Deck 30: Financing the Corporation and the Role of the Shareholders

Question 1

If a corporation has only one type of stock,it is:

A)common stock.
B)preferred stock.
C)cumulative stock.
D)convertible stock.

Answer 1

A
Explanation: If a corporation has only one class of stock,it is common stock.If there is more than one class,the common shareholders usually bear the major risks of the business and will benefit most from success.

Question 2

Shares are never worth more than the par or stated value.

Answer 2

False

Question 3

If permitted in the articles,preferred stock can be redeemed by the corporation even if the holders do not wish to sell.

Answer 3

True

Question 4

Debt securities transfer ownership interest in the corporation.

Question 5

Under the MBCA,shareholder approval is required for employee and director stock option plans.

Question 6

The value assigned to the shares in the articles of incorporation is called "par value."

Question 7

A corporation as well as its subsidiaries can vote treasury shares.

Question 8

Holders of secured notes have priority over bondholders as to the assets securing the debt.

Question 9

Shareholders are prohibited from submitting resolutions that are social or political in nature.

Question 10

Preferred stock and common stock are both debt securities.

Question 11

The following arises through the sale of ownership interests in the business in the form of shares of corporate stock.

A)Bond securities
B)Equity securities
C)Debt securities
D)Proxies

Question 12

An illegally paid dividend may be recovered from a shareholder who received it with knowledge of the illegality.

Question 13

A shareholder can sue a corporation if it did not pay a preferred dividend and can also recover the expenses in bringing suit.

Question 14

The value assigned to shares in the articles of incorporation is referred to as:

A)stated value.
B)par value.
C)fair value.
D)capital surplus.

Question 15

Identify the statement which correctly describes preferred stocks.

A)Preferred stock can never be converted into common stock.
B)The right to vote is usually granted only in the event that dividends due are fully repaid.
C)Redemption of preferred stocks is allowed irrespective of whether the cost would make the corporation insolvent.
D)A corporation can buy back preferred stocks from holders even if they do not wish to sell them.

Question 16

Corporations do not have inherent power to borrow money necessary for their operations by issuing debt securities.

Question 17

Kirby subscribed to purchase 100 shares of stock to be issued by Globule,Inc.,an already existing corporation.Globule accepted the subscription.The price set forth in the subscription agreement was $10 per share.The par value of the stock was $8 per share.When the time came for Kirby to pay the amount of his subscription,Kirby paid only $6 per share,claiming that such amount represented the fair value of the shares.Globule delivered the stock certificates to Kirby,but demanded the other $4 per share.Is Kirby liable for the other $4 per share?

A)No,because regardless of what the subscription price was,he cannot be forced to pay more than the fair market value of the shares.
B)Yes,because Globule's delivery of the stock certificates implied its rights to collect the extra $4 from Kirby.
C)Yes,because regardless of the fair value,a purchaser is liable for stocks issued for less than the par value.
D)No,but he is liable for another $2 per share.

Question 18

Dividends on noncumulative preferred stock need to be paid later if they are not earned and paid in the year due.

Question 19

Dividends must always be paid in cash.

Question 20

With preferred stocks,the right to vote is usually granted to a shareholder only in the event that dividends due are not paid.

Question 21

To appoint a proxy,the MBCA requires a ____.

A)court order
B)written document
C)waiver
D)vote of approval from other shareholders

Question 22

Stock splits:

A)are a type of dividend.
B)change the par value of the shares.
C)decrease the number of shares outstanding.
D)change the retained earnings account.

Question 23

Short-term debt instruments are called:

A)par mechanisms.
B)notes.
C)debentures.
D)bonds.

Question 24

Turnstile Corporation's meeting of shareholders is being held.Principles of cumulative voting apply to the election of directors.If 400 shares are being voted and four directors are to be elected,how many votes are needed to elect one director?

A)100
B)101
C)80
D)81

Question 25

Rocky is a shareholder of Specific General,Inc.,a large corporation having thousands of shareholders.Because he wishes to communicate with other shareholders concerning matters related to corporate business,Rocky makes a written request that Specific General's management provide him access to a list containing the names of all shareholders of the corporation.Citing the administrative burden that would be created if requests of such nature were granted routinely,the Specific General management informed Rocky of its policy that shareholders could not review such records.If management persists in denying Rocky access to the shareholder list,Rocky:

A)can bring suit to enforce his right to examine the shareholder list as he has proper purpose.
B)cannot hold Specific General liable because his request lacks proper purpose.
C)can appeal for amendment of the corporation's laws.
D)has to abide by the rules incorporated by the management of the corporation.

Question 26

The dividends on this stock if not paid this year will be payable in any year the funds are available.

A)Cumulative preferred
B)Noncumulative preferred
C)Participating preferred
D)Cumulative to the extent earned

Question 27

Which of the following is true about the rights of shareholders?

A)They do not have the right to be informed about their investment.
B)They are aimed at protecting the interests of only major shareholders.
C)They have the right to make bylaws.
D)They do not have the right to put ceilings on the salaries of top executives.

Question 28

Under the MBCA,a corporate official who denies a proper demand by a shareholder to inspect the shareholder list:

A)is liable for a penalty of 10 percent of the value of the shares of the demanding shareholder.
B)is liable for a penalty of 30 percent of the value of the shares of the demanding shareholder.
C)is not subject to any liability under the MBCA.
D)is liable for a penalty of 15 percent of the value of the shares of the demanding shareholder.

Question 29

The SEC requires proxy statements to include:

A)information about employment contracts but not stock option benefits.
B)information on any material transaction between a nominee and the corporation.
C)whether or not the proxy is coupled with an interest.
D)a choice to vote for or withhold a vote from all of the shareholders.

Question 30

Long-term,secured debt securities are called:

A)bonds.
B)indentures.
C)debentures.
D)notes.

Question 31

Under the MBCA,a corporation does not need shareholder approval to purchase securities out of:

A)equity surplus.
B)unrestricted earned surplus.
C)capital surplus.
D)restricted earned surplus.

Question 32

Under the MBCA,a subscription to buy stock in a corporation that is not yet in existence is usually treated as a(n)______ until incorporation is completed.

A)offer
B)promissory bid
C)acceptance
D)void

Question 33

Distributions of shares in the corporation itself are called ____.

A)stock dividends
B)cash dividends
C)property dividends
D)equity securities

Question 34

Which of the following statements about debt securities is true?

A)They transfer an ownership interest in the corporation.
B)They do not arise in the form of a debenture.
C)They arise in the form of notes,debentures,or bonds.
D)They are generally in the form of stocks and not loans.

Question 35

A shareholder's function includes:

A)election of investors.
B)approval of mergers or a voluntary dissolution.
C)approval of loans to directors by the corporation.
D)approval of stock option plans for other shareholders.

Question 36

Which of the following shareholders are entitled to vote?

A)Someone who owns a preferred stock and has it listed in his name.
B)Those who are shareholders of record on a date prior to that established by the directors.
C)A stockbroker without a proxy from the record holder.
D)A person with legal title to the stock.

Question 37

If the required notice of a shareholder meeting is not given,actions taken at the meeting:

A)are of no effect.
B)are effective only if two-thirds of the stockholders approve the action.
C)are effective,but subject to amendment.
D)are effective only if half of the stockholders approve the action.

Question 38

One can become a shareholder:

A)by buying newly-issued shares that are sold through a stockbroker but which have not been underwritten.
B)only by subscribing to shares that are being issued by an existing corporation.
C)by buying newly-issued shares that have been underwritten by an investment banker and also sold by him.
D)by subscribing to shares in a new corporation and having them accepted by the board of directors after incorporation.

Question 39

One type of stock enables the shareholder to get his/her usual dividend.Then,after the common shareholders receive their normal dividend,he/she is able to share in any additional income with the common shareholders.This type of stock is ____.

A)cumulative preferred
B)noncumulative preferred
C)participating preferred
D)cumulative to the extent earned

Question 40

Which of the following is true for debentures?

A)It is a type of short term equity security.
B)It is a type of long-term secured debt security.
C)It can have a term of 10 years or less.
D)It is a type of long-term unsecured debt security.

Question 41

The directors of Acme Corp.unanimously approved a merger agreement between Acme and Generic,Inc.The MBCA is in effect in the state where both corporations were incorporated.The two corporations begin performing the various duties set out in the merger agreement.Certain shareholders of Acme then institute suit in an effort to block the merger agreement from being implemented.The shareholders maintain that the proposed merger should have been submitted to them for approval.Nothing in Acme's articles of incorporation requires the directors to submit such matters to the shareholders.The directors claim that the merger was carefully considered and is in the best interests of the corporation.Under these circumstances:

A)the directors will prevail if they can prove that the merger was in the corporation's best interests.
B)the shareholders will be successful in their suit because under the MBCA,approval of all classes of shares is required for a merger or consolidation.
C)the directors will prevail because the MBCA gives them the right to overrule the shareholders' decisions in mergers.
D)the shareholders will not be successful in their suit because the directors have acted in the best interests of the corporation.

Question 42

Under which of the following conditions would a shareholder be liable to the corporation or its creditors?

A)If he/she buys stock that was fully paid for when issued.
B)If he/she deals only with dividends and not shares.
C)If he/she is involved in "watered stock" situations.
D)If he/she was unaware of the illegality of the dividends.

Question 43

When is a shareholder permitted to sue as a representative of a corporation?

Question 44

When a number of people have a right or claim against the same defendant,growing out of essentially the same set of facts,a(n)_____ may be brought by any one of them.

A)class action
B)suit
C)litigation
D)appellate

Question 45

Under the MBCA,what types of corporate documents does a shareholder have a right to inspect?

Question 46

What requirements must be met if a shareholder meeting is to be conducted remotely?

Question 47

A _____ occurs when two or more corporations become part of a new corporation.

A)merger
B)takeover
C)partnership
D)consolidation

Question 48

Which of the following must exist before a shareholder can bring a derivative action?

A)The shareholder must also be an officer or director.
B)The shareholder must have owned shares at the time of the wrong against the corporation.
C)A majority of the common shareholders must support the action.
D)The shareholder should not be an employee of the firm.

Question 49

Acme Corp.made a public offering of its shares.Stein bought 100 shares at $10 each.Three months later,Acme announced that it planned to merge with another company.Under the terms of the merger,Acme shareholders would receive $14 per share,which was $1 more than the market price on the day prior to the announcement.Acme's shareholders approved the merger.Stein did not vote for or against the merger,but he turned in his shares and received $14 for each share.Stein later argued Acme's directors acted improperly in approving the merger.He also believed the price he and other shareholders received was grossly inadequate.Will Stein be able to enforce his appraisal rights?

Question 50

How does common stock differ from preferred stock?