Multiple Choice
Which of the following is an attribute of a conventional corporation?
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12. Stockholders' Equity
Characteristics of a Corporation
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Which of the following best describes common stock in a corporation?
A
It is a liability of the corporation.
B
It has priority over preferred stock in the distribution of assets upon liquidation.
C
It represents ownership in the corporation and usually entitles the holder to vote at shareholders' meetings.
D
It guarantees a fixed dividend payment to shareholders.
Verified step by step guidance1
Understand the concept of common stock: Common stock represents ownership in a corporation and typically grants shareholders voting rights at shareholders' meetings. It is distinct from liabilities or preferred stock.
Clarify the nature of liabilities: Liabilities are obligations the corporation owes to external parties, such as loans or accounts payable. Common stock is not a liability; it is equity.
Compare common stock with preferred stock: Preferred stockholders have priority over common stockholders in receiving dividends and assets during liquidation. Common stockholders do not have this priority.
Examine dividend payments: Common stock does not guarantee fixed dividend payments. Dividends for common stock are typically variable and depend on the corporation's profitability and decisions by the board of directors.
Conclude the correct description: Common stock represents ownership in the corporation and usually entitles the holder to vote at shareholders' meetings, making this the most accurate description.
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