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39 CorporationsDirectors, Officers, Chapter and Shareholders TRUE/FALSE QUESTIONS A1. Corporate officers govern every corporation. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Critical Thinking B1. No state permits a corporate board to have fewer than three directors. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal A2. A director is elected by a majority vote of the other members of the board. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal B2. Incorporators can appoint a corporations first board of directors. Register to View AnswerPAGE: 796 TYPE: N NAT: AACSB Analytic AICPA Legal A3. A director can be removed from a corporate board for cause. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal 145 146 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS B3. Few legal qualifications exist for directors. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal A4. Shareholders may not vote to remove members of the board of directors. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal B4. A person must be a shareholder of a corporation to serve as a director. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal A5. Directors are responsible for all major corporate policy decisions. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Analytic AICPA Legal B5. A board of directors generally conducts business without holding formal meetings. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Analytic AICPA Legal A6. Directors are rarely compensated and cannot set their own compensation. Register to View AnswerPAGE: 799 TYPE: N NAT: AACSB Analytic AICPA Legal B6. All directors must be present before a board can transact business. Register to View AnswerPAGE: 799 TYPE: + NAT: AACSB Analytic AICPA Legal A7. A director is a fiduciary of a corporation. Register to View AnswerPAGE: 801 TYPE: + NAT: AACSB Analytic AICPA Legal CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 147 B7. A board of directors can delegate some of its functions to corporate officers. Register to View AnswerPAGE: 800 TYPE: + NAT: AACSB Analytic AICPA Legal A8. Unlike a director, an officer is not expected to be informed on corporate matters. Register to View AnswerPAGE: 801 TYPE: N NAT: AACSB Analytic AICPA Legal B8. Corporate directors and officers are insurers of business success. Register to View AnswerPAGE: 802 TYPE: = NAT: AACSB Analytic AICPA Legal A9. Directors are required to use a reasonable amount of supervision over the corporate officers. Register to View AnswerPAGE: 802 TYPE: = NAT: AACSB Analytic AICPA Legal B9. A director may not sit on the board of more than one corporation at a time. Register to View AnswerPAGE: 804 TYPE: N NAT: AACSB Analytic AICPA Legal A10. Shareholders do not have legal title to corporate property but an equitable interest in the firm. Register to View AnswerPAGE: 805 TYPE: N NAT: AACSB Analytic AICPA Legal B10. Shareholders own a corporation and the right to manage it. Register to View AnswerPAGE: 805 TYPE: N NAT: AACSB Analytic AICPA Legal A11. To vote their shares, shareholders must attend a shareholders meeting and vote in person. Register to View AnswerPAGE: 806 TYPE: N 148 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS NAT: AACSB Analytic AICPA Legal B11. Shareholders meetings must occur at least twice a year. Register to View AnswerPAGE: 806 TYPE: = NAT: AACSB Analytic AICPA Legal A12. The article of corporation cannot exclude or limit shareholders voting rights. Register to View AnswerPAGE: 807 TYPE: N NAT: AACSB Analytic AICPA Legal B12. Cumulative voting refers to the accumulation of proposals presented annually for a shareholders vote. Register to View AnswerPAGE: 807 TYPE: = NAT: AACSB Reflective AICPA Critical Thinking A13. The ownership right to stock exists independently of the stock certificate. Register to View AnswerPAGE: 810 TYPE: = NAT: AACSB Analytic AICPA Legal B13. For action to be taken during a shareholders meeting, a forum must be present. Register to View AnswerPAGE: 807 TYPE: N NAT: AACSB Analytic AICPA Legal A14. Preemptive rights entitle shareholders to bring a derivative suit against the corporation. Register to View AnswerPAGE: 810 TYPE: = NAT: AACSB Analytic AICPA Legal B14. A voting trust is an illegal restraint of shareholders power. Register to View AnswerPAGE: 808 TYPE: N NAT: AACSB Analytic AICPA Legal A15. Only certain funds are legally available for paying dividends. CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 149 Register to View AnswerPAGE: 811 TYPE: N NAT: AACSB Analytic AICPA Legal B15. A stock warrant is a distribution of corporate profits or income. Register to View AnswerPAGE: 810 TYPE: N NAT: AACSB Analytic AICPA Legal A16. Under some circumstances, a corporation can refuse a shareholders request to inspect corporate records. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Analytic AICPA Legal B16. If a stock certificate is lost or destroyed, the shareholders ownership interest in the corporation is lost with it. Register to View AnswerPAGE: 810 TYPE: = NAT: AACSB Analytic AICPA Legal A17. Persons whose names appear on a corporations shareholder records as owners are ordinarily entitled to vote. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Analytic AICPA Legal B17. A dividend may be paid from undistributed net corporate profits. Register to View AnswerPAGE: 811 TYPE: N NAT: AACSB Analytic AICPA Legal A18. A share issued for more than its fair market value is watered stock. Register to View AnswerPAGE: 812 TYPE: N NAT: AACSB Analytic AICPA Legal B18. Shareholders have no right to inspect corporate books and records. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Analytic AICPA Legal A19. When a third party harms a corporation, the directors can bring a suit in the corporations name against that party. 150 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS Register to View AnswerPAGE: 812 TYPE: N NAT: AACSB Analytic AICPA Legal B19. Unlike the directors of other corporations, the directors of a close corporation can take any action without breaching their fiduciary duties. Register to View AnswerPAGE: 812 TYPE: N NAT: AACSB Analytic AICPA Legal A20. A shareholder that owns sufficient shares to exercise de facto control over a corporation owes a fiduciary duty to the minority shareholders. Register to View AnswerPAGE: 812 TYPE: = NAT: AACSB Analytic AICPA Legal B20. Damages awarded in a shareholders derivative suit go into the corporations treasury. Register to View AnswerPAGE: 812 TYPE: = NAT: AACSB Analytic AICPA Legal MULTIPLE CHOICE QUESTIONS A1. Egan is a director of First Realty Corporation. As a director, Egan can act as an agent to bind First Realty a. in all circumstances. b. in no circumstances. c. to any contract in which A does not have a conflict of interest. d. to any contract that represents a corporate opportunity for B. Register to View AnswerPAGE: 796 TYPE: N NAT: AACSB Reflective AICPA Legal CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 151 B1. Sophie and Tiny incorporate their beverage-container business as U- Twist Products, Inc. The first board of directors may be appointed by the firms a. board of directors. b. incorporators. c. officers. d. shareholders. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Legal A2. Cody and Dex form Eminent Corporation. Eminent has a board of directors, a chief executive officer, a chief operating officer, and fifty-two shareholders. Eminent is governed by its a. board of directors. b. incorporators. c. officers. d. shareholders. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Legal B2. Rhea is a director of Spex Corporation. As a Spex director, Rhea is a. a trustee because Rhea occupies a position of trust over Spex. b. a trustee who holds title to Spexs property for the benefit of others. c. not a trustee because Rhea does not hold title to Spexs property. d. not a trustee because Rhea is not in a position of trust over Spex. Register to View AnswerPAGE: 796 TYPE: N NAT: AACSB Reflective AICPA Legal A3. Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGames a. board of directors. b. incorporators. c. officers. 152 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS d. shareholders. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Legal B3. Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delites a. board of directors. b. incorporators. c. officers. d. shareholders. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Legal A4. Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firms a. board of directors. b. incorporators. c. officers. d. shareholders. Register to View AnswerPAGE: 796 TYPE: = NAT: AACSB Reflective AICPA Legal B4. Flite-Craft Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Flite- Crafts board could transact its business is a. all of the directors authorized in the articles or bylaws. b. a majority of the number authorized in the articles or bylaws. c. any odd number. d. one. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Reflective AICPA Legal A5. Rita is a director of Superb Performance Corporation. Ritas rights, as a director, do not include a right to CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 153 a. indemnification. b. inspection of books. c. participation. d. preemption. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Reflective AICPA Legal B5. Clifton is a director of Dri-Cleaning Corporation. With respect to Dri- Cleaning, Cliftons most important right is the right of a. compensation. b. indemnification. c. participation. d. service. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Reflective AICPA Legal A6. Rosa and Sean are directors of Tech, Inc. The right of Rosa and Sam to be notified of special meetings of the board is the right to a. compensation. b. indemnification. c. participation. d. preemption. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Reflective AICPA Legal B6. Sol is chairman of the board of Tasty Foods Corporation. Uma, a con- sumer, falls sick after eating a Tasty product. Uma sues Tasty, and Sol individually. Tasty may pay Sals legal fees a. only if Sol wins the suit. b. only if Tasty wins the suit. c. only if Uma wins the suit. d. regardless of the outcome. Register to View AnswerPAGE: 799 TYPE: = NAT: AACSB Reflective AICPA Legal 154 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS A7. Frida, Gayla, and Hart occupy the positions of director on the board of Integral Components Corporation. With respect to these directors, a quorum is the minimum number a. who must be at odds in a dispute to call for its resolution. b. who must be present to validly transact business. c. whom shareholders the may remove from office at any one time. d. whose positions must be vacant to warrant an election. Register to View AnswerPAGE: 799 TYPE: N NAT: AACSB Reflective AICPA Legal B7. Cara and Dru are officers of EZ Trucking Corporation. As corporate officers, the rights of Cara and Dru are a. determined by their employment contracts. b. specified in state corporation statutes. c. the same as those of the directors. d. the same as those of the shareholders. Register to View AnswerPAGE: 800 TYPE: = NAT: AACSB Reflective AICPA Legal A8. VeriVisual Company makes 3-D film and video equipment. VeriVisual is like most corporations in that its officers are hired by the firms a. board of directors. b. incorporators. c. other officers. d. shareholders. Register to View AnswerPAGE: 800 TYPE: = NAT: AACSB Reflective AICPA Legal B8. Nina is a director of Omega, Inc. Under the standard of due care owed by directors of a corporation, Ninas decisions must be a. ambiguous and questionable. b. arguable and defensible. c. informed and reasonable. d. perfect and unassailable. Register to View AnswerPAGE: 801 TYPE: = CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 155 NAT: AACSB Reflective AICPA Legal A9. Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coasts employees include its a. board of directors. b. incorporators. c. officers. d. shareholders. Register to View AnswerPAGE: 800 TYPE: = NAT: AACSB Reflective AICPA Legal 156 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS B9. Rafi, a director of Super Service Station Corporation, does not attend a board meeting for three years. During that time, Twyla, Supers president, makes improper loans that cost the company $100,000. Ron is most likely a. liable for negligence or mismanagement. b. liable for violation of the business judgment rule. c. not liable because missing meetings is an honest mistake. d. not liable because missing meetings is only poor judgment. Register to View AnswerPAGE: 801 TYPE: = NAT: AACSB Reflective AICPA Legal A10. Frawsty Corporation distributes beverages in the greater Northwest. Frawstys board of directors can delegate some of its functions to a. Frawstys incorporators. b. Frawstys officers. c. Frawstys shareholders. d. no one. Register to View AnswerPAGE: 800 TYPE: = NAT: AACSB Reflective AICPA Legal B10. Eve is a director of Fab Stuff Corporation. Without informing Fab, Eve goes into business with GR8 Things, Inc., in competition with Fab. Eve is liable for breach of a. no duty or rule b. the business judgment rule. c. the duty of care. d. the duty of loyalty. Register to View AnswerPAGE: 802 TYPE: = NAT: AACSB Reflective AICPA Legal A11. Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what Luke believes is the firms best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule Luke is a. immune from liability. b. liable only to the extent that Luke gains as a result. CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 157 c. liable only to the extent that Motor Parts suffers as a result. d. wholly liable. Register to View AnswerPAGE: 802 TYPE: N NAT: AACSB Reflective AICPA Legal B11. Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he a. becomes a director of Fluffy Mattresses, Inc., a noncompeting firm. b. buys stock in Gulpin Foods Corporation, a competing firm. c. votes for Diners to buy a controlling interest in Eateries, Inc., which causes Diners to suffer a loss. d. votes against Diners purchase of a controlling interest in Eateries, Inc., which causes Diners to suffer a loss. Register to View AnswerPAGE: 802 TYPE: = NAT: AACSB Reflective AICPA Legal A12. Eddie is a shareholder of Fast Food, Inc. As a shareholder, he must approve a. amending the articles of incorporation. b. declaring a corporate dividend. c. hiring a chief executive officer. d. issuing additional shares. Register to View AnswerPAGE: 806 TYPE: = NAT: AACSB Reflective AICPA Legal B12. Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not a. authorize major corporate policy decisions. b. decide to issue stock and bonds, and declare dividends. c. select and remove corporate officers. d. support businesses that directly compete with Gallery. Register to View AnswerPAGE: 804 TYPE: N NAT: AACSB Reflective AICPA Legal A13. Thor Power Products Corporation permits the election of its directors by cumulative voting. This 158 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS a. allows minority shareholders to be represented on the board. b. assures directors that they will be selected by their peers. c. guarantees Thors executive officers of the final choice. d. insures against persons who may cloud the corporate direction. Register to View AnswerPAGE: 807 TYPE: N NAT: AACSB Reflective AICPA Legal B13. Dolly and Elbert are shareholders of Friendly Credit, Inc. As shareholders, they must approve a. amending the articles of incorporation. b. declaring a corporate dividend. c. hiring a chief executive officer. d. all of the choices. Register to View AnswerPAGE: 804 TYPE: = NAT: AACSB Reflective AICPA Legal A14. Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can a. buy a prorated share of a new issue of stock before other buyers. b. choose to have Matchless act exclusively in a certain area. c. preempt managerial decisions that impact shareholders. d. sell a prorated share of a new issue of stock before other sellers. Register to View AnswerPAGE: 810 TYPE: N NAT: AACSB Reflective AICPA Legal B14. Niche Stores, Inc., must hold a shareholders meeting a. once a month. b. once a year. c. once every two years. d. only when it is called by the board of directors. Register to View AnswerPAGE: 806 TYPE: = NAT: AACSB Reflective AICPA Legal CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 159 A15. Fiona owns one share of stock in GR8 Boards Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is a. forfeited immediately. b. forfeited within ten days of a third partys claim to ownership. c. forfeited within thirty days if she cannot find the certificate. d. not affected. Register to View AnswerPAGE: 810 TYPE: = NAT: AACSB Reflective AICPA Legal B15. Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can a. authorize major corporate policy decisions. b. decide to issue stock and bonds, and declare dividends. c. select and remove corporate officers. d. vote to amend the articles of incorporation or bylaws. Register to View AnswerPAGE: 806 TYPE: N NAT: AACSB Reflective AICPA Legal A16. In all states, Sports Club Company and other corporations can pay dividends from a. gross profits. b. net profits. c. retained earnings. d. surplus. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Reflective AICPA Legal B16. Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be a. invalid and unenforceable. b. oppressive and irresponsible. c. suspect and voidable. d. valid and enforceable. 160 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS Register to View AnswerPAGE: 808 TYPE: N NAT: AACSB Reflective AICPA Legal A17. Natalie is a shareholder of Off-Road Vehicle Company. As a share- holder, Natalie does not have a. a right to compensation. b. dividend rights. c. inspection rights. d. preemptive rights. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Reflective AICPA Legal CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 161 B17. Rusty and Sylvia are shareholders of Triad Hotel Corporation. Triads directors fail to declare a dividend. Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend a. if Triad has sufficient earnings available to pay a dividend. b. if Triad has cash reserves, even if earmarked for a different purpose. c. if withholding a dividend is an abuse of the directors discretion. d. under no circumstances. Register to View AnswerPAGE: 811 TYPE: N NAT: AACSB Reflective AICPA Legal Fact Pattern 39-1A (Questions A18CA19 apply) Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firms behalf. A18. Refer to Fact Pattern 39-1A. Rays suit is a shareholders a. business-judgment rule suit. b. derivative suit. c. duty-of-care suit. d. duty-of-loyalty suit. Register to View AnswerPAGE: 812 TYPE: = NAT: AACSB Reflective AICPA Legal B18. Bea is a shareholder of Candy Corporation. The right to inspect corporate books and records is a. held by Bea only if she is a director. b. held by Bea, without restrictions. c. held by Bea, with some restrictions. d. not held by Bea. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Reflective AICPA Legal Fact Pattern 39-1A (Questions A18CA19 apply) Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firms behalf. 162 TEST BANK AUNIT EIGHT: BUSINESS ORGANIZATIONS A19. Refer to Fact Pattern 39-1A. Any damages recovered by Rays suit will go to a. Ray. b. SBC. c. SBCs directors. d. the state in which SBC is incorporated. Register to View AnswerPAGE: 812 TYPE: = NAT: AACSB Reflective AICPA Legal B19. Kelly transfers shares of stock that she owns in Little Company to Max. A shareholders meeting takes place before Maxs ownership is entered in Littles stock book. A vote at the meeting can be cast by a. Kelly and Max. b. Kelly only. c. Max only. d. neither Kelly nor Max. Register to View AnswerPAGE: 811 TYPE: = NAT: AACSB Reflective AICPA Legal A20. Cole is a shareholder of Delta, Inc. Cole will be deemed to have a fiduciary duty to Delta and its minority shareholders if he has a. a restriction on the transferability of his shares. b. a right of first refusal. c. a sufficient number of shares to exercise de facto control. d. watered stock. Register to View AnswerPAGE: 812 TYPE: = NAT: AACSB Reflective AICPA Legal B20. Orin is a shareholder of Pinkwater Corporation. In some states, Orin might incur personal liability for Pinkwater obligations if he a. accepts a dividend knowing that it was paid from retained earnings. b. buys stock for less than its fair-market value. c. fails to fulfill his fiduciary duty to the majority shareholders. d. sells his shares. CHAPTER 39: CORPORATIONSDIRECTORS, OFFICERS, & SHAREHOLDERS 163 Register to View AnswerPAGE: 812 ... View Full Document

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