Unit 2 Checkpoint Exam

Jon owns 100 shares of the Bayside Fishing Company. Bayside has 1 million shares outstanding and operates under a statutory voting system. At the next election for the board, there are two open seats. All of these are true except A) Jon has control of 200 votes, which he can cast any way he likes among the two open seats. B) Jon has control of 200 votes, and he can cast up to 100 of those votes for each open seat. C) Jon has a right to freely transfer his shares. D) Jon owns 1/10,000 of the Bayside Fishing Company.

A) Jon has control of 200 votes, which he can cast any way he likes among the two open seats. LO 2.a

ABC Corporation cumulative preferred stock would pay dividends in what order? A) The in arrears dividends, current preferred dividends, then common dividends B) The preferred dividends before paying the interest due on its outstanding bonds C) The current preferred dividend only D) The common dividend, then the current preferred dividend, then any in arrears dividends

A) The in arrears dividends, current preferred dividends, then common dividends LO 2.d

Snowflake Resorts, Inc., has announced their intention to repurchase 5 million of the company's outstanding shares from the secondary markets. This is called a A) buy back. B) tender offer. C) primary offering. D) repurchase agreement.

A) buy back. LO 2.i

All of the following statements regarding penny stocks are true except A) penny stock rules apply to both solicited and unsolicited transactions. B) if an account holds penny stocks, broker-dealers must provide a monthly account statement to the customer. C) established customers of the firm need not sign a suitability statement. D) the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document.

A) penny stock rules apply to both solicited and unsolicited transactions. LO 2.c

Big Company, Inc., an NYSE-listed manufacturer of large objects, has declared a 50-cent-per-share dividend payable next month. Big Company also has options available for trade. The actual ex-dividend date will be declared by A) the NYSE. B) FINRA. C) the OTC. D) the CBOE.

A) the NYSE. LO 2.b

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of these are true about the position except A) they have the same voting rights as an owner of the common stock. B) they will receive dividends in U.S. dollars. C) they have the right to request the underlying common shares be issued to them directly. D) the security may be traded in U.S. markets.

A) they have the same voting rights as an owner of the common stock. LO 2.e

Squidco, Inc., is issuing $100 million in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 per share, any time in the next 10 years. Squidco common is currently trading at $29.95 per share. This is an example of a A) warrant. B) call. C) stock right. D) follow-on offering.

A) warrant. LO 2.g

Your customer owns 2,200 shares of LMN common stock. LMN Corporation issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your customer receive? A) 220 rights B) 2,200 rights C) 440 rights D) The number cannot be determined.

B) 2,200 rights LO 2.g

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold? I. Control person selling registered stock held for 1 year II.Control person selling restricted stock held for 2 years III.Nonaffiliate selling registered stock held for 1 month IV. Nonaffiliate selling restricted stock held for more than 6 months A) III and IV B) I and II C) II and III D) I and IV

B) I and II LO 2.f

BigCo separates a division (KNDA Big Company) and issues stock for the new division to holders of BigCo stock. What are the tax consequences of this corporate spinoff? A) A long-term capital gain B) There is no taxable consequence. C) A long- or short-term capital gain depending on how long the shares were held D) Income based on the value of the new shares received

B) There is no taxable consequence. LO 2.i

On October 15 of last year, ABC Company declared a 3-for-1 reverse split. What are the tax consequences for this corporate action? A) Owners will report a short-term gain. B) There is none. C) Owners will report a capital loss. D) Owners will report a long-term gain.

B) There is none. LO 2.h

RJN common stock is currently listed on the New York Stock Exchange. Poor operating results over the past several years have led to a sharp decline in RJN's stock price, putting the company at risk for failing to meet the minimum price requirements to remain listed on the NYSE. The corporate action most likely to be taken to preserve the listing would be A) a stock dividend. B) a reverse split. C) increasing earnings. D) a forward split.

B) a reverse split. LO 2.h

An American depositary receipt is a A) foreign security representing a domestic security in foreign markets. B) domestic security representing a foreign security in U.S. markets. C) domestic security trading in foreign markets. D) foreign security trading in U.S. markets.

B) domestic security representing a foreign security in U.S. markets. LO 2.e

Another term for stocks and bonds is A) voting and nonvoting. B) equity and debt. C) shares and units. D) taxable and tax-free.

B) equity and debt. LO 2.a

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has A) 300 votes each for the open seats. B) no voting rights. C) 300 votes total to spread among the three open seats. D) 900 votes he can divide any way he wants among the three seats.

B) no voting rights. LO 2.d

Rule 144 covers all of the following transactions except A) trades on an affiliate in the over-the-counter market. B) non-affiliate trades on an exchange. C) trades of a newly issued nonregistered security. D) trades by an affiliate on an exchange.

B) non-affiliate trades on an exchange. LO 2.f

Included under the term equity security would be A) debentures. B) participating preferred. C) equipment trust certificates. D) collateral trust certificates.

B) participating preferred. LO 2.d

All of these dates are declared by the board of directors of a corporation except A) the payable date. B) the ex-dividend date. C) the declaration date. D) the record date.

B) the ex-dividend date. LO 2.b

Jones bought an American depositary receipt (ADR) in a South Korean company at $22.00 and recently sold the shares for $36.88. What are the tax consequences of this transaction? A) The profit is taxed as income in the United States. B) The profit is not taxed because ADRs are tax-exempt securities. C) The profit is taxed as a capital gain of $14.88 in the United States. D) The profit is taxed as income of $14.88 by the government of South Korea.

C) The profit is taxed as a capital gain of $14.88 in the United States. LO 2.e

A company's board of directors has voted to divest itself of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as A) a buyback. B) an acquisition. C) a spinoff. D) a tender offer.

C) a spinoff. LO 2.i

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to A) file Form 144 because he is a doctor. B) not file Form 144 due to the spousal exception. C) file Form 144 because he is a control person. D) not file Form 144 because only owns 3% and is not a control person.

C) file Form 144 because he is a control person. LO 2.f

Which of these securities would likely provide the greatest potential for capital appreciation? A) A convertible bond B) A U.S. Treasury STRIP C) A preferred stock D) A common stock

D) A common stock LO 2.c

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her? A) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments B) Long Beach Electric, a utility C) Generic Motors, Inc., 4 ¾% preferred stock D) Duratech common stock, an exciting new tech manufacturer

D) Duratech common stock, an exciting new tech manufacturer LO 2.c

An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct? I. The adjusted cost basis of the shares is $30. II. The adjusted cost basis of the shares is $32. III. There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares. IV. There is a long-term capital gain on all of the shares sold. A) I and III B) I and IV C) II and III D) II and IV

D) II and IV LO 2.h

An investor interested in quarterly income should invest in A) a variable annuity. B) a corporate bond. C) Treasury notes. D) a common stock paying a high dividend.

D) a common stock paying a high dividend. LO 2.b

American Liquidators Corporation (the ticker is LQDT) has 100 million outstanding common shares. The company would like to raise capital by selling 100 million new shares. In order to do this they must give their existing shareholders an opportunity to buy shares sufficient to maintain the shareholders percentage of ownership. In order to accomplish this they would A) offer warrants to existing shareholders. B) suggest that existing shareholders go to the market and double their existing position. C) perform a stock split. D) offer stock rights to existing shareholders.

D) offer stock rights to existing shareholders. LO 2.g

Equity is to debt as A) stock is to mutual fund. B) hedge fund is to mutual fund. C) stock is to preferred stock. D) stock is to bond.

D) stock is to bond. LO 2.a