Question 1

Which of the following is correct with regard to treasury shares?

Accepted Answer

A)  The 1980 amendments to the MBCA eliminated the concept of treasury shares. 
B)  The acquisition of such shares by the corporation is a distribution to shareholders with an effect similar to that of a dividend. 
C)  Under the Revised Act, treasury shares are unauthorized but issued. 
D)  Treasury shares are issued and outstanding.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Participating preferred stock will:

Accepted Answer

A)  share with common stock in excess earnings after preferred payments and specified payments to common stock. 
B)  participate in earnings only to the extent that all other classes do. 
C)  participate in earnings to the same extent as common stock. 
D)  accumulate dividends that will be paid later.

Question 5

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 6

Stoddard purchases 200 shares of Air Fresh Corporation stock.Explain what, if any, liability Stoddard has to the corporation or its creditors with respect to the shares.

Accepted Answer

The answer of Stoddard purchases 200 shares of Air Fresh Corporation...

Question 7

ReGen, Inc.would like to pay a dividend to its shareholders.It has only been in business a two 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 ReGen be able to pay a dividend? Explain each test.
a.Earned surplus test 
b.Surplus test 
c.Net asset test

Accepted Answer

The answer of ReGen, Inc.would like to pay a dividend...

Question 8

Debentures are the same as indentures.

Accepted Answer

A) True 
 B)False

Question 9

"Investment grade" refers to the top-ten bond ratings and is a term meant to help potential investors judge the probability that the bond issuer will repay the principal at maturity and make scheduled interest payments.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

The answer of Discuss preemptive rights.Are preemptive rights more important...

Question 11

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

Accepted Answer

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

Question 12

If 100 shares of $50 par value stock were issued at $75 per share, how much would constitute capital surplus?

Accepted Answer

A)  $750 
B)  $7,500 
C)  $2,500 
D)  A corporation cannot issue stock for higher than the par value.

Question 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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)  not have to return the check because Jerry acted innocently. 
B)  have to return the check because the company would be insolvent. 
C)  have to return the check since it was erroneously declared. 
D)  not have to return the check because the board acted in good faith.

Question 17

Redemption of shares is not permitted if the corporation:

Accepted Answer

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

Question 18

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 19

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.

Question 20

__________, usually called debentures, have only the obligation of the corporation behind them.

Accepted Answer

A)  Income bonds 
B)  Unsecured bonds 
C)  Secured bonds 
D)  None of these are correct.

Exam 34: Financial Structure of Corporations

Which of the following is correct with regard to treasury shares?

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

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

Participating preferred stock will:

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

Stoddard purchases 200 shares of Air Fresh Corporation stock.Explain what, if any, liability Stoddard has to the corporation or its creditors with respect to the shares.

Debentures are the same as indentures.

"Investment grade" refers to the top-ten bond ratings and is a term meant to help potential investors judge the probability that the bond issuer will repay the principal at maturity and make scheduled interest payments.

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

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

If 100 shares of $50 par value stock were issued at $75 per share, how much would constitute capital surplus?

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

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.

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

Redemption of shares is not permitted if the corporation:

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:

__________, usually called debentures, have only the obligation of the corporation behind them.