Question 1

Even if it has been lawfully and properly declared, a stock dividend may be revoked unless it has been actually distributed.

Accepted Answer

A) True 
 B)False

Question 2

Yields on "junk bonds" are higher than the rate of safe government bonds.

Accepted Answer

A) True 
 B)False

Question 3

How does the Revised Act define the term "distribution"?

Accepted Answer

"A direct or indirect transfer of money

Question 4

Under the Revised Act, Hartzell, a director who is a member of the board that declares an illegal dividend, may be but is not under all circumstances personally liable to the company for the amount that is illegal even if she personally voted for the distribution contrary to the company's charter.

Accepted Answer

A) True 
 B)False

Question 5

As amended in 2002, the Revised Act permits the creation of classes or series of shares with terms that vary among holders of the same class or series so long as the variations are expressly set forth in the articles of incorporation.

Accepted Answer

A) True 
 B)False

Question 6

A shareholder of one-third of all the stock in a corporation would be entitled to one-third of all corporate assets of an ongoing company.

Accepted Answer

A) True 
 B)False

Question 7

"Capital surplus" would be credited with the excess received over par value for shares issued by the corporation.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is correct regarding a two-for-one stock split?

Accepted Answer

A)  The purpose of the split may be to decrease the value per share of the stock. 
B)  The purpose of the split is to make a distribution to the stockholders. 
C)  After the split, each stockholder will have greater ownership interest in the corporation. 
D)  The value of each share of stock will increase as a result of the split. 
A)  The purpose of the split may be to decrease the value per share of the stock. 
B)  The purpose of the split is to make a distribution to the stockholders. 
C)  After the split, each stockholder will have greater ownership interest in the corporation. 
D)  The value of each share of stock will increase as a result of the split.

Question 9

An investor has the right to transfer his investment securities by sale, but not by gift or pledge.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The earned surplus test for the issuance of dividends by a corporation is less restrictive than the surplus test.

Accepted Answer

A) True 
 B)False

Question 12

Shares without par value may be issued for any amount set by the board or the shareholders.

Accepted Answer

A) True 
 B)False

Question 13

The most customary type of dividend is a:

Accepted Answer

A)  stock dividend. 
B)  distribution. 
C)  property dividend. 
D)  liquidating dividend. 
A)  stock dividend. 
B)  distribution. 
C)  property dividend. 
D)  liquidating dividend.

Question 14

Bonds subject to a redemption provision, which permits the corporation to redeem, or pay off, all or a part of the issue before maturity at a specified redemption price are known as:

Accepted Answer

A)  secured bonds. 
B)  income bonds. 
C)  callable bonds. 
D)  convertible bonds. 
A)  secured bonds. 
B)  income bonds. 
C)  callable bonds. 
D)  convertible bonds.

Question 15

A distribution may be in the form of:

Accepted Answer

A)  declaration or payment of a dividend. 
B)  a purchase, redemption, or other acquisition of shares. 
C)  a distribution of indebtedness. 
D)  All of these. 
A)  declaration or payment of a dividend. 
B)  a purchase, redemption, or other acquisition of shares. 
C)  a distribution of indebtedness. 
D)  All of these.

Question 16

Jerry received a check from McGregory Corporation as a dividend on his preferred shares. Two days later, one of the corporate directors called him and said he would have to return the check since it was erroneously declared and the company would not be able to pay its day-to-day expenses. Jerry would:

Accepted Answer

A)  have to return the check because the company would be insolvent. 
B)  have to return the check since it was erroneously declared. 
C)  not have to return the check because Jerry acted innocently. 
D)  not have to return the check because the board acted in good faith. 
A)  have to return the check because the company would be insolvent. 
B)  have to return the check since it was erroneously declared. 
C)  not have to return the check because Jerry acted innocently. 
D)  not have to return the check because the board acted in good faith.

Question 17

Marvin owns 50 shares of stock in Richley Corp., which has a total of one thousand shares outstanding. If Richley decides to issue one thousand additional shares of stock and Marvin has preemptive rights, Marvin will be offered one hundred shares of the newly issued stock.

Accepted Answer

A) True 
 B)False

Question 18

A stock split results in a larger proportion of corporate ownership by the shareholder.

Accepted Answer

A) True 
 B)False

Question 19

ReGen, Inc. would like to pay a dividend to its shareholders. It has only been in business a two years and does not yet have any retained earnings. However, it has a new product, which is breaking all sales records. This quarter, it anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under which of the following tests would ReGen be able to pay a dividend? Explain each test. 
a. Earned surplus test 
b. Surplus test 
c. Net asset test

Accepted Answer

a. No dividend could be paid under this

Question 20

If Class A preferred shares provide only for a cumulative dividend of $3 per share, what will be the consequence on liquidation?

Accepted Answer

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

Exam 34: Financial Structure of Corporations

Even if it has been lawfully and properly declared, a stock dividend may be revoked unless it has been actually distributed.

Yields on "junk bonds" are higher than the rate of safe government bonds.

How does the Revised Act define the term "distribution"?

Under the Revised Act, Hartzell, a director who is a member of the board that declares an illegal dividend, may be but is not under all circumstances personally liable to the company for the amount that is illegal even if she personally voted for the distribution contrary to the company's charter.

As amended in 2002, the Revised Act permits the creation of classes or series of shares with terms that vary among holders of the same class or series so long as the variations are expressly set forth in the articles of incorporation.

A shareholder of one-third of all the stock in a corporation would be entitled to one-third of all corporate assets of an ongoing company.

"Capital surplus" would be credited with the excess received over par value for shares issued by the corporation.

Which of the following is correct regarding a two-for-one stock split?

An investor has the right to transfer his investment securities by sale, but not by gift or pledge.

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

The earned surplus test for the issuance of dividends by a corporation is less restrictive than the surplus test.

Shares without par value may be issued for any amount set by the board or the shareholders.

The most customary type of dividend is a:

Bonds subject to a redemption provision, which permits the corporation to redeem, or pay off, all or a part of the issue before maturity at a specified redemption price are known as:

A distribution may be in the form of:

Marvin owns 50 shares of stock in Richley Corp., which has a total of one thousand shares outstanding. If Richley decides to issue one thousand additional shares of stock and Marvin has preemptive rights, Marvin will be offered one hundred shares of the newly issued stock.

A stock split results in a larger proportion of corporate ownership by the shareholder.

If Class A preferred shares provide only for a cumulative dividend of $3 per share, what will be the consequence on liquidation?

Introduction to Law

Business Ethics

Civil Dispute Resolution

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Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

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Performance Breach and Discharge

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Relationship of Principal and Agent

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Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

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