Mini-Review of Corporate Financial Structure and Distributions (1).pdf

MINI-REVIEW CORPORATE FINANCIAL STRUCTURE AND DISTRIBUTIONS QUESTION #1 Shareholders purchasing shares become holders of equity securities. ANSWER True QUESTION #2 Stock sold for less than par value is called fractional stock. ANSWER False watered stock QUESTION #3 Authorized shares refers...

MINI-REVIEW CORPORATE FINANCIAL STRUCTURE AND DISTRIBUTIONS QUESTION #1 Shareholders purchasing shares become holders of equity securities. ANSWER True QUESTION #2 Stock sold for less than par value is called fractional stock. ANSWER False watered stock QUESTION #3 Authorized shares refers to the number of shares sold to shareholders. ANSWER False issued shares QUESTION #4 A cash dividend is the most common corporate distribution. ANSWER True QUESTION #5 Shareholders of a Subchapter S corporation must report and pay taxes upon their proportionate share of the corporation’s entire income, regardless of whether they have received distributions. ANSWER True QUESTION #6 A property dividend is reported to the IRS based on the book value. ANSWER False fair market value QUESTION #7 Bonds and debentures are types of equity securities. ANSWER False debt securities QUESTION #8 Treasury shares cannot receive dividends. ANSWER True QUESTION #9 Market capitalization is the total dollar market value of all of a corporation’s outstanding shares. ANSWER True QUESTION #10 A share dividend changes the proportionate stock ownership of each shareholder. ANSWER False QUESTION #11 The two major types of equity securities a corporation may issue are common stock and preferred stock. ANSWER True QUESTION #12 Preferred stock may be subject to certain limitations. ANSWER True QUESTION #13 An ex-dividend is a dividend paid to a shareholder who purchases stock after a dividend is declared by the board of directors. ANSWER False The dividend is paid to the former owner. QUESTION #14 A share dividend is a non-taxable event at the time the shareholder receives the shares. ANSWER True QUESTION #15 A debenture is a secured debt instrument. ANSWER False unsecured QUESTION #16 Each series of stock can be afforded different rights and limitations as long as these rights and limitations are identical for all shares within a series. ANSWER True QUESTION #17 Holders of common stock typically have three basic rights: voting rights, dividend rights, and option rights. ANSWER False Voting rights, dividend rights, and liquidation rights QUESTION #18 Scrip is a certificate representing a percentage of a full share. ANSWER True QUESTION #19 Reverse stock splits typically are used to lower the price of shares. ANSWER False to increase the price QUESTION #20 The date upon which interest is paid to a bondholder is the maturity date. ANSWER False The date upon which the principal is returned to the bondholder. QUESTION #21 Nonqualified stock options receive special tax treatment. ANSWER False incentive stock options QUESTION #22 Corporate accounting typically divides capital into three accounts: earned surplus, retained earnings, and capital surplus. ANSWER False Stated capital, capital surplus, and earned surplus QUESTION #23 A stock split is a non-taxable event to the shareholder until such time as the shareholder sells the shares of stock. ANSWER True QUESTION #24 A debt security holder has no right to participate in the management of the corporation nor to receive profits. ANSWER True QUESTION #25 The first section of an annual report is the balance sheet. ANSWER False The president’s report QUESTION #26 It is a common practice for a corporation to issue a greater number of shares at a lower price per share than to issue a smaller number of shares at a higher price. ANSWER True QUESTION #27 If shares that are not fully paid are issued, the shares are nonassessable. ANSWER False They are assessable. QUESTION #28 Common stock can be divided into classes. ANSWER True QUESTION #29 The more preferences accorded a type of preferred stock, the higher the fixed rate tends to be. ANSWER False lower QUESTION #30 Stock issued without stock certificates is referred to as uncertified shares. ANSWER True QUESTION #31 After a stock split, the stock price will be increased because the number of outstanding shares will be increased. ANSWER False The stock price will be reduced. QUESTION #32 The capital surplus account represents the permanent investment capital of the corporation. ANSWER False The stated capital account. QUESTION #33 Holders of straight preferred stock are not entitled to back payment of missed dividends if the board of directors fails to distribute dividends in a particular quarter. ANSWER True QUESTION #34 A sinking fund is a reserve account set aside by a corporation for the future redemption of stock. ANSWER True QUESTION #35 Common stock has the possibility of a higher rate of return than preferred stock. ANSWER True QUESTION #36 A reverse stock split is the consolidation of the number of outstanding shares into a lesser number. ANSWER True QUESTION #37 A stock split does not modify a corporation’s capital stock structure. ANSWER False QUESTION #38 The owners of uncertified shares have the same rights as the owners of certified shares. ANSWER True QUESTION #39 A call is an option agreement permitting an individual or entity to sell stock at a specified price. ANSWER False a put QUESTION #40 The two permissible sources of share dividends are the corporation’s treasury shares and authorized-but-unissued shares. ANSWER True QUESTION #41 When stock is given no par value, the Board of Directors fixes a minimum value for stock shares, which is referred to as the stated value. ANSWER True QUESTION #42 The right of preferred shareholders to dividends is a residual right. ANSWER False common shareholders QUESTION #43 The earned surplus account contains the corporation’s accumulated profits from the running of the business, minus dividends paid to shareholders. ANSWER True QUESTION #44 The interest paid by the corporation to the holder of a bond or debenture is taxdeductible to the corporation. ANSWER True QUESTION #45 An income statement is divided into three parts: assets, liabilities, and shareholders’ equity. ANSWER False a balance sheet QUESTION #46 The interest rate paid on a bond is referred to as the coupon rate. ANSWER True QUESTION #47 Stock certificates must be signed by the Board of Directors. ANSWER False by one or more officers QUESTION #48 The distribution of cash dividends is taxdeductible to the corporation. ANSWER False QUESTION #49 The balance sheet provides a macro view of the performance of a corporation. ANSWER False a micro view QUESTION #50 Current assets are cash and all other assets that are easily convertible into cash within the course of the year. ANSWER True QUESTION #51 The holder of a discounted bond receives less than the full face value upon maturity. ANSWER False QUESTION #52 The tax rate for the Florida documentary stamp tax on the issuance of corporate stock is $.70 per each $100 or fraction thereof of the value of the stock. ANSWER False $.35 per each $100 or fraction thereof QUESTION #53 Holders of cumulative preferred stock are accorded a fixed-rate dividend and also share in the residual dividends on the same basis as common stockholders. ANSWER False participating preferred stock QUESTION #54 A zero-coupon bond does not receive interest until the maturity date of the bond. ANSWER True QUESTION #55 Earnings season occurs in the month following the end of each quarter. ANSWER True QUESTION #56 Another name for the income statement is the profit and loss statement. ANSWER True QUESTION #57 The lower the credit rating, the higher the interest rate the corporation pays to a bondholder. ANSWER True QUESTION #58 Earnings per share is calculated by dividing the net profit of the corporation by the total number of outstanding shares. ANSWER True QUESTION #59 Over-the-counter is a term used for securities traded on a formal stock exchange. ANSWER False It is a term used for a security traded in some context other than on a formal stock exchange. QUESTION #60 Mega cap companies have a market capitalization between $10 billion and $50 billion. ANSWER False greater than $200 billion