15 FinanAcc Session 1-2

How is equity defined in the Statement of Financial Position?

• Equity = Assets - Revenues

• Equity = Assets - Liabilities

• Equity = Liabilities - Assets

• Equity = Capital - Retained Earnings

PT Alpha issues 1,000 shares of €1 par value ordinary shares at €5 per share. The share premium recognized is:

• €1,000

• €5,000

• €4,000

• €6,000

Preference shares are classified as equity only if:

• They must be redeemed at a fixed date

• The issuer has a contractual obligation to deliver cash

• They have discretionary dividends and no obligation to redeem

• They always have priority over ordinary shares

PT Beta buys back 500 shares as treasury shares. Treasury shares are:

• Recorded as assets

• Recorded as liabilities

• Deducted from equity

• Included in OCI

PT Gamma declares a cash dividend of €20,000. At declaration date the company records:

• Debit Dividends Expense €20,000; Credit Cash

• Debit Retained Earnings €20,000; Credit Dividends Payable

• Debit OCI €20,000; Credit Cash

• Debit Liabilities €20,000; Credit OCI

PT Delta issues shares in exchange for equipment with fair value €50,000 and no reliable market value for the shares. The requires recording at:

• Share par value

• Equipment carrying amount

• Equipment fair value

• Share stated value

A company issues rights issue that allows existing shareholders to purchase additional shares. How are proceeds allocated?

• Entirely to Retained Earnings

• Between Share Capital and Share Premium

• Entirely to Liabilities

• To OCI

PT Omega issues convertible bonds (liability + equity feature). The proceeds are:

• Entirely liability

• Entirely equity

• Split into liability and equity components

• Recognized as OCI

PT Sigma declares a 10% stock dividend (ordinary shares €1 par, market €10). The transfer from Retained Earnings is:

• At par value (€1 per share)

• At fair value (€10 per share)

• At book value of shares

• At zero (no entry)

If PT Zeta performs a 2-for-1 share split, the impact is:

• Increase in equity

• Reduction in equity

• No change in total equity

• Increase in OCI