Question 1

The payment of a dividend will reduce the following two accounts:

Accepted Answer

The answer of The payment of a dividend will reduce...

Question 2

The date a board of directors votes to pay a dividend is called the:

Accepted Answer

The date of declaration is the date on which the board of directors votes to pay a dividend.

Question 3

Owners of preferred shares often do not have:

Accepted Answer

Preferred shareholders typically do not have voting rights, unlike common shareholders.

Question 4

The achievement of an increased return on common shares by paying dividends on preferred shares or interest at a rate that is less than the rate of return earned with theassets invested in the corporation by the preferred shareholders or creditors is called:

Accepted Answer

Financial leverage refers to the use of borrowed funds or preferred equity to increase the potential return on equity. By paying dividends or interest at a lower rate than the return on assets, the company can enhance the return on common equity.

Question 5

Preferred shares that give the shareholders the option of exchanging their preferred shares for common shares at a specified rate are known as:

Accepted Answer

Convertible preferred shares allow shareholders to exchange their preferred shares for common shares at a predetermined rate.

Question 6

Preferred shares that the issuing corporation, at its option, may retire by paying aspecified amount to the preferred shareholders plus any dividends in arrears are called:

Accepted Answer

Callable preferred shares can be retired by the issuing corporation at its option by paying a specified amount to the preferred shareholders plus any dividends in arrears.

Question 7

The total amount of shares that a corporation's charter allows it to issue is:

Accepted Answer

The total amount of shares that a corporation's charter allows it to issue is referred to as "Authorized" shares.

Question 8

The financial statement that shows the changes to a corporation's contributed capital is called:

Accepted Answer

The Statement of Changes in Equity shows changes in a corporation's equity, including contributed capital, retained earnings, and other reserves.

Question 9

A preferred share on which the right to receive dividends is lost for any year that the dividends are not declared is a:

Accepted Answer

Noncumulative preferred shares do not accumulate unpaid dividends. If dividends are not declared in a given year, the right to receive them is lost.

Question 10

Which of the following occurs at the date of record?

Accepted Answer

At the date of record, the company determines which shareholders are entitled to receive the dividend by preparing a list of shareholders.

Question 11

The category of equity for a corporation which represents the cumulative profits less losses and dividends is called:

Accepted Answer

Retained earnings represent the cumulative profits of a corporation that have been retained in the business after accounting for losses and dividends paid out to shareholders.

Question 12

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

Accepted Answer

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

Question 13

The preemptive right is the right of preferred shareholders to:

Accepted Answer

The answer of The preemptive right is the right of...

Question 14

The right of common shareholders to protect their proportionate interest in acorporation by having the first opportunity to buy additional shares of common shares issued by the corporation is called:

Accepted Answer

The preemptive right allows existing shareholders to maintain their proportional ownership in a company by giving them the first opportunity to purchase additional shares before the company offers them to the public.

Question 15

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

Accepted Answer

Organization costs are debited because they are considered as startup expenses incurred to establish the corporation.

Question 16

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

Accepted Answer

Redeemable preferred shares can be bought back by the issuing company at a specified time and price, as they include a redemption feature that allows the company to repurchase them.

Question 17

Brian's Stereo Ltd issued preferred shares that have a $10 dividend. This means that:

Accepted Answer

Preferred shares with a $10 dividend mean that each share receives a $10 dividend per year.

Question 18

A dividend preference for preferred shares means that:

Accepted Answer

Preferred shareholders have a priority over common shareholders when it comes to receiving dividends, meaning they are paid first.

Question 19

The largest number of shares specified by a corporation are known as:

Accepted Answer

Authorized shares are the maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.

Question 20

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

If the preferred dividend rate is lower than the overall rate of return on equity, the excess return benefits common shareholders, increasing their return.

Quiz 12: Organization and Operation of Corporations