A Company with 100,000 Authorized Shares of $4 Par Common

question 71

Multiple Choice

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to

• A) decrease retained earnings, increase common stock, and increase paid-in capital
• B) increase retained earnings, decrease common stock, and decrease paid-in capital
• C) increase retained earnings, decrease common stock, and increase paid-in capital
• D) decrease retained earnings, increase common stock, and decrease paid-in capital

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Definitions:

Usurped Corporate Opportunity

An act where an individual takes advantage of an opportunity that rightfully belongs to a corporation, typically violating fiduciary duties.

Director Liability

The legal responsibility of a company's directors to act in the best interest of the company, with potential personal legal consequences for breaches of duty.

Shareholder Meeting

A gathering of the stockholders of a corporation to vote on corporate affairs and to be informed about the company's performance and strategy.

Motion

A formal proposal put to a meeting or court for a decision to be made.