QUESTION 1
1. If a corporation is unable to pay all of its debts, its shareholders:
have limited liability and are not legally responsible for the unpaid debts of the corporation.
are responsible for paying a percentage of the unpaid debts of the corporation that is equal to their percentage ownership of stock in the corporation.
are personally responsible for all of the unpaid debts of the corporation.
are required to sell their stock in the corporation and use the proceeds of the sales to pay the debts of the corporation.
6 points
QUESTION 2
1. A bond is:
an ownership interest in a corporation that gives the owner preferences with respect to the assets of the corporations and dividends paid by the corporation.
a debt instrument that allows the holder to convert the debt into a number of shares in the corporation having a value equal to the amount of the bond.
a debt instrument that requires the corporation to pay the holder a stated amount of interest for a stated period of time and then to pay the holder the amount of the bond.
an ownership interest in the corporation that allows the holder to vote in corporate elections.
6 points
QUESTION 3
1. Shares of stock in a corporation that is issued to a shareholder for less than the market value of the stock is:
watered stock.
no-par stock.
par-value stock.
a stock warrant.
6 points
QUESTION 4
1. Dividends paid to shareholders by corporations are paid from profits of the corporation after the corporation has paid income taxes on those profits. When a shareholder receives a dividend, that dividend is taxable income to that shareholder. These income tax consequences are known as:
dividend taxation.
corporate taxation.
double taxation.
retained earnings taxation.
6 points
QUESTION 5
1. If an employee of a corporation, while carrying out the duties of their job, does something that causes injury or damage to a third party, the corporation will be liable for those injuries or damage under the doctrine of:
unlimited liability.
centralized management.
respondeat superior.
ultra vires.
6 points
QUESTION 6
1. When a corporation earns a profit, the corporation has to pay income taxes on that profit. The profit that remains after income tax is paid can be used by the corporation as either:
salaries or retained earnings.
dividends or expenses.
retained earnings or savings.
dividends or retained earnings.
6 points
QUESTION 7
1. __________ represent ownership interests in a corporation.
Debt securities
Equity securities
Subscription agreements
Tender offers
6 points
QUESTION 8
1. Can a corporation that is incorporated in one state do business in other states?
No, a corporation can only do business in the state where it is incorporated.
Yes, a corporation can do business in states where it is not incorporated by obtaining a certificate of authority in states where it is not incorporated.
Yes, a corporation can do business in a state where it is not incorporated, but it must re-incorporate in states where it was not originally incorporated.
Yes, a corporation can do business in a state where it is not incorporated, but it must use another name in a state where it is not incorporated.
6 points
QUESTION 9
1. What does it mean that a corporation is a separate legal entity?
The corporation is owned by people who are known as shareholders.
The corporation has to have an address for the business it operates that is different than the addresses of the people who own the corporation.
The corporation has to be managed by people who are not shareholders in the corporation.
The corporation is considered to be a legal person with certain rights that exists independently of the people who own stock in the corporation.
6 points
QUESTION 10
1. A corporation that meets specific conditions and that is taxed like a partnership is a(n):
nonprofit corporation.
closely held corporation.
subchapter S corporation.
professional corporation.
6 points
QUESTION 11
1. One of the negative aspects of the corporate form of doing business is double taxation, which occurs when a corporation pays dividends to shareholders from profits that have already been taxed and the dividends, when received by shareholders, are taxed again. How does the use of a subchapter S corporation address the issue of double taxation?
20 points
QUESTION 12
1. What is the difference between a de jure corporation and a de facto corporation, and what is necessary to form each?
