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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 14, Problem 15MC
Textbook Problem
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Stockholders’ equity consists of which of the following?

A. bonds payable

B. retained earnings and accounts receivable

C. retained earnings and paid-in capital

D. discounts and premiums on bond payable

To determine

Introduction:

The stockholders’ equity section of the balance sheet for corporations contains two primary categories of accounts. The first is paid-in capital, or contributed capital—consisting of amounts paid in by owners. The second category is earned capital, consisting of amounts earned by the corporation as part of business operations.

To choose:

The correct option.

Explanation of Solution

Explanation for correct answer:

On the balance sheet, retained earnings is a key component of the earned capital section, while the stock accounts such as common stock, preferred stock, and additional paid-in capital are the primary components of the contributed capital section.

The statement of retained earnings is a subsection of the statement of stockholders’ equity. While the retained earnings statement shows the changes between the beginning and ending balances of the retained earnings account during the period, the statement of stockholders’ equity provides the changes between the beginning and ending balances of each of the stockholders’ equity accounts, including retained earnings.

Explanation for incorrect answers:

A. Bonds payable - As you’ve learned, each time a company issues an interest payment to bondholders, paying off the discount or premium, if one exists, impacts the amount of interest expense that is recorded.

B. Retained earnings and accounts receivable - Retained earnings is the primary component of a company’s earned capital. It generally consists of the cumulative net income minus any cumulative losses less dividends declared...

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Chapter 14 Solutions

Principles of Accounting Volume 1
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