#1
Which of the following statements best defines stockholder equity?
It is the residual interest in the assets of the company after deducting liabilities.
ExplanationResidual interest after deducting liabilities.
#2
What does the debt-to-equity ratio measure?
The proportion of debt financing relative to equity financing used by the company.
ExplanationMeasure of debt financing proportion.
#3
Which financial statement reports a company's stockholder equity?
Balance sheet
ExplanationReported in the balance sheet.
#4
What is the purpose of additional paid-in capital?
To represent the excess amount received from issuing stock over its par value.
ExplanationRepresentation of excess received from stock issuance.
#5
Which of the following is NOT a component of stockholder equity?
Accounts payable
ExplanationNot a component: Accounts payable.
#6
What is the formula for calculating the debt-to-equity ratio?
Total debt / Total equity
ExplanationFormula: Total debt / Total equity.
#7
What does a high debt-to-equity ratio indicate?
High financial risk and potential for financial distress.
ExplanationHigh financial risk and potential distress.
#8
What does the return on equity (ROE) measure?
The efficiency of the company in utilizing shareholders' equity to generate profits.
ExplanationEfficiency in using equity for profit generation.
#9
Which of the following would decrease a company's stockholder equity?
Issuing dividends to shareholders.
ExplanationDecrease through dividend issuance.
#10
What is the formula to calculate stockholder equity?
Assets - Liabilities
ExplanationCalculation: Assets - Liabilities.
#11
What is the primary purpose of retained earnings?
To finance ongoing operations and growth of the company.
ExplanationFinancing ongoing operations and growth.
#12
How does a stock split affect stockholder equity?
It has no impact on stockholder equity.
ExplanationNo impact from a stock split.
#13
How does a dividend payment affect stockholder equity?
It decreases stockholder equity.
ExplanationDecrease in equity through dividend payment.
#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.
ExplanationAuthorized vs. issued shares.
#15
Which of the following is considered a long-term liability?
Bonds payable
ExplanationLong-term liability: Bonds payable.
#16
What is treasury stock?
Stock owned by the company itself.
ExplanationStock owned by the company.
#17
What is the effect of a stock dividend on stockholder equity?
It has no impact on stockholder equity.
ExplanationNo impact from a stock dividend.
#18
What does a negative retained earnings balance indicate?
The company has distributed more dividends than its cumulative earnings.
ExplanationNegative balance: Excess dividends distribution.
#19
What is the purpose of the statement of cash flows?
To outline the company's cash inflows and outflows.
ExplanationOutline of cash inflows and outflows.