Multiple Choice Answers

1. Which of the following is not a right or attribute of common stock ownership?
A. Electing directors.
B. Liability limited to amount invested.
C. Approving changes in corporate charter.
D. Determining dividend policy.

2. Which of the terms is not used to identify owners’ equity?
A. Partner’s capital.
B. Proprietor’s capital.
C. Paid-in-capital and retained earnings.
D. Additional-paid-in-retained earnings.

3. Which of the following is not an owner’s equity account?
A. Common stock.
B. Capital stock.
C. Retained earnings.
D. Accumulated depreciation.
E. Paid-in-capital in excess of par.

4. Another term frequently used to describe owners’ equity is:
A. net assets.
B. gross assets.
C. paid-in capital.
D. capital stock.

5. Which of the following is one of the two generally practiced methods for electing corporate directors?
A. Democratic voting.
B. Representative voting.
C. Cumulative voting.
D. Census voting.
E. None of the above.

6. If a common stock has no par value:
A. there is no way of determining the market value per share.
B. the stock must have a stated value.
C. there will not be any additional paid-in capital related to it.
D. the stockholders do not have a preemptive right.

7. When common stock has a par value:
A. the liability of the stockholders is limited to the par value.
B. there will probably be additional paid-in capital in the balance sheet.
C. the market value of the stock will be higher than if there is no par value.
D. the paid-in capital will equal the par value of the number of shares issued.

8. The dollar amount of the common stock in the balance sheet of a corporation that has common stock with a par value is the number of shares:
A. issued, multiplied by the amount received per share.
B. outstanding, multiplied by the amount received per share.
C. issued, multiplied by the par value per share.
D. outstanding, multiplied by the par value per share.

9. Which of the following is not usually a right or attribute of preferred stock?
A. Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.
B. Having a priority claim to dividends relative to the common stock’s claim to dividends.
C. Having a priority claim in liquidation relative to the common stock’s claim in liquidation.
D. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied.

10. Additional paid-in capital is most likely to appear in the balance sheet of a corporation that:
A. has par value stock.
B. has no-par value stock.
C. has issued stock at different dates.
D. has issued stock dividends.

11. Retained earnings represents:
A. cash that is available for dividends.
B. the total net income of the firm since its beginning.
C. net income that has been reinvested in the company.
D. net income plus gains (or minus losses) on treasury stock transactions.

12. Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because:
A. the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount.
B. preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value.
C. preferred stock may be convertible to common stock, but long-term debt cannot be convertible.
D. for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

13. The annual per share dividend requirement of a 6%, $80 par value preferred stock that was issued for $85 is:
A. $4.80
B. $5.10
C. $6.00
D. $8.00

14. The number of shares of a class of stock that are outstanding is:
A. the number of shares authorized minus the number of shares issued.
B. the number of shares authorized minus the number of shares held in the treasury.
C. the number of shares issued minus the number of shares held in the treasury.
D. the number of shares issued minus the number of shares owned by directors.

15. A stock dividend is similar to a cash dividend in that:
A. the stockholder’s equity in the firm’s net assets is reduced by each.
B. the stockholder’s cash is increased by each.
C. the stockholder’s equity in the firm’s net assets is increased by each.
D. retained earnings and the amount of potential future dividends is reduced by each.