MUHASEBE II - Deneme Sınavı - 6

Usually, the dividend rate on preferred shares is expressed as a percentage of preferred share par value (such as 5%) on the certificate.

The preferred dividend is calculated as follow: The preferred dividend = Outstanding preferred shares x Par value x Preferred dividend rate

50,000 x 10 x 5% = 25,000 TL

Then the common dividend amount is calculated just by subtracting the preferred dividend. Then the remaining amount will be the common share dividend amount:

200.000- 40.000 = 160.000

The second popular way to distributing dividends to the shareholders is to share dividends. In this case, the distributed item is different than cash dividends. Share dividend is a distribution of a corporation’s own shares to the shareholders as dividend. The correct answer is C.

A Comprehensive income is all changes in the shareholders’ equity from all sources except owners’ investments and dividends.Comprehensive income components are as follows:14 • Unrealized gains or losses • Foreign-currency translation adjustments • Gains (losses) from post-retirement benefit plans • Deferred gains (losses) derivatives. The correct answer is A.

By some ratios, the relationship between shareholders’ equity items, their positions, results, and effects can be understood clearly. Thus the information on the financial statements can be used in some decision making processes.One of the ratios that is used for analysis is the Return on Equity (ROE). It measures a corporation’s profitability by presenting how much profit it generates with each item (TL) of shareholders’ equity. The correct answer is B.

Book value per share ratio is used to calculate the per share value of a corporation. In other words, it represents the amount of the owner’s equity on the corporation’s books for each common share. The correct answer is A.

Large share dividends: These are the dividends which are greater than 20%–25% of the corporation’s issued shares. These types of dividends are rare. But, if a corporation decides on a large share dividend, par value or stated value should be used to record related transactions instead of market value because of the possible important effect of this transaction on the market price of the shares. The correct answer is B.

Retained earnings represents the amount earned through profitable operations of a corporation and that is kept in the corporation. In other words, it is the earned amount which is not distributed to the shareholders as dividends.

The distributions from the earnings to the shareholders is named as dividends.

Retained earnings account’s credit balance indicates that the corporation’s lifetime earnings exceed lifetime losses and dividends

Retained earnings account’s credit balance indicates that the corporation’s lifetime earnings exceed lifetime losses and dividends.

1.000.000 - 200.000 - 700.000 = 100.000

If a corporation wants to pay cash dividends, three conditions required are as follows:

1. Sufficient retained earnings
2. Adequate cash
3. Declared dividends by the board of directors

The preferred dividend = Outstanding preferred shares x Par value x Preferred dividend rate

50,000 x 30 x 10% = 150,000 TL

A cumulative preferred share is a preferred share that can also receive all dividends in arrears while receiving a new preferred dividend.

Share dividend is a distribution of a corporation’s own shares to the shareholders as dividends.

To record the declaration of a small share dividend with its market value, the Retained Earnings account should be debited for market value. A shareholders’ equity account named Common Share Dividend Distributable is credited with the par or stated value and Paid-in Capital in Excess of Par is credited with the remaining amount.

Comprehensive income components are as follows:

• Unrealized gains or losses
• Foreign-currency translation adjustments
• Gains (losses) from post-retirement benefit plans
• Deferred gains (losses) derivatives.

The first source of shareholders’ equity part is Paid-in Capital which was discussed in the previous chapter. The second one is Retained Earnings that represents the amount earned through profitable operations of a corporation that keeps in the corporation.

Retained earnings represents the amount of the assets that generated through profitable operations of corporations and not distributed to the shareholders in the form of dividend. It means corporations retain some part of their net income in the corporation is internally generated equity because it results from corporate decisions to retain net income to be used in future operations or for expansion.

If a corporation wants to pay cash dividends, three conditions are as follows: