Question 1

Redemption 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. D

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

What are the principal sources for corporate financing?

Accepted Answer

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

Question 4

Jesse purchases 50 shares of Mountain Ridge Corporation stock.Explain what, if any, liability Jesse has to the corporation or its creditors with respect to the shares.

Accepted Answer

Jesse, as a purchaser of shares, is resp

Question 5

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 buy:

Accepted Answer

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

Question 6

"Blue Sky Laws" are state laws that regulate corporate stock issuance and sales.

Accepted Answer

A) True 
 B)False

Question 7

All states impose a "cash flow test" on the payment of dividends or other distributions.The "cash flow test" 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 8

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 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Par value:

Accepted Answer

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

Question 12

"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 13

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 then 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 the above. 
D) None of the above. 
A) the corporation's total assets after the distribution would be less than the sum of its total liabilities and the maximum amount that then 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 the above. 
D) None of the above.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Preferred stockholders do not have priority over corporate creditors in liquidation.

Accepted Answer

A) True 
 B)False

Question 16

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 pro rata 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 pro rata with common shares. 
D) be subordinated to the rights of common shares.

Question 17

An indenture is not a debt agreement.

Accepted Answer

A) True 
 B)False

Question 18

If a "liquidation preference" is provided, preferred stock usually has priority over common stock to the extent the articles of incorporation state.

Accepted Answer

A) True 
 B)False

Question 19

Holders of preferred stock with a dividend preference must receive dividends at the end of each corporate fiscal period.

Accepted Answer

A) True 
 B)False

Question 20

The most customary type of dividend is a:

Accepted Answer

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

Exam 35: Financial Structure of Corporations

Redemption is not permitted if the corporation:

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

What are the principal sources for corporate financing?

Jesse purchases 50 shares of Mountain Ridge Corporation stock.Explain what, if any, liability Jesse has to the corporation or its creditors with respect to the shares.

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 buy:

"Blue Sky Laws" are state laws that regulate corporate stock issuance and sales.

All states impose a "cash flow test" on the payment of dividends or other distributions.The "cash flow test" is also known as the:

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

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

Par value:

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

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

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

Preferred stockholders do not have priority over corporate creditors in liquidation.

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

An indenture is not a debt agreement.

If a "liquidation preference" is provided, preferred stock usually has priority over common stock to the extent the articles of incorporation state.

Holders of preferred stock with a dividend preference must receive dividends at the end of each corporate fiscal period.

The most customary type of dividend is a:

Introduction to Law

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