43. Which of the following is incorrect with regard to treasury shares?
a. No dividends may be paid on treasury shares.
b. They are issued but not outstanding.
c. A corporation may sell treasury shares for any amount the board of directors determines, even if the shares
have a par value that is more than the sale price.
d. The concept of treasury stock was created by the MBCA and is carried forward in the RMBCA.
44. Allen owns 500 of the 5,000 shares outstanding of General Myopics. GM plans to issue 600 new shares. If Allen has
preemptive rights, he may buy:
a. all 600 shares before anyone else.
b. 600 shares at the same price he paid for the other stock.
c. 6 shares at a discount of 10%.
d. None of these.
45. Which of the following is correct with regard to “par value“?
a. It indicates the worth of the stock at issue.
b. It is the minimum price at which the corporation may sell the stock at issuance.
c. It represents the maximum price at which the stock may be sold at issuance.
d. It represents the amount for which the stock must be traded.
46. If 100 shares of $50 par value stock were issued at $75 per share, how much would constitute capital surplus?
a. $750
b. $7,500
c. $2,500
d. $5,000
47. Max buys shares of newly issued Z Corp. stock for $10 per share and pays $1,000 cash, a car worth $2,000, and a
promissory note for $5,000. Under traditional corporate law, followed in about half of the states, how many shares of
stock could Max validly buy?
a. 100
b. 300
c. 800
d. 600
48. Which of the following is correct with regard to common stock?
a. The Revised Act has eliminated the terms “preferred” and “common.”
b. Common stock does not have any special contract rights or preferences.
c. Common stock generally bears the greatest risk of loss in the event of the failure of the enterprise.
d. All of these are correct with regard to common stock.
49. If Class A preferred shares provide only for a cumulative dividend of $3 per share, upon liquidation Class A
Preferred will:
a. receive $3 per share more than common shares.
b. receive 103% of common shares.
c. share equally with common shares.
d. be subordinated to the rights of common shares.
50. When the articles provide a , preferred stock has priority over common stock to the extent the articles state
after a corporation is dissolved and when assets are distributed.
a. stock right
b. liquidation preference
c. dividend preference
d. preemptive right
51. Winstead Co. is authorized by its articles of incorporation to sell 50,000 shares of stock. The company:
a. may not sell 55,000 shares under any circumstances.
b. must sell the number of shares authorized by its articles of incorporation.
c. would issue void securities for any shares the company purports to sell over the 50,000.
d. must repay, with interest from the date of purchase, any purchaser of shares over 50,000.
52. Which of the following is not a right conferred on the owner of an equity security?
a. The right to title to a proportionate share of the corporation‘s property
b. The right to participate in control of the corporation
c. The right to participate in the earnings of the corporation
d. The right to participate in the residual assets of the corporation upon dissolution
53. ZYX Corporation purchases 1,000 shares of its own stock from Jones, a shareholder, at a price of $50 a share.
These shares will be known as:
a. treasury shares.
b. preemptive shares.
c. preferred stock.
d. no par stock.
54. A shareholder’s obligation to repay an illegally declared dividend depends on:
a. the shareholder’s good or bad faith in accepting the dividend.
b. the solvency or insolvency of the corporation and, in some instances, special statutory provisions.
c. the shareholder’s knowledge of the facts.
d. All of these.
55. Walker recently purchased 1,000 shares of Heights Corp. stock, but now receives additional 100 shares of Heights
stock, which represent a ratable distribution of additional shares by the corporation. Walker’s receipt of additional
shares is a:
a. property dividend.
b. liquidated dividend.
c. convertible dividend.
d. stock dividend.
56. If the issued and outstanding shares are broken up into a greater number of shares, each representing a
proportionately smaller interest in the corporation, this is known as a:
a. property dividend.
b. stock split.
c. stock dividend.
d. liquidating dividend.
57. Which of the following determines when to declare dividends and in what amount?
a. The stockholders
b. The officers of the corporation
c. The board of directors
d. The state in which the corporation was chartered
58. In some states, preemptive rights do not apply to:
a. the reissue of previously issued shares.
b. shares issued for noncash consideration.
c. shares issued in connection with a merger.
d. All of these are correct.
59. The statute which contains the rules applicable to investment securities transfers is:
a. the Securities and Exchange Commission Act.
b. Article 2 of the UCC.
c. Article 8 of the UCC.
d. the Model Business Corporation Act.
60. Bonds subject to a redemption provision which permits the corporation to redeem or pay off all, or a part, of the issue
before maturity at a specified redemption price are known as bonds.
a. secured
b. income
c. callable
d. convertible
61. What is the principal source for corporate financing?
a. Debt
b. Equity investment securities
c. Both of these.
d. None of these.
62. What do shares of equity securities confer on their owner in regard to interest in the corporation?
a. Right to participate in control
b. Right to participate in earnings of the corporation
c. Right to participate in residual assets of the corporation upon dissolution
d. All of these.
63. Under the RMBCA, if the charter states that “the corporation elects to have preemptive rights,” shareholders have
preemptive rights with respect to:
a. shares issued as compensation to directors, officers, and employees.
b. shares issued within six months of incorporation.
c. shares issued for consideration other than money.
d. unissued shares.
64. A distribution may be in the form of:
a. declaration or payment of a dividend.
b. a purchase, redemption, or other acquisition of shares.
c. a distribution of indebtedness.
d. All of these.
65. A share dividend:
a. is a type of distribution.
b. makes no difference in the assets of the corporation or in the shareholder’s relative interest in the net worth of
the corporation.
c. is also known as a property dividend.
d. All of these.
66. The Revised Act permits a corporation to purchase, redeem, or otherwise acquire its own shares unless:
a. the corporation’s total assets after the distribution would be less than the sum of its total liabilities and the
maximum amount that 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.
d. None of these.
67. Gail transfers property to Tel Ko Corp. that she claims is valued at $5,000. The directors determine that the property
is adequate to be exchanged for $5,000 worth of Tel Ko Corp. stock. Later it is discovered that the property‘s true
value is $2,000. Under the RMBCA, which is true regarding Gail’s liability?
a. She has none, since the directors’ determination of adequacy of consideration was conclusive.
b. She is liable to the creditors of the corporation for the $3,000.
c. She is liable to the corporation for $3,000.
d. She is liable to both the corporation and its creditors for $3,000.
68. Percy buys stock in XTX Corporation that pays dividends of $5 per share before dividends are paid on other stock of
XTX. If the dividends are not paid in any given year, the dividends for that year must be paid when the company
next declares dividends, until fully paid. Percy’s dividends per year will not exceed $5 per share. Percy’s stock is:
a. cumulative common stock.
b. noncumulative preferred stock.
c. cumulative preferred stock.
d. participating preferred stock.
69. Harry bought preferred noncumulative stock on which there were no dividends declared for the year. The dividends
that were not declared for the year will:
a. be paid the next year.
b. be paid upon the next declaration of dividends.
c. be paid out of the common stock dividend fund.
d. not be paid.
70. Participating stock will:
a. share with common stock any additional dividends after preferred and common stockholders receive their
normal dividends.
b. accumulate dividends that will be paid later.
c. participate in earnings only to the extent that all other classes do.
d. participate in earnings to the same extent as common stock.
71. Markell Inc. issued stock options. Which of the following is not true?
a. The shareholders determine the terms upon which the stock options are issued, their form and content, and the
consideration for which the shares are to be issued.
b. A stock warrant is a type of stock option that is freely transferable and that typically has a longer term than a
stock right.
c. Markell Inc. may use stock options or warrants in its incentive compensation plans for the directors and
officers of the company.
d. Markell Inc. may use stock options to help in raising capital for the business by making one class of securities
more attractive by including in it the right to purchase shares in another class.
72. Redemption is not permitted if the corporation:
a. asks for an injunction.
b. would reduce its total assets below the stated capital amount by the redemption.
c. has outstanding treasury shares.
d. is likely to be rendered insolvent by the redemption.
73. If dividends are not declared for five years, but the company has accumulated earnings each year, the shareholders
may:
a. petition the court of law for redress.
b. override the board with a two-thirds vote.
c. ask for an injunction requiring a dividend to be declared.
d. do nothing but sell their stock.
74. In which of the following ways do debt and equity securities necessarily differ?
a. In their characteristic of being sources for corporate financing.
b. In whether they represent an ownership interest.
c. Voting rights.
d. Debt and equity securities do not differ in any of these ways.
75. State laws regulating the issuance and sale of corporate shares of stock and other securities, typically with provisions
prohibiting fraud in the sale of securities are called:
a. blue-sky laws.
b. Securities and Exchange Commission Acts.
c. model investment securities acts.
d. stock warrant laws.
76. Blighs, Inc. would like to pay a dividend to its shareholders. It has only been in business a few years and does not yet
have any retained earnings. However, it has a new product which is breaking all sales records. This quarter, Blighs
anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under
which of the following tests would Blighs be able to pay a dividend? Explain.
a. Earned surplus test
b. Surplus test
c. Net assets test
77.
a. Discuss preemptive rights.
b. Are preemptive rights more important in a closely held corporation or in a publicly held
corporation? Explain.
78. Discuss how the RMBCA defines the term “distribution.”
79. What are the two major issues regarding payment for shares?
80. Discuss the use and types of stock options.