Which Two Statements Accurately Describe the Situation Regarding Extraordinary Profits

question 4

Multiple Choice

Which two statements accurately describe the situation regarding extraordinary profits that a company may earn?

• A) Shareholders may be recipients of any surplus.
• B) Shareholders may only be asked to re- invest extraordinary profits.
• C) Lenders do not generally benefit from extraordinary profits.
• D) Lenders generally contribute to extraordinary profits.

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Definitions:

Paid-In Capital

Paid-in capital is the amount of money investors have given a company in exchange for shares of stock, representing capital provided by shareholders through the purchase of stock from the corporation.

Noncumulative

Describes dividends on preferred stock that, if not paid in the year they are due, do not accumulate and are not required to be paid in later years.

Par Value

A terminology indicating the official value of a security as outlined in the document at the time of its issue.

Dividend

A distribution of earnings given by a company to its stockholders, typically from its profits.