(c) The requirement is to identify the item that does not describe a method that may be used to account for treasury stock under IFRS. Answer (c) is correct because the retained earnings method is not a method that is used to account for treasury stock. The cost method, par value method, and constructive retirement method are all methods that may be used to account for treasury stock under IFRS.
(d) The requirement is to identify the purpose of the secondary market. Answer (d) is correct because outstanding stocks of publicly owned companies are traded among investors in the secondary market. The original issuer receives no additional capital as a result of such trades. Answers (a) and (b) are incorrect because firms raise capital by issuing new securities in the primary market, and the initial public offering market is a frequently used term for the market in which previously privately owned firms issue new securities to the public. Answer (c) is incorrect because the over-the-counter market is the network of dealers that provides for trading in unlisted securities.
(a) The requirement is to identify the purpose of the primary market. Answer (a) is correct because the primary market is the market for new stocks and bonds. Answer (b) is incorrect because existing securities are traded on a secondary market. Answer (c) is incorrect because the futures market is where commodities contracts are sold, not the capital market. Answer (d) is incorrect because exchanges of existing securities do not occur in the primary market.
(c) The requirement is to identify the characteristic that is not usually a feature of cumulative preferred stock. Answer (c) is correct because preferred stock usually does not have voting rights. Preferred shareholders are generally given the right to vote for directors of the company only if the company has not paid the preferred dividend for a specified period of time, such as ten quarters. Answer (a) is incorrect because preferred stock does have priority over common stock with regard to earnings, so dividends must be paid on preferred stock before they can be paid on common stock. Answer (b) is incorrect because preferred stock does have priority over common stock with regard to assets, so in the event of bankruptcy, the claims of preferred shareholders must be satisfied in full before the common shareholders receive anything. Answer (d) is incorrect because cu1282 mulative preferred stock does have the right to receive any dividends in arrears before common stock dividends are paid.
(b) The requirement is to identify the statement that describes an advantage of going public. Answer (b) is correct because the compliance cost of going public and complying with SEC regulations is substantial. Answer (a) is incorrect because going public does provide access to more capital. Answer (c) is incorrect because public companies can issue stock options to attract and retain management. Answer (d) is incorrect because owners obtain immediate liquidity for their investments when the firm goes public.
(b) The requirement is to identify the statement that describes an advantage of going public. Answer (b) is correct because the compliance cost of going public and complying with SEC regulations is substantial. Answer (a) is incorrect because going public does provide access to more capital. Answer (c) is incorrect because public companies can issue stock options to attract and retain management. Answer (d) is incorrect because owners obtain immediate liquidity for their investments when the firm goes public.
C
B
C
D
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