Question 1

For preferred shares to increase the return earned by common shareholders, the preferred dividend rate as a percentage of the capital raised must be:

Accepted Answer

A)  Lower than the rate of return on common and preferred equity combined. 
B)  Both equal to and lower than the rate of return on common and preferred equity combined. 
C)  Equal to the rate of return on common and preferred equity combined. 
D)  Higher than the rate of return on common and preferred equity combined. 
E)  None of these answers is correct.

Question 2

The costs of bringing a corporation into existence, including legal fees, promoters' fees, and amounts paid to the government are called:

Accepted Answer

A)  Minimum legal capital. 
B)  Organization costs. 
C)  Financial leverage. 
D)  Prepaid expenses. 
E)  Contributed capital.

Question 3

An underwriter keeps shareholder records and prepares official lists of shareholders and dividend payments.

Accepted Answer

A) True 
 B)False

Question 4

If a corporation that has only one class of shares, or if there is more than one class, the class that has no preference over the other classes of shares, is called:

Accepted Answer

A)  Common shares. 
B)  Cumulative preferred shares. 
C)  Convertible preferred shares. 
D)  Preferred shares. 
E)  Participating preferred shares.

Question 5

Corporations can be either public or limited.

Accepted Answer

A) True 
 B)False

Question 6

One of the preference rights for preferred shares is the right to vote.

Accepted Answer

A) True 
 B)False

Question 7

Common shares usually carry a preference for dividends.

Accepted Answer

A) True 
 B)False

Question 8

Legal costs incurred to get a corporation up and running should be accounted for by debiting:

Accepted Answer

A)  Organization costs. 
B)  Retained earnings. 
C)  Cash. 
D)  Share capital. 
E)  Common shares.

Question 9

A proxy is:

Accepted Answer

A)  The right of common shareholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common shares issued by the corporation. 
B)  An arbitrary value a corporation places on each of the corporation's shares. 
C)  An amount of assets defined by law that shareholders must invest and leave invested in a corporation. 
D)  A contractual commitment by an investor to purchase unissued shares and become a shareholder. 
E)  A legal document that gives an agent of a shareholder the power to exercise the voting rights of that shareholder's shares.

Question 10

A new corporation ended its first year of operations with assets of $100,000, liabilities of $75,000, and contributed capital common shares) of $10,000. What was thecorporation's profit for the year?

Accepted Answer

A)  $25,000. 
B)  $75,000. 
C)  $65,000. 
D)  $90,000. 
E)  $15,000.

Question 11

The type of share that can be bought back by the company at a specified time and price is:

Accepted Answer

A)  Cumulative preferred share. 
B)  Convertible preferred share. 
C)  Participating preferred share. 
D)  Callable common share. 
E)  Redeemable preferred share.

Question 12

Corporations issue preferred shares in order to raise capital without sacrificing control of the corporation and to increase the return earned by common shareholders.

Accepted Answer

A) True 
 B)False

Question 13

Whether a business is organized as a corporation or as a proprietorship, the profit reported on the income statement will be the same.

Accepted Answer

A) True 
 B)False

Question 14

The total amount of cash and other assets received by a corporation from its shareholders in exchange for common shares is included in:

Accepted Answer

A)  Retained earnings. 
B)  Contributed capital. 
C)  Equity. 
D)  Private held shares. 
E)  Organization costs.

Question 15

Tech Inc's board of directors voted to declare a common cash dividend of $.0.75 per share. The company has 15,000 common shares authorized, with 10,000 issued and outstanding. The amount of the dividend is:

Accepted Answer

A)  $3,750. 
B)  $375. 
C)  $7,125. 
D)  $7,500. 
E)  $5,625.

Question 16

Preferred shares are seen by some investors as being less risky and having a greater dividend rate than common shares.

Accepted Answer

A) True 
 B)False

Question 17

When preferred shares are issued, this will always cause an increase in the future return to common shareholders.

Accepted Answer

A) True 
 B)False

Question 18

Zach Sports Ltd has 1,000 shares of $5.50, cumulative preferred shares and 10,000common shares issued and outstanding. In the previous year which was the first year of operations), the company paid total dividends of $1,000. The amount that must be paid to the preferred shareholders in the current year before any dividend is paid to common shareholders is:

Accepted Answer

A)  $4,500. 
B)  $12,000. 
C)  $10,000. 
D)  $3,500. 
E)  $1,000.

Question 19

Unpaid preferred dividends are called dividends in arrears.

Accepted Answer

A) True 
 B)False

Question 20

The date of record is the date the directors vote to pay a dividend to shareholders.

Accepted Answer

A) True 
 B)False

Exam 12: Organization and Operation of Corporations

For preferred shares to increase the return earned by common shareholders, the preferred dividend rate as a percentage of the capital raised must be:

The costs of bringing a corporation into existence, including legal fees, promoters' fees, and amounts paid to the government are called:

An underwriter keeps shareholder records and prepares official lists of shareholders and dividend payments.

If a corporation that has only one class of shares, or if there is more than one class, the class that has no preference over the other classes of shares, is called:

Corporations can be either public or limited.

One of the preference rights for preferred shares is the right to vote.

Common shares usually carry a preference for dividends.

Legal costs incurred to get a corporation up and running should be accounted for by debiting:

A proxy is:

A new corporation ended its first year of operations with assets of $100,000, liabilities of $75,000, and contributed capital common shares) of $10,000. What was thecorporation's profit for the year?

The type of share that can be bought back by the company at a specified time and price is:

Corporations issue preferred shares in order to raise capital without sacrificing control of the corporation and to increase the return earned by common shareholders.

Whether a business is organized as a corporation or as a proprietorship, the profit reported on the income statement will be the same.

The total amount of cash and other assets received by a corporation from its shareholders in exchange for common shares is included in:

Tech Inc's board of directors voted to declare a common cash dividend of $.0.75 per share. The company has 15,000 common shares authorized, with 10,000 issued and outstanding. The amount of the dividend is:

Preferred shares are seen by some investors as being less risky and having a greater dividend rate than common shares.

When preferred shares are issued, this will always cause an increase in the future return to common shareholders.

Unpaid preferred dividends are called dividends in arrears.

The date of record is the date the directors vote to pay a dividend to shareholders.