293 sample final 1 solutions

293 sample final 1 solutions - SOLUTION TO PRACTISE...

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SOLUTION TO PRACTISE QUESTIONS SCOTT SINCLAIR COMM SECTION 204 Question 1–Share transactions (25 minutes) Boot Camp Inc. was incorporated a few years ago. The main shareholder, who used to be the sole proprietor prior to Boot Camp Inc. being incorporated, was reviewing some income statements for the earlier proprietorship and is confused about some expenses that are present on Boot Camp Inc.’s income statement but were not on the proprietorship’s income statement. a) Specify two expenses that are usually on an incorporated business’s income statement but are not on a proprietorship’s income statement and briefly explain why each is absent from the proprietorship’s income statement. (4 marks) i. First expense: ____ income tax expense ________________________________ Why absent? __ Proprietorship doesn’t pay income tax_ __________________ ii. Second expense: __ Salary for owner ________________________________ Why absent? _____ Owner removes cash by distribution ___________________ b) Shareholders have certain rights as owners of a corporation. These rights may differ depending on the type of shares purchased. Required: List and briefly discuss the general rights of a common shareholder. (4 marks) Common shareholders have the right to share proportionately in the following: (1) Profits and losses of a corporation: This is accomplished through the distribution and receipt of dividends. (2) Management of a corporation: This is accomplished by voting for members of the board of directors. Each common shareholder gets one vote per share. So, the shareholders elect the board that, in turn, hires and fires management. (3) Assets upon liquidation: This is accomplished by establishing an order in which creditors and owners are paid upon liquidation. Common shareholders come last and split any assets remaining in proportion to their relative number of shares. (4) Subsequent issues of shares: This is accomplished by guaranteeing the common shareholder the right to a proportionate share of any new shares (the pre-emptive right). This allows shareholders to maintain their ownership interest. 1
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Question 1 –Share transactions (25 minutes) continued a) Identify three requirements that normally must be satisfied before the declaration of a cash dividend. (3 marks) ! Must have cash ! Must have retained earnings ! Must have Board of Directors approval ! b) On December 31, 2004 Canadian Cheese Company had the following shareholders’ equity balances: Preferred shares- $5 cumulative redeemable preferred shares, 250,000 authorized, 30,000 issued and outstanding $ 2,400,000 (1 year of dividends in arrears) Common shares- unlimited authorized, 225,000 issued $ 1,125,000 Retained earnings $ 750,000 $ 4,275,000 The following transactions took place in 2005: i) On January 12, 2005, 125,000 common shares were issued at $15 each and 25,000 preferred shares at $80 per share. ii)
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This note was uploaded on 05/03/2010 for the course COMM 293 taught by Professor Jackes during the Winter '08 term at UBC.

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293 sample final 1 solutions - SOLUTION TO PRACTISE...

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