Questions and Answers
Common Stock can be classified as which of the following? (Select all that apply)
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?
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What is Treasury Stock?
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A corporation buys back its stock for a number of reasons such as increasing _____.
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What is the Outstanding Stock Formula?
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What does Par Value represent?
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What is Book Value?
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What is Market Value?
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What do shareholders vote on?
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What is Statutory Voting?
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What is Cumulative Voting?
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What are Preemptive Rights?
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Stockholders can lose more than the amount they have paid for a corporation's stock.
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What does a Forward Stock Split do?
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What does a Reverse Stock Split do?
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What is a Long Sale?
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What is a Short Sale?
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What is a Capital Gain?
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What is a Realized Gain?
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What is an Unrealized Gain?
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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.