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AICPA CPA-Business Exam Actual Questions
CPA Business Environment and Concepts (Page 17 )

Updated On: 29-Jul-2026
Page 17 of 107
PDF with 530 Questions

Which of the following actions may a corporation take without its stockholders' consent?

  1. Consolidate with one or more corporations.
  2. Merge with one or more corporations.
  3. Dissolve voluntarily.
  4. Purchase 55% of another corporation's stock.

Answer(s): D

Explanation:

Choice "d" is correct. Directors are free to make most corporate decisions unilaterally. However, decisions that might fundamentally change the nature of the corporation require the consent of the shareholders. The purchase of 55% of another corporation's stock can be quite insignificant to the purchaser and is not a fundamental corporate change.
Choice "a" is incorrect because a consolidation is a fundamental corporate change. Choice "b" is incorrect because a merger is a fundamental corporate change. Choice "c" is incorrect because a dissolution is a fundamental corporate change.



Absent a specific provision in its articles of incorporation, a corporation's board of directors has the unilateral power to do all of the following, except:

  1. Repeal the bylaws.
  2. Declare dividends.
  3. Fix compensation of directors.
  4. Amend the articles of incorporation.

Answer(s): D

Explanation:

Choice "d" is correct. Amendment of the articles of incorporation, albeit proposed by the directors, cannot usually be effected without the affirmative vote of the shareholders. Choice "a" is incorrect. The directors ordinarily have the power to repeal bylaws unless the articles or the specific bylaw to be repealed provides otherwise.
Choice "b" is incorrect. The directors have the power to declare dividends at their discretion as long as the dividends do not violate any statute, article provision, bylaw, or contract with a creditor. Choice "c" is incorrect. Although it seems like there would be a conflict of interest, directors do have the power to set their own compensation, limited only by the fiduciary duties owed to the corporation (e.g., the directors cannot set salaries so high as to constitute waste).



Carr Corp. declared a 7% stock dividend on its common stock. The dividend:

  1. Must be registered with the SEC pursuant to the Securities Act of 1933.
  2. Is includable in the gross income of the recipient taxpayers in the year of receipt.
  3. Has no effect on Carr's earnings and profits for federal income tax purposes.
  4. Requires a vote of Carr's stockholders.

Answer(s): C

Explanation:

Choice "c" is correct. A stock dividend means that the corporation issues its existing shareholders more stock. In essence, the corporation is merely diluting the proportional ownership interest of existing shares. This has no effect on the corporation's earnings and profits for federal income tax purposes.
Choice "a" is incorrect. There is no requirement that stock dividends be registered with the SEC because no "sale" is involved.
Choice "b" is incorrect. The receipt of a stock dividend is not the recognition of income. It merely divides the stockholders' current ownership interests into more pieces; it does not increase proportional ownership interest in the corporation.
Choice "d" is incorrect. The issuance of dividends, including stock dividends, is at the directors' discretion; shareholders do not vote on dividends.



Which of the following rights is a holder of a public corporation's cumulative preferred stock always entitled to?

  1. Conversion of the preferred stock into common stock.
  2. Voting rights.
  3. Dividend carryovers from years in which dividends were not paid, to future years.
  4. Guaranteed dividends.

Answer(s): C

Explanation:

Choice "c" is correct. Cumulative preferred dividends are dividends that must be paid before any dividend can be paid to holders of non-preferred shares. The right to the dividend accumulates if it is not paid in a particular year.
Choice "a" is incorrect. There is no right to convert preferred shares into common stock unless that right is specifically granted.
Choice "b" is incorrect. Preferred stock need not have voting rights. Choice "d" is incorrect. Preferred dividends are not guaranteed. They must be paid before any common shareholder can be paid a dividend, but no dividend might ever be paid.



Which of the following securities are corporate debt securities?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Choice "c" is correct.
Rules: Bonds are debt securities. Thus, convertible bonds and debenture bonds are debt securities. A warrant is a contractual right to purchase stock, which constitutes a share of corporate equity. Choices "a", "b", and "d" are incorrect, per the above rules.



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