Question 1

What do shares of equity securities confer on their owner in regard to interest in the corporation?

Accepted Answer

A)  Right to participate in control 
B)  Right to participate in earnings of the corporation 
C)  Right to participate in residual assets of the corporation upon dissolution 
D)  All of these. 
A)  Right to participate in control 
B)  Right to participate in earnings of the corporation 
C)  Right to participate in residual assets of the corporation upon dissolution 
D)  All of these.

Question 2

Which of the following is correct with regard to "par value"?

Accepted Answer

A)  It indicates the worth of the stock at issue. 
B)  It is the minimum price at which the corporation may sell the stock at issuance. 
C)  It represents the maximum price at which the stock may be sold at issuance. 
D)  It represents the amount for which the stock must be traded. 
A)  It indicates the worth of the stock at issue. 
B)  It is the minimum price at which the corporation may sell the stock at issuance. 
C)  It represents the maximum price at which the stock may be sold at issuance. 
D)  It represents the amount for which the stock must be traded.

Question 3

The MBCA, RMBCA, and statutes of many states permit corporations to redeem both preferred and common stock.

Accepted Answer

A) True 
 B)False

Question 4

The board of directors may issue bonds without the authorization or consent of the shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Under the majority rule, an unsuspecting shareholder who receives an illegal dividend from a solvent corporation cannot be compelled to refund the dividend.

Accepted Answer

A) True 
 B)False

Question 6

Income bonds bear a fixed interest rate.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a right conferred on the owner of an equity security?

Accepted Answer

A)  The right to title to a proportionate share of the corporation's property 
B)  The right to participate in control of the corporation 
C)  The right to participate in the earnings of the corporation 
D)  The right to participate in the residual assets of the corporation upon dissolution 
A)  The right to title to a proportionate share of the corporation's property 
B)  The right to participate in control of the corporation 
C)  The right to participate in the earnings of the corporation 
D)  The right to participate in the residual assets of the corporation upon dissolution

Question 8

A shareholder's obligation to repay an illegally declared dividend depends on:

Accepted Answer

A)  the shareholder's good or bad faith in accepting the dividend. 
B)  the solvency or insolvency of the corporation and, in some instances, special statutory provisions. 
C)  the shareholder's knowledge of the facts. 
D)  All of these. 
A)  the shareholder's good or bad faith in accepting the dividend. 
B)  the solvency or insolvency of the corporation and, in some instances, special statutory provisions. 
C)  the shareholder's knowledge of the facts. 
D)  All of these.

Question 9

If 100 shares of $50 par value stock were issued at $75 per share, how much would constitute capital surplus?

Accepted Answer

A)  $750 
B)  $7,500 
C)  $2,500 
D)  $5,000 
A)  $750 
B)  $7,500 
C)  $2,500 
D)  $5,000

Question 10

Percy buys stock in XTX Corporation that pays dividends of $5 per share before dividends are paid on other stock of XTX. If the dividends are not paid in any given year, the dividends for that year must be paid when the company next declares dividends, until fully paid. Percy's dividends per year will not exceed $5 per share. Percy's stock is:

Accepted Answer

A)  cumulative common stock. 
B)  noncumulative preferred stock. 
C)  cumulative preferred stock. 
D)  participating preferred stock. 
A)  cumulative common stock. 
B)  noncumulative preferred stock. 
C)  cumulative preferred stock. 
D)  participating preferred stock.

Question 11

The Revised Act permits a corporation to purchase, redeem, or otherwise acquire its own shares unless:

Accepted Answer

A)  the corporation's total assets after the distribution would be less than the sum of its total liabilities and the maximum amount that would be payable for all outstanding shares having preferential rights in liquidation. 
B)  the corporation would be unable to pay its debts as they became due in the usual course of its business. 
C)  Both of these. 
D)  None of these. 
A)  the corporation's total assets after the distribution would be less than the sum of its total liabilities and the maximum amount that would be payable for all outstanding shares having preferential rights in liquidation. 
B)  the corporation would be unable to pay its debts as they became due in the usual course of its business. 
C)  Both of these. 
D)  None of these.

Question 12

Article 8 of the UCC contains rules applicable to transfers of investment securities.

Accepted Answer

A) True 
 B)False

Question 13

The most restrictive test for the issuance of dividends by a corporation is the net assets test.

Accepted Answer

A) True 
 B)False

Question 14

Discuss how the RMBCA defines the term "distribution."

Accepted Answer

A distribution is "a direct or indirect

Question 15

If dividends are not declared for five years, but the company has accumulated earnings each year, the shareholders may:

Accepted Answer

A)  petition the court of law for redress. 
B)  override the board with a two-thirds vote. 
C)  ask for an injunction requiring a dividend to be declared. 
D)  do nothing but sell their stock. 
A)  petition the court of law for redress. 
B)  override the board with a two-thirds vote. 
C)  ask for an injunction requiring a dividend to be declared. 
D)  do nothing but sell their stock.

Question 16

Winstead Co. is authorized by its articles of incorporation to sell 50,000 shares of stock. The company:

Accepted Answer

A)  may not sell 55,000 shares under any circumstances. 
B)  must sell the number of shares authorized by its articles of incorporation. 
C)  would issue void securities for any shares the company purports to sell over the 50,000. 
D)  must repay, with interest from the date of purchase, any purchaser of shares over 50,000. 
A)  may not sell 55,000 shares under any circumstances. 
B)  must sell the number of shares authorized by its articles of incorporation. 
C)  would issue void securities for any shares the company purports to sell over the 50,000. 
D)  must repay, with interest from the date of purchase, any purchaser of shares over 50,000.

Question 17

The earned surplus test does not permit capital surplus to be used for the payment of dividends.

Accepted Answer

A) True 
 B)False

Question 18

Earned surplus would include undistributed net profits, income, gains and losses from the date of incorporation.

Accepted Answer

A) True 
 B)False

Question 19

The board of directors of Z & X Corporation declared cash dividends of $5 per share. If these dividends are not paid, a shareholder can bring suit to require payment.

Accepted Answer

A) True 
 B)False

Question 20

If Class A preferred shares provide only for a cumulative dividend of $3 per share, upon liquidation Class A Preferred will:

Accepted Answer

A)  receive $3 per share more than common shares. 
B)  receive 103% of common shares. 
C)  share equally with common shares. 
D)  be subordinated to the rights of common shares. 
A)  receive $3 per share more than common shares. 
B)  receive 103% of common shares. 
C)  share equally with common shares. 
D)  be subordinated to the rights of common shares.

Exam 34: Financial Structure

What do shares of equity securities confer on their owner in regard to interest in the corporation?

Which of the following is correct with regard to "par value"?

The MBCA, RMBCA, and statutes of many states permit corporations to redeem both preferred and common stock.

The board of directors may issue bonds without the authorization or consent of the shareholders.

Under the majority rule, an unsuspecting shareholder who receives an illegal dividend from a solvent corporation cannot be compelled to refund the dividend.

Income bonds bear a fixed interest rate.

Which of the following is not a right conferred on the owner of an equity security?

A shareholder's obligation to repay an illegally declared dividend depends on:

If 100 shares of $50 par value stock were issued at $75 per share, how much would constitute capital surplus?

The Revised Act permits a corporation to purchase, redeem, or otherwise acquire its own shares unless:

Article 8 of the UCC contains rules applicable to transfers of investment securities.

The most restrictive test for the issuance of dividends by a corporation is the net assets test.

Discuss how the RMBCA defines the term "distribution."

If dividends are not declared for five years, but the company has accumulated earnings each year, the shareholders may:

Winstead Co. is authorized by its articles of incorporation to sell 50,000 shares of stock. The company:

The earned surplus test does not permit capital surplus to be used for the payment of dividends.

Earned surplus would include undistributed net profits, income, gains and losses from the date of incorporation.

The board of directors of Z & X Corporation declared cash dividends of $5 per share. If these dividends are not paid, a shareholder can bring suit to require payment.

If Class A preferred shares provide only for a cumulative dividend of $3 per share, upon liquidation Class A Preferred will:

Introduction to Law

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Civil Dispute Resolution

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Intentional Torts

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Introduction to Contracts

Mutual Assent

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