Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Characteristics of a Corporation

Financial Accounting

12. Stockholders' Equity

Characteristics of a Corporation

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Multiple Choice

Which one of the following statements is accurate regarding a corporation as a levered firm?

A levered corporation cannot pay dividends to shareholders.

A levered corporation only issues common stock to raise capital.

A levered corporation finances its operations using both debt and equity.

A levered corporation is prohibited from issuing bonds.

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Verified step by step guidance

Step 1: Understand the term 'levered firm.' A levered firm is a company that finances its operations using a combination of debt (such as loans or bonds) and equity (such as issuing common stock). This is a common practice to optimize the cost of capital and leverage returns.

Step 2: Analyze the first statement: 'A levered corporation cannot pay dividends to shareholders.' This is incorrect because a levered corporation can pay dividends to shareholders as long as it has sufficient retained earnings and cash flow, and it complies with debt covenants.

Step 3: Analyze the second statement: 'A levered corporation only issues common stock to raise capital.' This is incorrect because a levered corporation raises capital through both debt and equity, not exclusively through common stock.

Step 4: Analyze the third statement: 'A levered corporation finances its operations using both debt and equity.' This is accurate because it aligns with the definition of a levered firm, which uses a mix of debt and equity for financing.

Step 5: Analyze the fourth statement: 'A levered corporation is prohibited from issuing bonds.' This is incorrect because issuing bonds is a common method for a levered corporation to raise debt capital.