#1
Which of the following statements best defines stockholder equity?
It represents the total value of assets owned by the company.
It is the residual interest in the assets of the company after deducting liabilities.
It is the total revenue generated by the company.
It represents the total amount of debt owed by the company.
#2
What does the debt-to-equity ratio measure?
The company's ability to repay its short-term debt obligations.
The proportion of debt financing relative to equity financing used by the company.
The company's ability to generate profit from its investments.
The liquidity position of the company.
#3
Which financial statement reports a company's stockholder equity?
Income statement
Statement of cash flows
Balance sheet
Statement of retained earnings
#4
What is the purpose of additional paid-in capital?
To finance short-term liabilities of the company.
To compensate employees through stock options.
To represent the excess amount received from issuing stock over its par value.
To fund long-term investments.
#5
Which of the following is NOT a component of stockholder equity?
Retained earnings
Treasury stock
Preferred stock
Accounts payable
#6
What is the formula for calculating the debt-to-equity ratio?
Total liabilities / Total assets
Total assets / Total liabilities
Total debt / Total equity
Total equity / Total debt
#7
What does a high debt-to-equity ratio indicate?
High financial leverage and potential for higher returns.
Low financial risk and stability.
High financial risk and potential for financial distress.
Strong financial position and growth potential.
#8
What does the return on equity (ROE) measure?
The percentage of profits distributed to shareholders as dividends.
The rate of return on investment for shareholders.
The efficiency of the company in utilizing shareholders' equity to generate profits.
The growth potential of the company's stock price.
#9
Which of the following would decrease a company's stockholder equity?
Issuing dividends to shareholders.
Repurchasing shares of its own stock.
Acquiring new assets using cash.
Increasing revenue from sales.
#10
What is the formula to calculate stockholder equity?
Assets - Liabilities
Liabilities - Assets
Assets / Liabilities
(Assets + Liabilities) / 2
#11
What is the primary purpose of retained earnings?
To finance ongoing operations and growth of the company.
To pay dividends to shareholders.
To compensate employees and management.
To purchase new equipment and machinery.
#12
How does a stock split affect stockholder equity?
It increases stockholder equity per share.
It decreases stockholder equity per share.
It has no impact on stockholder equity.
It depends on the market reaction.
#13
How does a dividend payment affect stockholder equity?
It increases stockholder equity.
It decreases stockholder equity.
It has no impact on stockholder equity.
It depends on the market conditions.
#14
What is the difference between authorized shares and issued shares?
Authorized shares represent the maximum number of shares a company can issue, while issued shares are the shares actually sold to investors.
Authorized shares represent the shares owned by institutional investors, while issued shares are owned by individual shareholders.
Authorized shares represent the shares owned by company insiders, while issued shares are owned by external investors.
There is no difference between authorized and issued shares.
#15
Which of the following is considered a long-term liability?
Accounts payable
Short-term loans
Accrued expenses
Bonds payable
#16
What is treasury stock?
Stock owned by the company itself.
Stock issued by the company to raise capital.
Stock held by shareholders outside the company.
Stock held by institutional investors.
#17
What is the effect of a stock dividend on stockholder equity?
It decreases stockholder equity.
It increases stockholder equity.
It has no impact on stockholder equity.
It depends on the size of the dividend.
#18
What does a negative retained earnings balance indicate?
The company is in financial distress.
The company has distributed more dividends than its cumulative earnings.
The company has generated substantial profits.
The company has a high level of cash reserves.
#19
What is the purpose of the statement of cash flows?
To report the company's financial position at a specific point in time.
To provide details of changes in equity accounts over a specific period.
To outline the company's cash inflows and outflows.
To present the company's revenues and expenses for a period.