1. Which of these best describes preferred stock?

1. Preferred stock is created when a corporation buys its own stock sometime after issuing it.
2. Preferred stock offers holders a preference to dividends declared by the corporation.
3. Preferred stock is not flexible in providing terms and provisions that can be tailored to meet the firms needs.
4. The dividend rate on preferred stock can only be stated in one way.

2. Preferred stock terms can be all of the following except:

1. Convertible.
2. Redeemable.
3. Refundable.
4. Participating.

3. Convertible stock means that the preferred stock:

1. Can be sold back to the company.
2. Has the right to dividends in arrears before the current-year dividend is distributed.
3. Can be eliminated by the firm by paying the stockholders a specified amount.
4. Can be exchanged for common stock.

4. Cumulative stock means that the preferred stock:

1. Can be sold back to the company.
2. Has the right to dividends in arrears before the current-year dividend is distributed.
3. Can be eliminated by the firm by paying the stockholders a specified amount.
4. Can be exchanged for common stock.

5. What is treasury stock?

1. It is retired stock that is held for some purpose.
2. It is stock issued by the firm and then repurchased but not retired.
3. It is retired stock that has never been issued to the stockholders.
4. It is stock issued by the treasury.

6. Corporations repurchase stock as treasury stock for all the following reasons, except to:

1. have stock available to distribute to employees for bonuses.
2. maintain a favorable market price for the stock.
3. improve the appearance of the firms financial ratios.
4. facilitate unwanted takeover or buyout attempts.

7. Cash dividends are:

1. Paid to the stockholders who own the stock as of a particular date, the date of record.
2. Declared on several dates, referred to as the payout dates.
3. Paid on the date of declaration.
4. None of the above.

8. The dividend payout ratio is calculated as:

1. The annual dividend amount divided by retained earnings.
2. The annual dividend amount divided by the annual net income.
3. The annual dividend amount divided by net profit.
4. The annual dividend amount divided by outstanding shares.

9. Which of these is a true statement?

1. Dividends reduce the amount of retained earnings when paid out.
2. The declaration is reflected as a reduction of cash dividend payable and an increase in retained earnings.
3. The cash dividend payable account is a liability and is normally shown in the current liabilities section of the balance sheet.
4. None of the above.

10. All of these are true regarding sole proprietorships, except:

1. A sole proprietorship is a business owned by one person.
2. A sole proprietorship is aseparate entity for legal or tax purposes.
3. In a sole proprietorship assets and liabilities of the owner must be kept separate from the business.
4. In a sole proprietorship business income is taxed at the personal tax rate.

11. All of these are true regarding partnerships, except:

1. A partnership has limited liability.
2. A partnership has limited life.
3. A partnership is not taxed as a separate entity.
4. A partnership is similar to a proprietorship.

12. A partnership agreement specifies:

1. How much the owners will invest.
2. The continuous life of the partnership.
3. The number of stocks issued and outstanding.
4. The articles of incorporation.