Question

7.If a firm has class A and class B common stock outstanding, it means that A) each class receives a different dividend. B) the par value of each class is different. C) the dividend paid to one of the classes is tax deductible by the corporation. D) one of the classes is probably non-voting stock. 8. 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 on which the par value of the issue must be repaid. D) the market perception that management thinks the firm is over-valued, causing a decline in stock price. 9.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. 10.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 1

7. Companies issuing different classes of equity shares because voting rights is different among these classes of shares or one class of shares may not have voting rights.

Correct Answer D.