Question 1

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

Accepted Answer

The statement is true as per the Revised Act, a transfer of its own stock by a corporation to its stockholders is not considered a distribution.

Question 2

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

Accepted Answer

The answer of A majority,but not all,of the states impose...

Question 3

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

When a corporation issues no par value stock, the entire consideration received constitutes stated capital unless some of it is allocated to capital surplus or paid-in surplus in accordance with the law.

Question 4

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

Under the Revised Act, a director may be personally liable for an illegal dividend only if the director knew, or should have known, that the distribution was illegal, and did not take steps to prevent it. Personal liability is not automatic and depends on the circumstances.

Question 5

Shares without par value may be issued for any amount set by the board or the shareholders.

Accepted Answer

Shares without par value do not have a designated face value, so the board or shareholders can set any value for these shares when issuing them.

Question 6

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

Accepted Answer

Earned surplus is also known as retained earnings and refers to the profits or income that a company has earned but has not distributed to its shareholders in the form of dividends. It includes both gains and losses incurred by the company since its incorporation.

Question 7

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

Accepted Answer

Shareholders have a legal right to receive dividends if they are declared by the board of directors. If dividends are not paid, shareholders can bring suit to require payment.

Question 8

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

Accepted Answer

An investor has the right to transfer his investment securities by sale, gift, pledge, or any other legal method.

Question 9

The earned surplus test for the issuance of dividends by a corporation is less restrictive than the surplus test.

Accepted Answer

The earned surplus test, which allows dividends to be paid only out of profits, is generally more restrictive than the surplus test, which can include both earned surplus and additional paid-in capital.

Question 10

Debt securities represent an ownership interest in the corporation.

Accepted Answer

Debt securities represent a loan to the corporation, not an ownership interest. The bondholders or creditors have a right to receive periodic interest payments and the repayment of principal at the maturity of the security, but they do not own any equity in the company.

Question 11

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

Accepted Answer

A stock dividend that has been declared but not yet distributed may still be revoked by the company, even if it was done lawfully and properly. However, once the dividend has been distributed, it cannot be taken back.

Question 12

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

The answer of The shareholders normally determine the price for...

Question 13

"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

"Investment grade" does refer to the top-ten bond ratings and helps potential investors judge the likelihood of repayment and interest payments.

Question 14

The board of directors may issue bonds without the authorization or consent of the shareholders.

Accepted Answer

The board of directors has the authority to issue bonds without seeking approval from shareholders. However, this power may be limited by the company's bylaws or state laws.

Question 15

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 corporation is only allowed to purchase its own shares out of earned surplus, unless the articles of incorporation or the shareholders permit purchase out of capital surplus.

Question 16

The MBCA as amended in 1980 and the Revised Act have adopted a net asset test for the issuance of dividends.

Accepted Answer

Both the MBCA as amended in 1980 and the Revised Act have adopted a net asset test for the issuance of dividends.

Question 17

A prospectus is an offer a corporation makes to interest people in buying securities.

Accepted Answer

A prospectus is a legal document that a company offers to potential investors as part of the process of selling securities. It contains information about the company, its financial performance, and the intended use of the proceeds from the sale of the securities.

Question 18

"Capital surplus" would be credited with the excess received over par value for shares issued by the corporation.

Accepted Answer

Capital surplus accounts are credited with any amount received for shares issued that exceeds their par value.

Question 19

A stock split results in a larger proportion of corporate ownership by the shareholder.

Accepted Answer

A stock split does not result in a larger proportion of corporate ownership by the shareholder. Instead, it increases the number of shares a shareholder owns, but the percentage of ownership remains the same. For example, if a shareholder owns 100 shares of a company out of 1,000 total shares, they own 10% of the company. If the company splits its stock by issuing 1 additional share for every 1 share owned, the shareholder would now own 200 shares out of 2,000 total shares, but their ownership percentage would still be 10%.

Question 20

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

Accepted Answer

The earned surplus test only allows the payment of dividends from retained earnings or accumulated profits, not capital surplus.

Quiz 34: Financial Structure of Corporations