Common Stock Concepts Quiz

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Questions and Answers

Common Stock can be classified as which of the following? (Select all that apply)

Treasury (correct)

Issued (correct)

Authorized (correct)

Outstanding (correct)

What does Authorized Stock refer to?

A specific number of shares the company has authorization to issue or sell.

What is Issued Stock?

Stock that has been authorized and distributed to investors.

Outstanding Stock includes which of the following?

Investor-owned shares Signup and view all the answers

What is Treasury Stock?

Stock a corporation has issued and subsequently repurchased from the public. Signup and view all the answers

A corporation buys back its stock for a number of reasons such as increasing _____.

EPS Signup and view all the answers

What is the Outstanding Stock Formula?

Issued - Treasury = Outstanding Signup and view all the answers

What does Par Value represent?

An arbitrary value assigned to a share of stock by its buyer. Signup and view all the answers

What is Book Value?

Current liquidation value of a share. Signup and view all the answers

What is Market Value?

Supply and demand value. Signup and view all the answers

What do shareholders vote on?

All of the above Signup and view all the answers

What is Statutory Voting?

Allows a stockholder to cast one vote per share owned for each item on a ballot. Signup and view all the answers

What is Cumulative Voting?

Allows stockholders to allocate their total votes in any manner they choose. Signup and view all the answers

What are Preemptive Rights?

Additional common stock offers securities to its common shareholders before the general public. Signup and view all the answers

Stockholders can lose more than the amount they have paid for a corporation's stock.

False Signup and view all the answers

What does a Forward Stock Split do?

Increases the number of shares outstanding, decreases market price and EPS. Signup and view all the answers

What does a Reverse Stock Split do?

Decreases the number of shares outstanding, increases market price and EPS. Signup and view all the answers

What is a Long Sale?

Buy low, sell high later. Signup and view all the answers

What is a Short Sale?

Sell high, buy low later. Signup and view all the answers

What is a Capital Gain?

When an investor buys low and sells high. Signup and view all the answers

What is a Realized Gain?

A gain from selling stock at a higher price. Signup and view all the answers

What is an Unrealized Gain?

A gain from holding stock that has not been sold. Signup and view all the answers

Study Notes

Common Stock Definitions

Common Stock classification includes authorized, issued, outstanding, and treasury shares.
Authorized Stock is the maximum number of shares a company can issue or sell.
Issued Stock refers to shares that have been authorized and distributed to investors.
Outstanding Stock consists of shares issued but not repurchased by the company, representing ownership held by investors.
Treasury Stock is stock repurchased by the corporation from the public, lacking voting rights and dividends.

Reasons for Stock Buybacks

Corporations may buy back stock to increase earnings per share (EPS).
Shares may be retained for stock options or to fund employee pension plans.
Repurchased stock can be used for future acquisitions.

Outstanding Stock Calculation

Outstanding Stock Formula: Outstanding shares equal issued shares minus treasury shares.

Stock Valuation Terms

Par Value is an arbitrary value assigned to a share by its buyer.
Book Value represents the current liquidation value of a share, calculated as (Tangible Assets - Liabilities) divided by the number of outstanding shares.
Market Value is determined by supply and demand, representing the price investors pay to acquire stock.

Voting Rights

Shareholder Voting Rights include voting on stock splits, board members, and new equity securities, with approval required for stock value changes.
Board of Directors Voting Rights focus on decisions related to stock payment and repurchase.

Voting Systems

Statutory Voting allows shareholders one vote per share for each ballot item, favoring larger shareholders.
Cumulative Voting permits shareholders to distribute their total votes as they choose, benefiting smaller investors.

Preemptive Rights

Stockholders have the right to purchase additional newly issued shares to maintain their ownership percentage prior to offerings to the general public.

Liability and Stock Splits

Limited Liability ensures stockholders cannot lose more than their investment in stock.
Forward Stock Split increases the number of shares, reducing market price and EPS.
Reverse Stock Split decreases the number of shares, increasing market price and EPS.

Stock Sales

Long Sale involves buying stock at a low price to sell at a higher price later.
Short Sale entails selling stock at a high price and repurchasing it later at a lower price.

Tax Implications

Selling stock at a higher price results in a Capital Gain; realized gains are taxable.
Wenn an investor does not sell, the gain remains Unrealized and is not subject to taxation.
Stock gains are only taxable upon realization through sale.

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Description

Test your knowledge of common stock terminology and concepts with this quiz. Explore definitions and classifications such as authorized, issued, outstanding, and treasury stock. Perfect for finance students and professionals looking to refresh their understanding of equity structure.