...QUIZ QUESTIONS SHARE CAPITAL 1. What impact does the bonus issue of shares have on the equity of a company? Why? (1 Mark) 2. Define a share option? (1 Mark) 3. Provide one reason why a company would wish to buy back its own shares? (1 Mark) 4. Distinguish between a renounceable and non-renounceable rights issue? (1 Mark) 5. What is a private placement of shares? (1 mark) 6. Name two reasons why a company could make an appropriation of its retained earnings? (1 Mark) 7. Prepare journal entries to record the following unrelated transactions of a public company: (3 Marks) a) payment of interim dividend of $50,000 b) transfer of $50,000 from the general reserve to retained earnings c) payment of 100,000 bonus shares fully paid at $2 per share from retained earnings. 8. The equity of Master Shipping Ltd on 30 June 2009 consisted of: 280,000 ordinary shares, issued at $2.40 each, called to $2.40 $672,000 Calls in arrears (24,000 shares x 80c) ($19,200) The directors forfeited the shares on which the call was outstanding. The company’s constitution provides that forfeited shares cannot be reissued and that the balance of any forfeited amounts, net of reissue costs, must be refunded to the former shareholders. Refund cheques were sent to shareholders. Prepare journal entries to record a) forfeiture of shares b) refund of forfeited amounts to shareholders...
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...TOPIC: ANALYSIS OF EQUITY SHARE CAPITAL AS A SOURCE OF FINANCE IN AN ORGANISATION RESEARCH PAPERS The 2 research papers under study are 1. The effect of CEO ownership and shareholder rights on cost of equity share capital. 2. What motivates seasoned equity offerings? Evidence from the use of issue proceeds. COST OF EQUITY CAPITAL AND ITS EFFECTS TO THE MANAGEMENT Introduction This paper investigates the cost of equity capital and its effects to the management which intends to hinder shareholders right. The purpose of which is to investigate whether managerial ownership affects the associations between the shareholders rights and the cost of equity capital. There are two variables in the article which can be clearly identified. The variables are; 1) The shareholders rights and 2) The cost of the equity capital. 1) THE SHAREHOLDERS Shareholders should have the right to discipline the managers, who are the employees of the organization, in the case of the mismanagement or the improper use of the funds. The shareholders have right to demand for the success of the organization through competing aggressively in order to gain profitability. The shareholders have right to elect and remove the management from the office and also to access or evaluate the books of accounts of the organization. 2) COST OF EQUITY CAPITAL Rate of return of equity Current market price and the nominal value of equity capital CONCEPTUAL FRAMEWORK THE AGENCY PROBLEMS: THE MANAGEMENT...
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...1. Property of the company belongs to a) Company b) Share holders c) Members d) Promoters 2. Which company shares can be freely transferable 3. Private Company b) Public Company c) Both (a) & (b) d) None of the above 4. Minimum number of members in case of public company b) 1 b) 2 c) 5 d) 7 5. Minimum number of members in case of private company is c) 1 b) 2 c) 3 d) 6. Maximum no. of members in case of private company is d) 50 b) 100 c) 150 d) 200 7. Maximum no .of members in case of public company is 1) 0 b) unlimited c) 50 d) 100 8. How many months did the company can continue its business u/s 45 _______ e) 1 b) 2 c) 5 d) 6 9. If minimum subscription is not received application money should be refunded with in ______days 20 b) 25 c) 30 d) 10 10. Liability of a member in case of a private company is f) Limited b) Unlimited c) Both (a) or (b) d) None of the above 11. Maximum no. of persons in case of partnership banking business ______ g) 10 b) 20 c) 30 d) 5 12. Minimum paid up share capital in case of a private company is _______ h) 1 Lakh b) 2 Lakhs c) 3 Lakhs d) 4 Lakhs 13. Minimum paid up share capital in case of a public company is ________ i) 1 Lakh b) 3 Lakhs c) 5 Lakhs d) 7 Lakhs 14. Minimum no. of Directors in case of a public company is __________ j) 1 b) 2 c) 3 d) 4 15. Minimum no. of Directors in case of private company is _______ ...
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...Facebook Prospectus Project Review the Facebook Prospectus and answer the following questions. 1. How many total shares of stock are being offered by Facebook? -180,000,00 2. How many shares are new shares, and how many are existing shares being sold by current shareholders? -421,233,615 3. Describe the classes of shares, and the voting rights the shares will have. * Shares of Class A common stock are entitled to one vote per share. * Shares of Class B common stock are entitled to ten votes per share 4. Which class of stockholders will hold control of the company? -Class B 5. Does any one shareholder have control of the company? If so…who? -A dual class common stock holder 6. On which exchange will Facebook be traded? NYSE 7. At what price is the stock offered to the public? - $38.00 per share 8. What is the Underwriters Commission? * Underwriting commission is the compensation that an underwriter receives for placing a new issue with investors. It is the fee which an investment banker charges for underwriting a security issue 9. What are the net proceeds expected by Facebook. - $998 million 10. What investment banks make up the Underwriting Syndicate? * ALLEN & COMPANY LLC CITIGROUP CREDIT SUISSE * DEUTSCHE BANK SECURITIES RBC CAPITAL MARKETS * WELLS FARGOSECURITIE 11. Review the risk factors. Which 3 or 4 cause you the greatest concern? If we fail to retain existing users...
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...Balance sheet: stockholder's section ACC/545 March 09, 2015 Brooke Call Balance Sheet: stockholder's section Treasury stock Treasury stock is the portion of the shares that a company keeps in their own treasury. Companies acquire treasury stock for the following reasons (1) to offset the dilution from the issuance of stock, (2) to provide shares to meet stock- based compensation, (3) to combat a hostile takeover, (4) to increase earnings per share and to reduce future cash dividends. There are two methods to account for treasury stock, (1) the cost method, which records the treasury stock account at cost of shares reacquired and (2) Par value method which records the treasury stock account at the par value of shares reacquired. Treasury stock is location on the balance sheet. Example of cost method journal entry Purchases 200 shares of treasury stock for 25 a share Treasury stock (cost) 200x $25 5,000 Cash 5,000 Retained earnings The capital that is generated as profit by an organizations business transactions has to be accounted for, management has one of two choices: either pay a cash dividend to their shareholders or retain the earnings to reinvest in the business. Once management makes the decision to retain earnings the earnings have to be accounted for on the balance sheet under shareholder equity. This entry into shareholder equity allows the shareholder to see the historical record of...
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...there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving...
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...with major – milestones in the growth and evolution of our company. We completed the successful integration of NBCUniversal businesses: That having scale in both content and distribution will enable Comcast to capitalize on trends in technology and consumer behavior and drive growth for years to come. What discontinued operations at Comcast: Comcast has discontinued the Soapnet promotional offer as of March.22, 2012 on most cable and satellite providers and replacing it with The Disney Junior Channel. What were some extraordinary gains and losses at Comcast? Comcast reports in the 3rd quarter of 2012 results consolidated revenue increased 15.4% operating cash flow increased 9.5% , and operating income increased 15.4% earnings per share increased 136.4% to $0.78; excluding gains on assets sales, EPS increased 39.4% to $0.46 Free cash flow increased 8.8% to $1.5 billion. For the ninth months ended September 30, 2012, consolidated pro forma revenue increased 9.4% to $46.6 billion compared to $42.6 billion in 2011. Excluding the Super Bowl in the First Quarter and The Olympics in the Third Quarter of 2012, consolidated pro forma revenue increased 6.0%. Consolidated pro forma operating cash flow increased 6.4 % to $14.7 billion compared to $13. 8 billion in the first nine months of 2011. Excluding The Olympics, consolidated operating cash flow increased 5.6%. What was the net income or net loss at Comcast? Comcast’s net income rose to $1.35 B this year of Aug.2012...
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...A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $4 per share and sells for $48. a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? Initial selling price 40 Dividend 4 Selling price of stock after dividend 48 a. Total rate of return 30.00% b. Dividend Yield 10.00% % capital gain 20.00% You purchase 100 shares of stock for $50 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment for the end-of-year stock prices listed below? What is your real (inflation-adjusted) rate of return? Assume an inflation rate of 3%. Purchase value 100 shares 50 Rate of Return Real Rate of Return Dividend at end of year 2 a. 48 0% -2.91% Inflation 0.03 50 4% 0.97% 54 12% 8.74% Value to cover inflation part a 51.5 Ending value part a 50 ending value part b 52 Ending value part c 56 Here are stock market and Treasury bill percentage returns between 2006 and 2010: Year Stock market return T-bill return 2006 17.27 6.3 10.97 7.1040 50 2007 7.41 6.06 1.35 -2.5160 6.33 2008 -38.83 1.8 -40.63 -44.4960 1980 2009 29.7 0.9 28.8 24.9340 622 2010 19.36 0.52 18.84 14.9740 224 2883 a. What was the risk premium on common stock in each year? Year...
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..."a managing director means a director who, by virtue of an agreement with the company or of a resolution passed by the company in a general meeting or by its board of directors or, by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management, which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called." Shareholder and member: The word 'shareholder' is used in relation to a company having a share capital and there can be no membership except through the medium of shareholding. A holder of shares becomes a member only when his name is entered on the register of members. But the term 'member' is wider in scope and may be used in relation to all types of company. A person may become a member of a company without holding any share. Companies limited by guarantee or unlimited companies which may not have share capital, and therefore can have no shareholders but they do have members. 163 6.13 SELF ASSESSMENT QUESTIONS 1. "Members includes shareholder while shareholder does not include member". Comment. 2. Who may become a member of a company? How to become member of a company ? What are the ways of cessation of membership? Discuss in detail. 3. How and what way are the directors of a company are appointed ? 4. Who are the persons who may not be appointed as directors? Can central government remove their disqualifications? 6.14 REFERENCES/SUGGESTED...
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... Summary of the financial figures in Table Exhibit 2 show that the gross sales are almost stagnant over the 3-year period, earnings per share have steadily declined during the same time period, and the market value of shareholder’s equity is at the moment lower than its actual book value. Furthermore, the net income is also down over this 3-year period, and this is where Pan-Europa needs to focus its efforts (capital projects should assist in this effort). Earnings per share, dividends, and shareholders’ equity all fuelled by increase in net income will become critically important to the company and its shareholders in this coming year. Increase in net income would in turn strengthen the shareholders’ equity, earnings per share and dividends, and this would discourage buying shares by those considering a hostile takeover. Trudi Lauf as a proponent of reducing leverage on the balance sheet and understanding the shareholders anxiety should lead the way of Pan-Europa. ___________________________________________________________________________ Question 2: There are three NPV – NPV at Corp WACC (10,5%), NPV at minimum ROR and equivalent annuity. Ranking all projects against each of this category provides slightly different results. However, I used NPV at Corp WACC (10,5%) as this includes the most recent estimated weighted-average cost of capital for Pan-Europa. The results are in the table below: Rank 1 2 3 4 5 6 7 8 9 10 Project Strategic acquisition Market expansion eastward Market...
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...even lower now than it was a year ago. Its net debt (total debt minus cash on hand) at the end of its last quarter was $345.10 million, a fraction of its $989.60 million in EBITDA. This ratio fell by an impressive 114.42% from the year earlier period, when EBITDA was $789.80 million. This situation affords the company many attractive options such as pursuing acquisitions without incurring much debt or rewarding shareholders through dividends or the repurchase of common shares, which would make future earnings more valuable. Despite this reduction in net debt, the company's total debt as a percentage of total capital actually increased over the same twelve month period, while its cash on hand fell. In its last quarter total debt accounted for 29.53% of total capital compared to 9.61% in the year earlier quarter while cash on hand fell from $2.46 billion to $1.70 billion, a 30.77% drop. This suggests Starbucks Corporation has been using its cash reserves to pursue strategic purposes such as aquisitions or share repurshases rather than debt reduction, which isn't necessarily a bad option as long as such moves contribute to future growth instead of constraining the company's...
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...= 2.14 or 170 days Gross profit = 53.6% Current ratio = 0.88:1 Out and About have a very low gearing ratio, of only 35.9%. A gearing ratio of 35.9% means that for every 100 pounds invested in this firm, only £35.90 is borrowed money. This could result in the potential for further borrowing because the ratio is very low. The higher the level of borrowing, the higher the risks to a business, since the payment interest and repayment of debts are not optional in the same way as dividends. The ratio indicates that a significant proportion of the 14 million could be borrowed, as Out and About seem to be a well-established business that would be financially stable to finance its activities using debt. Out and About plc could raise their capital because the gearing uses long-term debt, which is normally cheap, and reduces the amount that shareholders have to interest in the business. An advantage is that it will reduce interest payments, so more investment can occur elsewhere and the firm can have more cash flow to take on bigger and potentially more profitable projects. This would be helpful in the consideration of extending and diversifying their business. However, the poor profitability and liquidity problems could deter potential creditors. The current ratio is 0.87:1 and the acid test is 0.47:1. This shows significant liquidity problems, which further relates to the point above. Furthermore, the stock turnover is 2.14 or 170 days. This is very low for this type of business...
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...they are able to make their investors, who in turn spend more money. The owners’ equity discusses the importance that common stockholders and preferred stockholders require in a company. The stockholders are the entities who have paid-in capital to a company to offer the investment planned to be used for operations of the company. In the next paragraph it will be explained the meaning of maintained the paid-in capital detached from earned capital. Also, an investigation of how important can be the paid-in capital or earned capital to an investor; and from the investor point of view, the basic or diluted earnings per share is the most important. To further understand owners’ equity, the importance to keep paid-in capital independent from earned capital. Which is more important as an investor, paid-in capital or earned capital? Last which is more important as an investor, basic or diluted earnings per share will be discussed. The importance to keep paid-in capital separate from earned capital is so investors can decide between the two. Paid-in capital is important to organizations, because investors need to be able to see that the company is able to meet obligations through operations alone, and their ability to pay dividends. Paid-in capital is money that the company has...
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...by VAFLA from bank and was guaranteed by the shareholder-guarantors. VAFLA made all of the loan payments, principals and interest to the bank and the appellants did not. Neither VAFLA nor the shareholder-guarantors treated the loan as constructive income taxable to the shareholder-guarantors. Because the bank lent the loan to the shareholder-guarantors and then they contributed the funds to the corporation, the appellants present that the loan is a capital contribution from appellants to VAFLA. If it is characterized as equity, they should be entitled to add a pro rata share of the loan to their adjusted basis. The Tax Court disallowed such increase in basis. Issues: The issue is whether the shareholder-guarantors should add a pro rata share of the loan to their adjusted basis and deduct operating losses to the extent of the basis. Court holdings: U.S Court of Appeals affirmed the Tax Court decision, concluding that shareholders’ basis in stock wasn’t increased by personal guarantees given as collateral and proportionate shares of NOL was limited to initial investment. Analysis and Discussion: To increase the basis in the stock of an S corporation, there must be an economic outlay on the part of the shareholder. A guarantee itself cannot fulfill that requirement. VAFLA made all the payments to the bank and the appellants have not experienced no cost and thus no economic outlay. If VAFLA had defaulted and the shareholder-guarantors made actual disbursements on the...
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...of each item is shown after every transaction. Assets Liabilities Stockholders’ Equity Accounts Capital Fees Wages Rent Supplies Utilities Misc. Cash Supp. Land Payable Stock Dividends Earned Exp. Exp. Exp. Exp. Exp. a. 25,000 25,000 b. 20,000 20,000 Bal. 5,000 20,000 25,000 c. 1,350 1,350 Bal. 5,000 1,350 20,000 1,350 25,000 d. 7,500 7,500 Bal. 12,500 1,350 20,000 1,350 25,000 7,500 e. 3,650 2,125 800 450 275 Bal. 8,850 1,350 20,000 1,350 25,000 7,500 2,125 800 450 275 f. 950 950 Bal. 7,900 1,350 20,000 400 25,000 7,500 2,125 800 450 275 g. 800 800 Bal. 7,900 550 20,000 400 25,000 7,500 2,125 800 800 450 275 h. 2,000 2,000 Bal. 5,900 550 20,000 400 25,000 2,000 7,500 2,125 800 800 450 275 Nov. 30, 2009 NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends. Copyright 2009 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to:Chapter 1 Introduction to Accounting and Business 15 You should note the following in the preceding summary: 1. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements. 2. The two sides of the accounting equation are always equal. 3. The stockholders’ equity (owner’s equity) is increased by amounts invested by stockholders (capital stock). 4. The stockholders’ equity (owner’s equity) is increased by revenues and decreased by expenses...
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