Voting Trusts in Corporate Finance
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Questions and Answers

What is the primary reason financiers seek control through voting trusts?

  • To completely take over the corporation's operations
  • To protect their investment until the corporation recovers (correct)
  • To gain influence over corporate policy decisions
  • To ensure immediate profits from investments
  • Who issues the voting trust certificate after shareholders deposit their shares?

  • The trustee, usually a trust company (correct)
  • The shareholders themselves
  • The corporation's Board of Directors
  • The executive committee of the company
  • What authority do directors have in a corporation?

  • Directors are responsible for auditing company finances.
  • Directors can independently modify share prices.
  • Directors provide day-to-day management of the company.
  • Directors set company policies by passing resolutions. (correct)
  • Which of the following statements about board directors is NOT correct?

    <p>Directors are required to be undischarged bankrupts.</p> Signup and view all the answers

    What role does the trustee play in a voting trust agreement?

    <p>The trustee maintains voting privileges on behalf of the shareholders.</p> Signup and view all the answers

    What is a common characteristic of board committees like executive, finance, and audit committees?

    <p>They are typically formed through directors' resolutions.</p> Signup and view all the answers

    What is the total depreciation charge reported using the straight-line method over the 8 years?

    <p>$90,000</p> Signup and view all the answers

    Which year shows the largest decline in carrying amount in the declining-balance method?

    <p>Year 1</p> Signup and view all the answers

    How does depreciation affect a company's reported net income?

    <p>It reduces net income as a non-cash expense.</p> Signup and view all the answers

    What must be reviewed annually according to the IFRS accounting system?

    <p>Depreciation method, estimated life, and valuations</p> Signup and view all the answers

    What is the carrying amount at the end of Year 6 using the declining-balance method?

    <p>$17,798</p> Signup and view all the answers

    Which of the following best describes the effect of depreciation on cash flow?

    <p>Decreases cash from operations but does not affect cash available.</p> Signup and view all the answers

    What is the main purpose of depreciation in accounting?

    <p>To allocate the cost of an asset over its useful life.</p> Signup and view all the answers

    Which statement regarding non-cash expenses is true?

    <p>They affect the statement of comprehensive income without cash impact.</p> Signup and view all the answers

    What does the statement of changes in equity primarily record?

    <p>Changes to each component of equity, including share capital and retained earnings.</p> Signup and view all the answers

    How are retained earnings affected when dividends are declared?

    <p>Retained earnings decrease by the amount of dividends declared.</p> Signup and view all the answers

    What is depicted in the consolidated statement of changes in equity regarding non-controlling interests?

    <p>The profit or loss attributed to non-controlling interests as well as to the parent company.</p> Signup and view all the answers

    What does total comprehensive income represent in relation to retained earnings?

    <p>It reflects the profits retained in the business after dividends.</p> Signup and view all the answers

    In the provided example, what percentage of the subsidiary's total comprehensive income is attributable to the parent company?

    <p>80%</p> Signup and view all the answers

    What is the relationship between the statement of comprehensive income and the statement of changes in equity?

    <p>The statement of changes in equity provides a link by showing total comprehensive income as retained earnings.</p> Signup and view all the answers

    What type of liabilities must a company settle within its normal operating cycle?

    <p>Current liabilities</p> Signup and view all the answers

    Which of the following is NOT typically considered a current liability?

    <p>Bonds payable beyond one year</p> Signup and view all the answers

    Which financial document shows the difference between earned income and expenditures?

    <p>Statement of comprehensive income</p> Signup and view all the answers

    Why is understanding a company's earnings power important when analyzing its financial condition?

    <p>It determines the company's ability to pay dividends.</p> Signup and view all the answers

    Which of the following is specifically used to arrive at the tax amount owing for a period?

    <p>Difference between amounts multiplied by a tax rate</p> Signup and view all the answers

    What is indicated by a company’s ability to generate earnings and cash flow?

    <p>The company's earning power and financial strength</p> Signup and view all the answers

    Which type of current liability includes unpaid bills for raw materials and supplies?

    <p>Trade payables</p> Signup and view all the answers

    When analyzing a company's debt ratios, which of the following types of liabilities are typically excluded?

    <p>Trade payables</p> Signup and view all the answers

    Which part of the statement of comprehensive income reveals where earnings go?

    <p>Expenditures section</p> Signup and view all the answers

    What type of borrowing is typically categorized as a current liability?

    <p>Short-term borrowings</p> Signup and view all the answers

    Study Notes

    Voting Trust Agreement

    • Voting control is transferred to a trustee to protect financier's investments while recovering the corporation.
    • Shareholders deposit their shares with a trustee who issues a voting trust certificate, retaining voting privileges.

    Corporate Structure

    • Typical corporate hierarchy starts with Shareholders at the top, followed by the Board of Directors.
    • The organizational chart includes the Chairman, President, Executive Vice President, and several Vice Presidents responsible for various functions like Finance, Marketing, and Human Resources.

    Responsibilities of Directors

    • Directors must meet age and sound mind requirements and cannot be undischarged bankrupts.
    • Responsibilities include setting company policies, appointing officers, supervising banking authorities, and approving budgets for expansion.

    Depreciation Methods

    • Two common depreciation methods: Straight-Line and Declining-Balance.
    • Straight-Line Method distributes equal depreciation charges over an asset's useful life.
    • Declining-Balance Method allocates higher depreciation in the early years, reducing over time.

    Statement of Comprehensive Income

    • Reflects total earnings versus expenditures, determining profit or loss.
    • Reveals sources of earnings, where earnings are allocated, and their sufficiency for operations.
    • Total comprehensive income transitions to the statement of changes in equity.

    Current Liabilities

    • Current liabilities typically include debts that must be settled within one year.
    • Common types: Current portion of long-term debt, near-term taxes payable, trade payables for raw materials, and short-term borrowings.

    Retained Earnings

    • Profits not distributed as dividends and reinvested in the business form retained earnings.
    • Changes in retained earnings are affected by the current year’s comprehensive income and any dividends declared.

    Statement of Changes in Equity

    • Records shifts in equity components, including share capital and retained earnings.
    • Connects the statement of comprehensive income to the statement of financial position.

    Total Comprehensive Income

    • Shows overall company earnings including those attributable to non-controlling interests.
    • Total comprehensive income of the parent company includes subsidiaries profit contributions proportionate to ownership.

    Financial Position Example

    • Example of Trans-Canada Retail's consolidated statement shows total assets, property, plant, and equipment valued at $6,149,000, alongside other current and non-current assets.

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    Related Documents

    CSC Volume 1 Section 4 PDF

    Description

    This quiz explores the concept of voting trusts in corporate finance, focusing on how shareholders can transfer voting control to a trustee. Understand the implications of these agreements and the role of voting trust certificates in protecting investments.

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