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ACCA Knowledge Level Share Capital and Dividends — practice questions

Explore 5 free Share Capital and Dividends questions in ACCA Knowledge Level Financial Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Share Capital and Dividends questions and exercises with answers

Showing questions 1–5 of 5.

In a corporation, what is the term for the number of shares a corporation is permitted to sell, as set when the shares are first established?Read the answer and worked solution →A corporation issues 1,000 ordinary shares of $10 par value to an engineer for services when the shares' fair market value is $12 per share. What is the credit to share premium?Read the answer and worked solution →On which of the three cash-dividend dates is NO journal entry recorded?Read the answer and worked solution →On the declaration date of a cash dividend, which journal entry is recorded?Read the answer and worked solution →Why are no cash dividends paid on treasury shares?Read the answer and worked solution →

Worked practice questions

In a corporation, what is the term for the number of shares a corporation is permitted to sell, as set when the shares are first established?

  1. Shares authorised
  2. Shares issued
  3. Shares outstanding
  4. Treasury shares
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Correct answer: A. Shares authorised

1. Authorised shares are the maximum a corporation may legally sell, like a credit-card limit. 2. Issued shares are those actually sold to investors for the first time. 3. Outstanding shares are issued shares minus treasury shares held back. 4. Therefore the permitted maximum is the shares authorised. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.2 "Corporations and Stockholders' Equity", p.246_

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A corporation issues 1,000 ordinary shares of $10 par value to an engineer for services when the shares' fair market value is $12 per share. What is the credit to share premium?

  1. $10,000
  2. $12,000
  3. $2,000
  4. $1,000
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Correct answer: C. $2,000

1. The service is recorded at the shares' fair value: $12 \times 1{,}000 = \$12{,}000$. 2. Share capital is credited at par: $10 \times 1{,}000 = \$10{,}000$. 3. Share premium = total − par = $12{,}000 − \$10{,}000 = \$2{,}000$. 4. The $2,000 represents the $2-per-share excess over par. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Issuing Stock for Non-Cash Assets", p.250_

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On which of the three cash-dividend dates is NO journal entry recorded?

  1. Date of payment
  2. Date of declaration
  3. Date of record
  4. Date of authorisation
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Correct answer: C. Date of record

1. On the declaration date, a liability is created (debit cash dividends, credit dividends payable). 2. On the payment date, the liability is settled (debit dividends payable, credit cash). 3. The record date only fixes who owns the shares; nothing changes in the accounts. 4. Therefore no journal entry is made on the date of record. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.5 "Cash Dividends", p.253_

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