Question 1

Allen owns 500 of the 5000 shares outstanding of General Myopics. GM plans to issue 600 new shares. If Allen has preemptive rights, he may:

Accepted Answer

A)  buy all 600 shares before anyone else. 
B)  buy 600 shares at the same price he paid for the other stock. 
C)  buy 6 shares at a discount of 10%. 
D)  None of these. 
A)  buy all 600 shares before anyone else. 
B)  buy 600 shares at the same price he paid for the other stock. 
C)  buy 6 shares at a discount of 10%. 
D)  None of these.

Question 2

The Revised Act does not consider a transfer of its own stock by ZYX Corporation to its stockholders a distribution.

Accepted Answer

A) True 
 B)False

Question 3

Under the Revised Act, if the charter simply states that the corporation elects to have preemptive rights, the shareholders have no preemptive rights with respect to:

Accepted Answer

A)  shares issued as compensation to directors, officers, and employees. 
B)  shares issued within six months of incorporation. 
C)  the corporation's unissued shares. 
D)  Shares issued as compensation to directors, officers, and also employees and  shares issued within six months of incorporation. 
A)  shares issued as compensation to directors, officers, and employees. 
B)  shares issued within six months of incorporation. 
C)  the corporation's unissued shares. 
D)  Shares issued as compensation to directors, officers, and also employees and  shares issued within six months of incorporation.

Question 4

Under the Revised Act, dividends must always be paid in money.

Accepted Answer

A) True 
 B)False

Question 5

"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 6

The difference between common and preferred stock is that the latter is a debt instrument, whereas the former represents an equity interest in the company.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Yukon Corporation purchases 1,000 shares of its own stock from Jones at a price of $50 a share. These shares, which are now issued but not outstanding, are known as:

Accepted Answer

A)  treasury shares. 
B)  preemptive shares. 
C)  preferred stock. 
D)  no par stock. 
A)  treasury shares. 
B)  preemptive shares. 
C)  preferred stock. 
D)  no par stock.

Question 9

The federal government leaves corporate stock regulation to the states since corporations are state-created entities.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Clayton Tile has a secured bond on specific property of Ceramic Creations, Inc. Clayton's claim against Ceramic is enforceable only against that specific property.

Accepted Answer

A) True 
 B)False

Question 12

The board of directors cannot declare dividends when the corporation:

Accepted Answer

A)  is insolvent. 
B)  is merging with another corporation. 
C)  is the subject of a takeover bid. 
D)  issues new stock. 
A)  is insolvent. 
B)  is merging with another corporation. 
C)  is the subject of a takeover bid. 
D)  issues new stock.

Question 13

Redemption of shares is not permitted if the corporation:

Accepted Answer

A)  asks for an injunction. 
B)  would, by that action, reduce total assets below the stated capital amount. 
C)  has outstanding treasury shares. 
D)  is likely to be rendered insolvent. 
A)  asks for an injunction. 
B)  would, by that action, reduce total assets below the stated capital amount. 
C)  has outstanding treasury shares. 
D)  is likely to be rendered insolvent.

Question 14

Treasury shares are shares that have been authorized but have not yet been issued.

Accepted Answer

A) True 
 B)False

Question 15

In which of the following ways do debt and equity securities necessarily differ?

Accepted Answer

A)  Ownership interest. 
B)  Voting rights. 
C)  Redeemability. 
D)  Convertibility. 
A)  Ownership interest. 
B)  Voting rights. 
C)  Redeemability. 
D)  Convertibility.

Question 16

The shareholders normally determine the price for which shares will be issued unless the charter permits the board of directors to set the price.

Accepted Answer

A) True 
 B)False

Question 17

When a corporation issues no par value stock, the entire consideration received constitutes stated capital except that amount allocated in a manner permitted by law to capital surplus or paid-in surplus.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The "cash flow test" for the payment of dividends and other distributions is also known as the:

Accepted Answer

A)  equity insolvency test. 
B)  balance sheet test. 
C)  surplus test. 
D)  net assets test. 
A)  equity insolvency test. 
B)  balance sheet test. 
C)  surplus test. 
D)  net assets test.

Question 20

The MBCA as amended in 1980 and the Revised Act have adopted a net asset test for the issuance of dividends.

Accepted Answer

A) True 
 B)False

Exam 34: Financial Structure of Corporations

Allen owns 500 of the 5000 shares outstanding of General Myopics. GM plans to issue 600 new shares. If Allen has preemptive rights, he may:

The Revised Act does not consider a transfer of its own stock by ZYX Corporation to its stockholders a distribution.

Under the Revised Act, if the charter simply states that the corporation elects to have preemptive rights, the shareholders have no preemptive rights with respect to:

Under the Revised Act, dividends must always be paid in money.

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

The difference between common and preferred stock is that the latter is a debt instrument, whereas the former represents an equity interest in the company.

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

Yukon Corporation purchases 1,000 shares of its own stock from Jones at a price of $50 a share. These shares, which are now issued but not outstanding, are known as:

The federal government leaves corporate stock regulation to the states since corporations are state-created entities.

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

Clayton Tile has a secured bond on specific property of Ceramic Creations, Inc. Clayton's claim against Ceramic is enforceable only against that specific property.

The board of directors cannot declare dividends when the corporation:

Redemption of shares is not permitted if the corporation:

Treasury shares are shares that have been authorized but have not yet been issued.

In which of the following ways do debt and equity securities necessarily differ?

The shareholders normally determine the price for which shares will be issued unless the charter permits the board of directors to set the price.

When a corporation issues no par value stock, the entire consideration received constitutes stated capital except that amount allocated in a manner permitted by law to capital surplus or paid-in surplus.

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

The "cash flow test" for the payment of dividends and other distributions is also known as the:

The MBCA as amended in 1980 and the Revised Act have adopted a net asset test for the issuance of dividends.

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