The Multiple Choice Questions Blog

The declaration of a dividend by a company . . . ?

Select ONE answer:

1. reduces the company‘s bank balance.
2. increases the company‘s liabilities.
3. increases the shareholders’ funds in the company.
4. does not affect the shareholders’ funds in the company.

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

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

The answer is 2

1. Not correct – The company’s bank balance will not be reduced until the dividend is actually paid.
2. Correct – The declaration of a dividend means the announcement by the company of its intention to pay the dividend at some future date. Therefore, dividends are not paid for some time after they are declared. Consequently, at the time a dividend is declared it becomes an obligation to pay an amount of money at some future date ie. a liability. It is also shown as an appropriation of profit.
3. Not correct – One of the effects of a company declaring a dividend is to reduce its retained profit (the second is the creation of a current liability). As the balance on the profit and loss account is part of the company’s shareholders’ funds, a reduction in this balance will reduce the company’s shareholders’ funds.
4. Not correct – As for answer C above.

 

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A company has declared a final dividend for the year ended 31 March and proposes to pay it on 10 May.

Which of the following is the correct treatment of this item in the financial statements for the year ended 31 March?

Select ONE answer:

1. Show the amount of the dividend as an expense in the profit and loss account and as a current liability in the balance sheet.
2. Show the amount of the dividend as a deduction in the profit and loss appropriation account and as a current liability in the balance sheet.
3. Show the amount of the dividend as a deduction in the profit and loss appropriation account and reduce the bank balance shown in the balance sheet accordingly.
4. None of the above.

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

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

The answer is 2

1. Not correct – A dividend is an appropriation of profit, not an expense.
2. Correct – Dividends are a share of profit not an expense. As the dividend is not yet paid but will be paid within one year it is a current liability.
3. Not correct – The bank balance won’t be reduced until the dividend is paid.
4. Not correct

 

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A dividend is . . .?

Select ONE answer:

1. a share of a company‘s profit.
2. interest paid on a company‘s borrowings.
3. always paid to banks and other creditors.
4. None of the above.

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 – Dividends are paid by companies to their shareholders (both owners of ordinary shares and owners of preference shares, where applicable) as a return on the investment they have made in the company.
2. Not correct – Interest paid by a company on its borrowings is an expense which is deducted when calculating profit whereas dividends are an appropriation of the profit earned by a company.
3. Not correct – Dividends may be paid by a company to banks and other creditors, but only if they are shareholders in the company.
4. Not correct

 

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The amount of the issued share capital of a company is. . . ?

Select ONE answer:

1. always equal to the amount of its authorised share capital.
2. equal to the amount of its issued preference share capital.
3. equal to the reserves of the company.
4. None of the above.

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 4

1. Not correct – The amount of the issued share capital of a company may be less than, or equal to, the company’s authorised share capital.
2. Not correct – The total issued share capital of a company cannot equal its issued preference share capital, because every company must have at least two ordinary shares.
3. Not correct – There is no relationship between the amount of the issued share capital of a company and its reserves.
4. Correct – The issued share capital of a company is the total amount of share capital, both ordinary share capital and preference share capital, which it has actually sold to shareholders.

 

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A company‘s authorised share capital is. . . ?

Select ONE answer:

1. the amount of share capital the company has issued.
2. the amount of share capital which the directors of the company intend to issue.
3. the amount of share capital stated in the company‘s original Memorandum of Association.
4. the maximum amount of share capital which the company currently has the power to issue.

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

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

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – A company’s authorised share capital can be increased, if the shareholders so approve, by vote.

 

This work is licensed under a Creative Commons Attribution 4.0 International License.