Law of Business Organizations, LS 435 (01) Corporate Financial Structure CORPORATE FINANCIAL STRUCTURE WORKSHEET (#4) Name Directions: Choose the best answer and be prepared to discuss in class. 1. A is the president and a director of Zesto, Inc. Band C are the other directors. A wants to issue 1,000 shares of authorized but previously unissued stock. Zesto has no preemptive rights. a. The stock may be issued by A without further approval. b. The stock may be issued upon the oral approval of A and B. c. The stock may be issued upon the written approval of A and B. d. The stock may be issued upon the oral approval of A and B obtained by conference telephone call betwe A, B and C. 2. A corporation has issued and outstanding 500,000 shares of common stock, 100,000 shares of preferred stock, and twenty-year debenture bonds in the amount of $300,000. a. The term "securities" refers to the common and preferred stock, but not the debentures. b. The term "capital structure" refers to both classes of stock and the debentures. c. The terms "equity securities" refers to both classes of stock, but not to the debentures. d. The term "senior securities' refers to the debentures, but not to either class of stock. 3. A corporation was established with a contributed capital of $30,000. In the first year of operation directors authorized and the corporation incurred $40,000 in expenses. The company earned $100,000 income. How much money is available for distribution in dividends, assuming that the company wants t distribute the maximum amount allowed by law? a. $60,000. b. $100,000. c. $90,000 d. $170,000. 4. A corporation is opened with 50,000 shares of par value stock valued at $1 per share. The incorporators contributed $150,000. How will the $150,000 be labeled on the financial statement? a. $50,000 in capital surplus, $100,000 in stated capital. b. $100,000 in capital surplus, $50,000 in stated capital. c. $150,000 in stated capital, d. $150,000 in capital surplus. 5. A corporation is opened with $250,000 in contributions from its incorporators. The corporation has authorized 50,000 shares. How much must par value be? a. $5. b. $1. C. $2.50. d. There is no requirement for par value. 6. In its first year of operation, Camp Corp. had after tax profits of $50,000 and paid a dividend of $.50 per share on 50,000 shares currently with a par value of $10,000. What amount would be earned surplus? a. No earned surplus; all the money was distributed either to stockholders or to par value. b. $15,000; $25,000 of profit minus the par value. c. $25,000. d. $35,000; the par value plus $25,000. 7. Assume the same facts as in the previous question, but also assume that, in its second year of operation, the Camp Corp. had tax profits of $25,000 but did not distribute dividends. What will the earned surplus be after the second year? a. $50,000 b. $35,000. c. $40,000. d. $60,000. 8. The authorized stock of Rob's Boatworks, Inc. is 10,000 shares of common stock, $1.00 par value. If Rob's Boatworks issues 1,000 shares to Bud Peterson for $800, what term is used to describe Mr. Peterson's shares? a. Diluted shares. b. Issued shares. c. Watered shares. d. Treasury shares