Question 1

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. B

Question 2

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. A

Question 3

Discuss preemptive rights.Are preemptive rights more important in a closely held corporation or in a publicly held corporation?

Accepted Answer

Preemptive rights are a shareholder's rights to purchase a pro rata share of new stock.Preemptive rights are more important in a closely held corporation than in a publicly traded one.This is because a closely held corporation usually has only a few shareholders,and the proportionate share owned by each shareholder is significant in determining who will control the corporation.In the absence of preemptive rights,a shareholder may be unable to prevent a dilution of his ownership interest in the corporation.

Question 4

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

Question 5

Which of the following is correct with regard to common stock?

Accepted Answer

A) The Revised Act has eliminated the terms "preferred" and "common." 
B) Common stock does not have any special contract rights or preferences. 
C) Common stock generally bears the greatest risk of loss in the event of the failure of the enterprise. 
D) All of the above are correct with regard to common stock. 
A) The Revised Act has eliminated the terms "preferred" and "common." 
B) Common stock does not have any special contract rights or preferences. 
C) Common stock generally bears the greatest risk of loss in the event of the failure of the enterprise. 
D) All of the above are correct with regard to common stock.

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

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 8

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

Accepted Answer

A) True 
 B)False

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

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 the above. 
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 the above.

Question 11

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 12

What right does a share confer on its owner in regard to an interest in the corporation?

Accepted Answer

A) Right to participate in control. 
B) Right to participate in earnings of the corporation. 
C) Right to participate in residual assets of the corporation upon dissolution. 
D) All of the above. 
A) Right to participate in control. 
B) Right to participate in earnings of the corporation. 
C) Right to participate in residual assets of the corporation upon dissolution. 
D) All of the above.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

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.

Question 16

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

Accepted Answer

"A direct or indirect transfer of money

Question 17

A majority,but not all,of the states impose a cash flow test on the payment of dividends and other distributions.

Accepted Answer

A) True 
 B)False

Question 18

Treasury stock is issued but not outstanding.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 34: Financial Structure of Corporations

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

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

Discuss preemptive rights.Are preemptive rights more important in a closely held corporation or in a publicly held corporation?

A distribution may be in the form of:

Which of the following is correct with regard to common stock?

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

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

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

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:

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:

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

What right does a share confer on its owner in regard to an interest in the corporation?

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

What are the principal sources for corporate financing?

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

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

A majority,but not all,of the states impose a cash flow test on the payment of dividends and other distributions.

Treasury stock is issued but not outstanding.

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

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

Introduction to Law

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Intentional Torts

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Performance, Breach, and Discharge

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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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