chapter 9 conceptual quiz

1. What is the capital structure of a business?

• A. The amount of assets and revenues a company has

• B. The mixture of cash and inventory on hand

• C. The combination of liabilities and stockholders’ equity

• D. The total number of employees and departments

2. Which of the following is true about tax-deductible expenses?

• A. Only dividends paid to stockholders are tax-deductible

• B. Interest on borrowed money is not tax-deductible

• C. Both interest expense and dividends are tax-deductible

• D. Only interest expense on borrowing is tax-deductible

3. Debt financing involves:

• A. Selling stock to investors

• B. Generating revenue from business operations

• C. Borrowing money from creditors

• D. Reinvesting retained earnings

4. Equity financing refers to:

• A. Borrowing money through issuing bonds

• B. Using company profits to pay off loans

• C. Financing business through investor contributions (issuing stock)

• D. Profits generated by selling goods or services

5. Are dividends paid on all shares issued by the company, including treasury stock?

• A. Yes, all issued shares receive dividends

• B. No, dividends are only paid on outstanding shares, not treasury stock

• C. Only preferred shares receive dividends

• D. Dividends are optional and not recorded in financial statements

6. What does "limited liability" mean for corporate stockholders?

• A. They are responsible for company debts in bankruptcy

• B. Their loss is limited to the amount they invested in the company

• C. They are not allowed to invest beyond a certain dollar amount

• D. They share liability equally with creditors

7. How is the number of shares outstanding calculated?

• A. Shares authorized minus treasury stock

• B. Shares issued plus dividends

• C. Shares issued minus treasury stock

• D. Common stock minus retained earnings

8. When treasury stock is resold, how is the difference between cost and cash received recorded?

• A. It is ignored in the accounting records

• B. It goes to Retained Earnings

• C. It is recorded as a gain or loss

• D. It is recorded in Additional Paid-In Capital