Because equity holders are the last to receive any distribution of assets as a result of bankruptcy proceedings, common stockholders expect

Because equity holders are the last to receive any distribution of assets as a result of
bankruptcy proceedings, common stockholders expect
(a) fixed dividend payments.
(b) greater compensation in the form of dividends and rising stock prices.
(c) all profits to be paid out in dividends.
(d) warrants to be attached to the stock issue as a sweetener.
Answer: B
Level of Difficulty: 3
Learning Goal: 3
Topic: Features of Common Stock
32. The attempt by a non-management group to gain control of the management of a firm
by soliciting a sufficient number of proxy votes is called
(a) hostile takeover.
(b) supervoting shares.
(c) proxy battle.
(d) None of the above.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Common Stock Voting
33. The disadvantages of issuing common stock versus long-term debt include all of the
following EXCEPT
(a) the potential dilution of earnings.
(b) high cost.
(c) no maturity date.
(d) the market perception that management thinks the firm is over-valued, causing a
decline in stock price.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Contrasting Debt and Equity
34. The par value on common stock has all of the following characteristics EXCEPT
(a) a generally low value.
(b) some states tax according to the par value.
(c) indicates the market value at which the stock was originally sold.
(d) stated in the corporate charter.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Features of Common Stock
35. A firm issued 5,000 shares of $1 par-value common stock, receiving proceeds of $20
per share. The accounting entry for the paid-in capital in excess of par account is
(a) $5,000.
(b) $ 95,000.
(c) $100,000.
(d) $0.
Answer: B
Level of Difficulty: 3
Learning Goal: 3
Topic: Accounting for Common Stock
36. A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40
per share. The accounting entry for the paid-in capital in excess of par account is
(a) $200,000.
(b) $380,000.
(c) $400,000.
(d) $800,000.
Answer: B
Level of Difficulty: 3
Learning Goal: 3
Topic: Accounting for Common Stock
37. A firm issued 10,000 shares of no par value common stock, receiving proceeds of $40
per share. The accounting entry is
(a) $0 in the common stock account.
(b) $0 in the paid-in capital in excess of par account.
(c) $400,000 in the common stock account.
(d) $400,000 in the paid-in capital in excess of par account.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Accounting for Common Stock
38. Advantages of issuing common stock versus long-term debt include all of the following
EXCEPT
(a) the effects of dilution on earnings and voting power.
(b) no maturity.
(c) increases firm’s borrowing power.
(d) no fixed payment obligation.
Answer: A
Level of Difficulty: 3
Learning Goal: 3
Topic: Contrasting Debt and Equity
39. All of the following are characteristics of common stock EXCEPT
(a) voting rights which permit selection of the firm’s directors.
(b) claims on income and assets which are subordinate to the creditors of the firm.
(c) fully tax-deductible dividends.
(d) no fixed payment obligation.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Features of Common Stock
40. Stock rights provide the stockholder with
(a) certain purchase privileges of additional stock shares in direct proportion based on
their number of owned shares.
(b) the right to elect the board of directors.
(c) cumulative voting privileges.
(d) the opportunity to receive extraordinary earnings.
Answer: A
Level of Difficulty: 3
Learning Goal: 3
Topic: Features of Common Stock