Practice Quiz

FINRA Series 6

Category - Series 6

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Which of the following relationships regarding shares of common stock are necessarily true?

I. shares outstanding > issued shares
II. authorized shares ≥ issued shares
III. issued shares = treasury shares
IV. issued shares ≥ shares outstanding
  1. I and II only
  2. II and IV only
  3. I, II, and III only
  4. II, III, and IV only
Explanation
Answer: B - Only Selections II and IV are necessarily true. The number of authorized shares must always be greater than or equal to the number of shares that the firm offers to the public, which are the issued shares. The number of issued shares will be equal to the number of shares outstanding as long as the firm doesn’t buy back any of its outstanding shares. Otherwise, the number of issued shares will exceed the number of shares outstanding since issued shares = shares outstanding + treasury shares. The issued shares would only be equal to the treasury shares if the firm repurchased all its shares outstanding.
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