Question 1

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

Accepted Answer

"A direct or indirect transfer of money or other property (except for its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders with respect to any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise." Neither a stock dividend nor a stock split is a distribution.

Question 2

Debentures are the same as indentures.

Accepted Answer

A) True 
 B)False  False

Question 3

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 these are correct.
D)   None of these are correct. C

Question 4

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

Accepted Answer

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

Question 5

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

The answer of Jesse purchases 50 shares of Mountain Ridge...

Question 6

Under the Revised Act, Brafford, a director who is a member of the board that declares an illegal dividend, may be but is not under all circumstances personally liable to the company for the amount that is illegal even if she personally voted for the distribution contrary to the company's charter.

Accepted Answer

A) True 
 B)False

Question 7

The Revised Act explicitly requires a corporations's charter to authorize:

Accepted Answer

A)   one or more classes of shares that have limited voting rights.
B)   one or more classes of shares that together are entitled to receive the net assets of the corporation upon dissolution.
C)   Both are correct.
D)   nothing. The Revised Act only recommends, not requires, the charter contents.

Question 8

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.

Question 9

Treasury stock is issued but not outstanding.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

"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 12

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 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

An indenture is not a debt agreement.

Accepted Answer

A) True 
 B)False

Question 16

An investor has the right to transfer his investment securities by sale, but not by gift or pledge.

Accepted Answer

A) True 
 B)False

Question 17

Caverun Co. has two classes of stock. The company may:

Accepted Answer

A)   issue stock warrants, which are short-term options to buy shares.
B)   issue stock rights, which are long-term options to buy shares.
C)   not use stock options to make one class of stock more attractive than the other.
D)   use stock options and warrants, the form and content of which are determined by the board of directors, to supplement compensation plans for directors, officers, and employees.
E)   Both issue stock warrants, which are short-term options to buy shares  and also  issue stock rights, which are long-term options to buy shares.

Question 18

Even if it has been lawfully and properly declared, a stock dividend may be revoked unless it has been actually distributed.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

Bonds subject to a redemption provision, which permits the corporation to redeem, or pay off, all or a part of the issue before maturity at a specified redemption price are known as:

Accepted Answer

A)   secured bonds.
B)   income bonds.
C)   callable bonds.
D)   convertible bonds.

Exam 34: Financial Structure of Corporations

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

Debentures are the same as indentures.

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

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

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.

Under the Revised Act, Brafford, a director who is a member of the board that declares an illegal dividend, may be but is not under all circumstances personally liable to the company for the amount that is illegal even if she personally voted for the distribution contrary to the company's charter.

The Revised Act explicitly requires a corporations's charter to authorize:

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

Treasury stock is issued but not outstanding.

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

"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.

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

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

An indenture is not a debt agreement.

An investor has the right to transfer his investment securities by sale, but not by gift or pledge.

Caverun Co. has two classes of stock. The company may:

Even if it has been lawfully and properly declared, a stock dividend may be revoked unless it has been actually distributed.

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

Bonds subject to a redemption provision, which permits the corporation to redeem, or pay off, all or a part of the issue before maturity at a specified redemption price are known as: