10.5-5 When a company has both ordinary shares and preference shares outstanding, the book value of
the ordinary shares is calculated by dividing total shareholders’ equity less preference equity by
the number of ordinary shares outstanding.
10.5-6 The price a person can buy or sell one company’s shares for is called the:
A) book value.
B) market value.
C) historical value.
D) liquidation value.
10.5-7 The amount of owners’ equity attributable to each share is known as the:
A) book value per share.
B) market value per share.
C) earnings per share.
D) liquidation value per share.
10.5-8 The amount that a company must pay a preference shareholder in the event the company goes out
of business is the:
A) liquidation value.
B) market value.
C) redemption value.
D) book value.
10.5-9 When a company has both ordinary shares and preference shares, the book value per share of
ordinary shares is calculated by:
A) dividing the amount in the ordinary shares account by the number of ordinary shares
outstanding.
B) dividing the amount in the ordinary shares account by the sum of the number of ordinary
shares and preference shares outstanding.
C) dividing total shareholders’ equity less preference equity by the number of ordinary shares
outstanding.
D) dividing total shareholders’ equity by the number of ordinary shares outstanding.
10.5-10 The price the corporation agrees to pay to repurchase its preference shares, which
is set when the shares is issued, is called the:
A) book value.
B) redemption value.
C) fair market value.
D) callable value.
10.5-11 Jazzy Corporation’s shareholders’ equity section of the balance sheet reports: Ordinary shares
($10 par value, 50,000 shares authorized, 15,000 shares issued) $150,000; Paid-in Capital in
Excess of Par Value–Ordinary $50,000; Retained Earnings, $300,000. The book value per share
for ordinary shares is:
A) $10.00.
B) $13.33.
C) $20.00.
D) $33.33.
10.5-12 Preference shares that require the company to redeem the shares at a set price are called:
A) callable preference shares.
B) preference shares.
C) convertible preference shares.
D) redeemable preference shares.
10.6-1 To compare companies of different sizes, investors use standard profitability measures, including return
on assets and return on equity.
10.6-2 The rate of return on ordinary shareholders’ equity is calculated by dividing net income plus
preference dividends by average ordinary shareholders’ equity.
10.6-3 The rate of return on capital assets is a measure of the firm’s profitability.
10.6-4 Return on equity is only computed on ordinary shares because the return to preference
shareholders is the specified dividend expressed as a percentage or a fixed dollar amount.
10.6-5 An investor who wishes to know whether a company is successful in using its assets to earn
income for the individuals who finance the business should review the:
A) times-interest ratio earned.
B) earnings per share.
C) return on assets.
D) return on equity.
10.6-6 Return on equity is a ratio that:
A) shows the relationship between net income available for ordinary shareholders and
average ordinary shareholders’ equity.
B) is calculated by dividing net income plus preference dividends by average ordinary
shareholders’ equity.
C) cannot be calculated if the company has preference shares in addition to ordinary shares.
D) incorporates both A and B.
10.6-7 Which of the following assesses a company’s profitability by focusing on the relationship
between net income and average ordinary shareholders’ equity?
A) Net profit ratio
B) Return on equity
C) Earnings per share
D) Return on assets
10.6-8 The return to the two groups who finance the business is also the numerator in the return on
assets ratio. These are:
A) ordinary dividends and preference dividends.
B) interest and net income.
C) net income and preference dividends.
D) none of the above.
10.6-9 The formula for the rate of return on total assets ratio is:
A) net income less interest expense divided by total assets at the end of the year.
B) net income plus interest expense divided by total assets at the end of the year.
C) net income plus interest expense divided by average total assets.
D) net income less interest expense divided by average total assets.
10.6-10 For a successful company:
A) return on assets is always higher than return on equity.
B) return on equity is always higher than return on assets.
C) return on equity is the same as return on assets.
D) there is no relationship between the two ratios.
10.6-11 The following information is available for Louisville Limestone Corporation for the
current year:
Net Income
$160,000
Preference dividends
30,000
Interest expense
18,000
Beginning of year:
Total assets
900,000
Total liabilities
300,000
Total ordinary shareholders’ equity
375,000
End of year:
Total assets
950,000
Total liabilities
350,000
Total ordinary shareholders’ equity
400,000
The return on assets for Louisville Limestone Corporation is:
A) 17.30%.
B) 18.70%.
C) 19.80%.
D) 19.24%.
10.6-12 The following information is available for Louisville Limestone Corporation for the
current year:
Net Income
$160,000
Preference dividends
30,000
Interest expense
18,000
Beginning of year:
Total assets
900,000
Total liabilities
300,000
Total ordinary shareholders’ equity
375,000
End of year:
Total assets
950,000
Total liabilities
350,000
Total ordinary shareholders’ equity
400,000
The return on equity for Louisville Limestone Corporation is:
A) 32.55%.
B) 33.55%.
C) 41.30%.
D) 49%.
10.7-1 A share dividend appears on the statement of cash flows as a financing activity.
10.7-2 A stock split does not appear on the statement of cash flows.
10.7-3 On a “real-world” balance sheet, all additional paid-in capital typically appears as a single amount
labeled “Additional Paid-in Capital.”
10.7-4 The purchase of treasury shares would appear as a cash outflow in the financing activities section on a
statement of cash flows.
10.7-5 Proceeds from the issuance of shares appear in which, if any, section of the statement of cash
flows?
A) They do not appear in the statement of cash flows.
B) They appear in the operating activities section.
C) They appear in the financing activities section.
D) They appear in the both the operating and financing activities sections.
10.7-6 The issuance of ordinary shares in exchange for cash will:
A) not affect the statement of cash flows.
B) affect the financing activities section of the statement of cash flows.
C) affect the operating activities section of the statement of cash flows.
D) affect the investing activities section of the statement of cash flows.
10.7-7 The reissuance of treasury shares at a price above its cost is reported in the statement of cash
flows:
A) operating activities section.
B) investing activities section.
C) financing activities section.
D) financing and operating activities sections.
10.7-8 Share dividends distributed appear in which, if any, sections of the statement of cash flows?
A) Financing and investing activities sections
B) Operating activities section
C) Operating and investing activities sections
D) Does not appear anywhere in the statement of cash flows
10.7-9 Because a company is dealing with its owners, on the statement of cash flows, equity transactions
are:
A) financing activities.
B) operating activities.
C) investing activities.
D) not part of the statement of cash flows.
10.7-10 On a balance sheet, which items need to be disclosed for ordinary shares?
A) Par value
B) Number of shares authorized
C) Number of shares issued
D) All of the above