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?

Directors are required to be undischarged bankrupts. Signup and view all the answers

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

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

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

They are typically formed through directors' resolutions. Signup and view all the answers

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

$90,000 Signup and view all the answers

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

Year 1 Signup and view all the answers

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

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

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

Depreciation method, estimated life, and valuations Signup and view all the answers

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

$17,798 Signup and view all the answers

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

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

What is the main purpose of depreciation in accounting?

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

Which statement regarding non-cash expenses is true?

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

What does the statement of changes in equity primarily record?

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

How are retained earnings affected when dividends are declared?

Retained earnings decrease by the amount of dividends declared. Signup and view all the answers

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

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

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

It reflects the profits retained in the business after dividends. 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?

80% Signup and view all the answers

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

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

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

Current liabilities Signup and view all the answers

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

Bonds payable beyond one year Signup and view all the answers

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

Statement of comprehensive income Signup and view all the answers

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

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

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

Difference between amounts multiplied by a tax rate Signup and view all the answers

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

The company's earning power and financial strength Signup and view all the answers

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

Trade payables Signup and view all the answers

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

Trade payables Signup and view all the answers

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

Expenditures section Signup and view all the answers

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

Short-term borrowings 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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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.