Which of the following describes preferred stock?
A) Stock that sells for a very high price
B) Stock that is sold to employees of the company as a performance incentive
C) Stock that is purchased by the corporation for investment purposes
D) Stock which gives shareholders certain preferences and advantages over common stock
17) Which of the following is a TRUE statement about no-par stock?
A) No-par stock has zero value.
B) No-par stock has been purchased by the corporation for investment purposes.
C) No-par stock is a form of common stock that does not carry par value.
D) No-par stock is a form of preferred stock without voting rights.
18) Which of the following types of stock are considered to be LEAST risky for investors?
A) Common stock
B) Par value stock
C) No-par stock
D) Preferred stock
19) Which of the following is an advantage of preferred stock?
A) Preferred shareholders are guaranteed that they will not take a loss on their investment.
B) Preferred shareholders have higher voting rights than common shareholders.
C) Preferred shareholders may sell their shares for a price higher than that of common stock.
D) Preferred shareholders have the first claim on dividend funds.
20) Which of the following is an advantage of preferred stock?
A) Preferred shareholders generally receive a fixed amount of dividends before common stockholders do.
B) Preferred shareholders are guaranteed that they will not take a loss on their investment.
C) Preferred shareholders have higher voting rights than common shareholders.
D) Preferred shareholders may sell their shares for a price higher than that of common stock.
21) Which of the following is an advantage of preferred stock?
A) In the event of liquidation, preferred shareholders are guaranteed to get their investment back in full.
B) In the event of liquidation, preferred shareholders have first claim on remaining corporate assets.
C) In the event of liquidation, preferred shareholders may sell their shares for higher amounts than common stock.
D) In the event of liquidation, preferred shareholders may retain their proportionate share of voting rights.
Learning Objective 3
1) When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common stock account is credited for $100,000.
2) Stock sold for amounts in excess of par value results in a gain reported on the income statement.
3) The stock of publicly owned corporations is bought and sold on stock exchanges, such as the New York Stock Exchange.
4) When a company sells stock for more than the par value, it will record a gain on sale for the amount in excess of par.
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