Question

In the event of the liquidation of a corporation, the common stockholders:

a. Are general creditors.
b. Lose their entire original investment.
c. Have the last claim on proceeds.
d. Receive monies after bondholders but before preferred stockholders.

Answer 1

In the liquidation of a corporation, common stockholders have the last claim on proceeds, rank after creditors, including bondholders and preferred stockholders, and may lose their entire investment.

Step-by-step explanation:

In the event of the liquidation of a corporation, the common stockholders have the last claim on proceeds. This means that they:

• Are not general creditors. Creditors are entities that the company owes money to, which includes bondholders and others who have lent money to the corporation.
• May lose their entire original investment, which is a risk that comes with owning stock, as they have equity in the company, not a guaranteed debt.
• Have the last claim on proceeds, which implies that after all debts have been paid to creditors, including bondholders and preferred stockholders, whatever remains (if anything) will be distributed to the common stockholders.
• Receive monies after bondholders but before preferred stockholders is incorrect; they receive monies after both bondholders and preferred stockholders.