Question 1

A company does not have to issue all of the shares authorized by the corporate charter, but it cannot issue more shares than are authorized.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 traditional corporate law, 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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 t

Question 7

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 8

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

Accepted Answer

"A direct or indirect transfer of money

Question 9

Once properly declared, the effect of a cash dividend is that it:

Accepted Answer

A) is revocable until actually paid. 
B) is considered a debt the corporation owes to the shareholders. 
C) imposes personal liability on the directors who vote for it. 
D) imposes personal liability on the shareholders of a solvent corporation. 
A) is revocable until actually paid. 
B) is considered a debt the corporation owes to the shareholders. 
C) imposes personal liability on the directors who vote for it. 
D) imposes personal liability on the shareholders of a solvent corporation.

Question 10

A corporation may purchase its own shares only out of earned surplus unless the articles of incorporation or the shareholders permit purchase out of capital surplus.

Accepted Answer

A) True 
 B)False

Question 11

The Ajax Corporation issues bonds that pay a minimum of 6% interest but that can pay more if corporate earnings reach certain specified levels.The holder of the bond may exchange it for stock of the corporation.This bond would be a:

Accepted Answer

A) callable income bond. 
B) convertible participating bond. 
C) convertible unsecured bond. 
D) convertible secured bond. 
A) callable income bond. 
B) convertible participating bond. 
C) convertible unsecured bond. 
D) convertible secured bond.

Question 12

The first federal statute for the regulation of securities offered for sale and sold through interstate commerce was passed in:

Accepted Answer

A) 1916. 
B) 1933. 
C) 1934. 
D) 1954. 
A) 1916. 
B) 1933. 
C) 1934. 
D) 1954.

Question 13

The state of incorporation, each state in which the shares are issued or sold, and the federal government regulate the issuance of shares.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

If The Raintree Company has accumulated earnings each year but the directors have not declared dividends for five years, the shareholders may:

Accepted Answer

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

Question 17

Discuss the use of and types of stock options.

Accepted Answer

Stock options entitle their holders to p

Question 18

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 19

When the articles provide a _____________, preferred stock has priority over common stock to the extent the articles state after a corporation is dissolved and when assets are distributed.

Accepted Answer

A) stock right 
B) liquidation preference 
C) dividend preference 
D) None of the above. 
A) stock right 
B) liquidation preference 
C) dividend preference 
D) None of the above.

Question 20

In the case of Metropolitan Life Insurance Company v.RJR Nabisco, Inc., the court:

Accepted Answer

A) considered extrinsic evidence to evaluate the scope of an implied duty of good faith. 
B) examined the indentures themselves to determine the agreement of the parties. 
C) held that the indentures included an implied duty that prevented the incurring of new debt to facilitate the LBO. 
D) Both (a) and (b) are correct. 
A) considered extrinsic evidence to evaluate the scope of an implied duty of good faith. 
B) examined the indentures themselves to determine the agreement of the parties. 
C) held that the indentures included an implied duty that prevented the incurring of new debt to facilitate the LBO. 
D) Both (a) and (b) are correct.

Exam 35: Financial Structure of Corporations

A company does not have to issue all of the shares authorized by the corporate charter, but it cannot issue more shares than are authorized.

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

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 traditional corporate law, how many shares of stock could validly be sold?

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

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.

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.

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

Once properly declared, the effect of a cash dividend is that it:

A corporation may purchase its own shares only out of earned surplus unless the articles of incorporation or the shareholders permit purchase out of capital surplus.

The Ajax Corporation issues bonds that pay a minimum of 6% interest but that can pay more if corporate earnings reach certain specified levels.The holder of the bond may exchange it for stock of the corporation.This bond would be a:

The first federal statute for the regulation of securities offered for sale and sold through interstate commerce was passed in:

The state of incorporation, each state in which the shares are issued or sold, and the federal government regulate the issuance of shares.

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

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

If The Raintree Company has accumulated earnings each year but the directors have not declared dividends for five years, the shareholders may:

Discuss the use of and types of stock options.

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.

When the articles provide a _____________, preferred stock has priority over common stock to the extent the articles state after a corporation is dissolved and when assets are distributed.

In the case of Metropolitan Life Insurance Company v.RJR Nabisco, Inc., the court:

Introduction to Law

Business Ethics

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Constitutional Law

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Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

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Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

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Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

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Form and Content

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Relationship of Principal and Agent

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Formation and Internal Relations of General Partnerships

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Nature and Formation of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

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

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