Question

Which of the following statement is true? a. Common shares usually carry a preference for preferred dividends. b. Shares are most commonly issued for cash c. Authorized shares are the total number of shares outstanding. d. None of the statements are true e. One of the preference rights for preferred shares is the right to vote

Answer 1

b. Shares are most commonly issued for cash.

Explanation- We know that a company needs cash for many purposes, like regular operations of the business, upgrading production facilities, marketing activities, etc. In addition to it, cash plays a vital role in taking advantage of opportunities. So it issues common stock for cash because such an issue is helpful to arrange huge cash (due to public issue.)

Now we can discuss the reasons why other options are wrong-

1. a. Common shares usually carry a preference for preferred dividends.

This statement is wrong as dividends are preference rights to the holders of preferred stock, after that distributed among Common shares.

2. c. Authorized shares are the total number of shares outstanding.

This statement is wrong as Authorized shares are the maximum number of shares that can be issued to shareholders.

3. d. None of the statements are true.

This statement is wrong as statement b is correct.

4. e. One of the preference rights for preferred shares is the right to vote.

This statement is wrong as preference rights for voting is given to equity shareholder on every resolution placed before the company however preference shareholder has the right to vote only on those resolutions which directly affect the rights attached to its preference shares.

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