Chapter 4 Practice Question Answers
1. Answer: D. Common stockholders have the right to transfer their shares to someone else. Holders of common stock have the right to vote on relevant matters, such as mergers and acquisitions. Common stockholders have the right to access records, including the minutes from the board of directors’ meeting. Common stockholders do not have the right to receive their dividends before preferred shareholders.
2. Answer: A. Treasury shares represent shares of issued stock that have been repurchased by the company and removed from public circulation. Treasury stock pays no dividends and has no voting rights.
3. Answer: B. To arrive at the outstanding shares, start with the number of issued shares and subtract the number of treasury shares (40 million – 5 million = 35 million). To calculate the market capitalization, multiply the shares outstanding by the market price (35 million × $20 = $700 million).
4. Answer: C. The transfer agent, not the registrar, keeps records on who owns stocks and in what form, recording changes of ownership as they occur. It cancels stock certificates surrendered by the seller and issues new ones in the name of the buyer. It also may pay out dividends and send out proxy materials on behalf of the company. The registrar makes sure that the company does not issue more shares than were authorized. Registrars must operate independently from the transfer agent.
5. Answer: C. To receive a dividend, the purchaser must be an owner of record on or before the record date. Shares of stock take two business days to settle, so to be the owner of record, the stock must be purchased at least two business days before the record date. One business day before the record date is called the ex-date because investors who purchase on the ex-date or after will not receive the dividend. The ex-date in this case is March 3. Sandy did not purchase the shares before the ex-date, so she wil