Accounting Multiple Choice Question – 12 May 2022

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

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An extract from a company’s statement of financial position showed the following information.

  • issued capital: 2 million ordinary shares of £0.50 each – £1,000,000
  • share premium – £600,000
  • retained earnings – £2,400,000

The directors have agreed to make a bonus issue of 3 ordinary shares for 4 shares held. They wish to maintain reserves in their most flexible (distributable) form.

Which debit entry should be made in the retained earnings account?

Select ONE answer:

  1. £150,000
  2. £750,000
  3. £900,000
  4. £1,500,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

  1. Correct ==> 2,000,000 shares * ¾ = 1,500,000 new shares or £750k  £600K from share premium & balance of £150k from retained earnings.
  2. Not correct
  3. Not correct
  4. Not correct

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