Chapter 7 Self-test questions

The financing of business
. Which of the following are advantages of preference shares? Please select all that apply.

. Ciara Limited has preference share capital of £200,000 and ordinary share capital of £100,000. The preference shares have a par value of £1 each and the ordinary shares have a par value of 25 pence each. The rate of preference dividend is 6%. During the financial year to 30 September 2021, Ciara Limited paid an interim dividend of 3 pence on each ordinary share and a final dividend of 8 pence on each ordinary share. What is the total dividend paid by Ciara Limited in the year ended 30 September 2021?

. The rights of existing shareholders to subscribe for new issues of shares are known as _______________.

. A company that has retained losses and a negative balance on retained earnings can still pay a dividend to its shareholders.

. Bonus issues capitalise reserves while rights issues raise new cash.

. Elisha Limited makes a share issue to raise cash. The company issues 200,000 ordinary shares with a par value of 20 pence at a premium of 30 pence each and 50,000 preference shares with a par value of 50 pence at a premium of 10 pence each. How much cash did Elisha Limited raise from the share issue?

. Which of the following are limitations of ordinary shares? Please select all that apply.

. A dividend is a _____________ not an expense.

. A company issues £100,000 preference shares with a par value of £1 which carry a dividend rate of 8%. This means that the preference shareholders are entitled to receive 8% of the profits made by the company.

. Which of the following sources of finance are available to private limited companies? Please select all that apply.

. Hazy plc wishes to make a bonus issue of ordinary shares to existing shareholders to capitalize retained earnings of £4,000,000. The current share price of Hazy plc is £4.00 and the par value of ordinary shares in Hazy plc is £0.50. How many bonus shares will Hazy plc have to issue in order to capitalize £4,000,000 of retained earnings?

. Which of the following are features of rights issues? Please select all that apply.

. At 1 December 2020, Henry Limited had retained earnings of £42,500. Henry Limited's issued share capital is made up of £300,000 of ordinary share capital and 200,000 £1 preference shares which carry a dividend rate of 5%. The ordinary shares have a par value of 60 pence each. During the year ended 30 November 2021, Henry Limited made a profit for the year of £122,000 and paid an ordinary dividend of 10 pence per share. What is the balance on Henry Limited's retained earnings at 30 November 2021?

. A bonus issue is the issue of new shares to existing shareholders at a discount to the current market price.

. Tiddler Limited has issued share capital of £800,000 made up of £500,000 of ordinary shares of 25 pence and £300,000 of preference shares of 50 pence each. The preference shares carry a dividend rate of 6%. Total dividends both preference and ordinary for the year ended 30 September 2021 were £118,000. What was the dividend per ordinary share paid by Tiddler Limited for the year?

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