MOCK TEST FINAL REVIEW

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8. Fast Deliveries declared a dividend on June 20 to shareholders of record on July 12 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 is correct given this information?

• a. Neither Kate nor Ted is entitled to the dividend.
• b. Kate is entitled to the dividend but Ted is not.
• c. Ted is entitled to the dividend but Kate is not.
• d. Both Ted and Kate are entitled to the dividend.

The signaling model of dividends predicts

• a. Managers of firms with high growth opportunities "signal" these good investments with low dividends.
• b. Managers expecting higher future earnings "signal" with higher dividend earnings.
• c. Stock prices will fall at dividend increases.
• d. Lower-quality firms will have large dividend payouts due to poorer future prospects.

A firm's dividend policy refers yo all of the following except its choice of

• a. Whether to pay shareholders a cash dividend.
• b. How large the cash dividend should be distributed.
• c. How frequently a cash dividend should be distributed.
• d. Who should received a cash dividend

Which of the following statements is CORRECT?

• a. Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above-average payout ratios.
• b. Stock repurchases make the most sense at times when a company believes its stock is undervalues.
• c. One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
• d. If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.

Which of the following actions will best enable a company to raise additional equity capital, other things held constant?

• a. Refund long-term debt with lower-cost short-term debt.
• b. Declare a stock split.
• c. Begin a new-stock dividend reinvestment plan.
• d. Begin an open-market purchase dividend reinvestment plan.

Statement 1- The recording of convertible bonds at the date of issue is the same as that of straight debt issues. Statement 2 - Nondetachable warrants, unlike detachable warrants, don't require an allocation of the proceeds between the bonds and the warrants.

• a. Only first statement is true
• b. Neither statement is true
• c. Neither statement is false
• d. Only second statement is true

An entry is not made on the

• a. date of declaration.
• b. date of record.
• c. date of payment.
• d. An entry is made on all of these dates.

Cash dividends are paid on the basis of the number of shares

• a. authorized.
• b. issued.
• c. outstanding.
• d. outstanding less the number of treasury shares.

Pryor Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

• a. There should be no capitalization of retained earnings.
• b. Par value
• c. Market value on the declaration date
• d. Market value on the payment date

A feature common to both stock splits and stock dividends is

• a. a transfer to earned capital of a corporation.
• b. that there is no effect on total stockholders' equity.
• c. an increase in total liabilities of a corporation.
• d. a reduction in the contributed capital of a corporation.