Question 1

A bondholder generally takes less of a financial risk than a shareholder of a corporation.

Accepted Answer

A) True 
 B)False  True

Question 2

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. 
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. C

Question 3

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  False

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

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

When a corporation issues no par value stock, the entire consideration received constitutes stated capital except that amount allocated in a manner permitted by law to capital surplus or paid-in surplus.

Accepted Answer

A) True 
 B)False

Question 8

The shareholders normally determine the price for which shares will be issued unless the charter permits the board of directors to set the price.

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

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 11

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 12

The board of directors of Boyd Corporation declared distributions of $5 per share. If these dividends are not paid, a shareholder can bring suit to require payment.

Accepted Answer

A) True 
 B)False

Question 13

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 the Revised Act, 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 14

The board of directors cannot declare dividends when the corporation:

Accepted Answer

A)  is insolvent. 
B)  is merging with another corporation. 
C)  is the subject of a takeover bid. 
D)  issues new stock. 
A)  is insolvent. 
B)  is merging with another corporation. 
C)  is the subject of a takeover bid. 
D)  issues new stock.

Question 15

The "cash flow test" for the payment of dividends and other distributions 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 16

If Daniels makes a $10,000 investment in a debenture issued by Southern Company, he is now an unsecured creditor of Southern Company.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Earned surplus would include undistributed profits, income, gains, and losses from the date of incorporation.

Accepted Answer

A) True 
 B)False

Question 19

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. 
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.

Question 20

Allen owns 50 of the 500 shares outstanding of General Myopics. GM plans to issue 500 new shares. If Allen has preemptive rights, he may:

Accepted Answer

A)  buy all 500 shares before anyone else. 
B)  buy 500 shares at the same price he paid for the other stock. 
C)  buy 5 shares at a discount of 10%. 
D)  buy 50 of the 500 new shares. 
A)  buy all 500 shares before anyone else. 
B)  buy 500 shares at the same price he paid for the other stock. 
C)  buy 5 shares at a discount of 10%. 
D)  buy 50 of the 500 new shares.

Exam 34: Financial Structure of Corporations

A bondholder generally takes less of a financial risk than a shareholder of a corporation.

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

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.

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:

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

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

When a corporation issues no par value stock, the entire consideration received constitutes stated capital except that amount allocated in a manner permitted by law to capital surplus or paid-in surplus.

The shareholders normally determine the price for which shares will be issued unless the charter permits the board of directors to set the price.

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

The board of directors of Boyd Corporation declared distributions of $5 per share. If these dividends are not paid, a shareholder can bring suit to require payment.

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 the Revised Act, how many shares of stock could validly be sold?

The board of directors cannot declare dividends when the corporation:

The "cash flow test" for the payment of dividends and other distributions is also known as the:

If Daniels makes a $10,000 investment in a debenture issued by Southern Company, he is now an unsecured creditor of Southern Company.

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

Earned surplus would include undistributed profits, income, gains, and losses from the date of incorporation.

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

Allen owns 50 of the 500 shares outstanding of General Myopics. GM plans to issue 500 new shares. If Allen has preemptive rights, he may:

Introduction to Law

Business Ethics

Civil Dispute Resolution

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Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

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Third Parties to Contracts

Performance Breach and Discharge

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Introduction to Sales and Leases

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Product Liability Warranties and Strict Liability

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Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits Collections and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

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Introduction to Property Property Insurance Bailments and Documents of Title

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