
    Answer C

    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 ...

    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.

    $2.49

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