Question 1

Discuss the use of and types of stock options.

Accepted Answer

Stock options entitle their holders to p

Question 2

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 3

A prospectus is an offer a corporation makes to interest people in buying securities.

Accepted Answer

A) True 
 B)False

Question 4

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.

Question 5

What are the two major issues regarding payment for shares?

Accepted Answer

Two major issues arise regarding payment

Question 6

Which of the following determines when to declare dividends and in what amount?

Accepted Answer

A)  The stockholders. 
B)  The officers of the corporation. 
C)  The board of directors. 
D)  The state in which the corporation was chartered. 
A)  The stockholders. 
B)  The officers of the corporation. 
C)  The board of directors. 
D)  The state in which the corporation was chartered.

Question 7

Ready Equipment, Inc. authorized and specified in its charter 5,000 shares of stock to be issued. If it later needs to issue stock in excess of 5,000 shares, the charter will have to be amended.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The directors of Premier Glass Company authorize the issuance of 100 shares of common stock for $25 per share to Justin for property the directors value at $2,500. The valuation:

Accepted Answer

A)  is, in all jurisdictions, a matter of opinion on the part of the directors and their valuation is conclusive. 
B)  if incorrect, whether or not made in good faith, subjects Justin to liability for the difference between the valuation and the actual worth of the property. 
C)  under the Revised Act, depends on the directors' determination of the consideration's "adequacy." 
D)  if fraudulent, subjects the directors to liability to Premier for the difference between the fraudulent valuation and the actual worth of the property. 
A)  is, in all jurisdictions, a matter of opinion on the part of the directors and their valuation is conclusive. 
B)  if incorrect, whether or not made in good faith, subjects Justin to liability for the difference between the valuation and the actual worth of the property. 
C)  under the Revised Act, depends on the directors' determination of the consideration's "adequacy." 
D)  if fraudulent, subjects the directors to liability to Premier for the difference between the fraudulent valuation and the actual worth of the property.

Question 10

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 11

Warrick makes a $10,000 investment in a debenture issued by Wryteway Company. Warrick is now an unsecured creditor of Wryteway Company.

Accepted Answer

A) True 
 B)False

Question 12

Fyloff, Inc. would like to pay a dividend to its shareholders. It has only been in business a few 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 Fyloff 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 13

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 14

Myrick 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 Myrick has preemptive rights, Myrick will be offered one hundred shares of the newly issued stock.

Accepted Answer

A) True 
 B)False

Question 15

Dividends are ordinarily paid in cash, but may be paid in property.

Accepted Answer

A) True 
 B)False

Question 16

What are the principal sources for corporate financing?

Accepted Answer

A)  Debt. 
B)  Equity investment securities. 
C)  Retained earnings. 
D)  All of these. 
A)  Debt. 
B)  Equity investment securities. 
C)  Retained earnings. 
D)  All of these.

Question 17

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 18

A "stock option" permits the purchase of shares at a later date.

Accepted Answer

A) True 
 B)False

Question 19

Max buys shares of newly issued Z Corp. stock for $30 per share and pays $1,000 cash, a car worth $2,000, and a promissory note for $3,000. Under the Revised Act, how many shares of stock could validly be sold?

Accepted Answer

A)  100 
B)  33 
C)  200 
D)  133 
A)  100 
B)  33 
C)  200 
D)  133

Question 20

The Revised Act, the 1980 Amendments to the MBCA, and over half of the states have eliminated the concept of:

Accepted Answer

A)  par value. 
B)  stated capital. 
C)  capital surplus. 
D)  All of these. 
A)  par value. 
B)  stated capital. 
C)  capital surplus. 
D)  All of these.

Exam 34: Financial Structure of Corporations

Discuss the use of and types of stock options.

A prospectus is an offer a corporation makes to interest people in buying securities.

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

What are the two major issues regarding payment for shares?

Which of the following determines when to declare dividends and in what amount?

Ready Equipment, Inc. authorized and specified in its charter 5,000 shares of stock to be issued. If it later needs to issue stock in excess of 5,000 shares, the charter will have to be amended.

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

The directors of Premier Glass Company authorize the issuance of 100 shares of common stock for $25 per share to Justin for property the directors value at $2,500. The valuation:

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

Warrick makes a $10,000 investment in a debenture issued by Wryteway Company. Warrick is now an unsecured creditor of Wryteway Company.

A distribution may be in the form of:

Myrick 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 Myrick has preemptive rights, Myrick will be offered one hundred shares of the newly issued stock.

Dividends are ordinarily paid in cash, but may be paid in property.

What are the principal sources for corporate financing?

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.

A "stock option" permits the purchase of shares at a later date.

Max buys shares of newly issued Z Corp. stock for $30 per share and pays $1,000 cash, a car worth $2,000, and a promissory note for $3,000. Under the Revised Act, how many shares of stock could validly be sold?

The Revised Act, the 1980 Amendments to the MBCA, and over half of the states have eliminated the concept of:

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

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

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Accountants Legal Liability

Consumer Protection

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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