#1
Which financial statement represents the ownership interest in a corporation?
Balance Sheet
ExplanationThe balance sheet displays the company's assets, liabilities, and shareholders' equity, representing the ownership interest.
#2
What is the term for the shares that have been issued and are in the hands of investors?
Outstanding Shares
ExplanationOutstanding shares are the shares issued by a company that are currently held by investors.
#3
In the context of stockholders' equity, what does 'par value' represent?
The face value of a stock
Explanation'Par value' in stockholders' equity represents the nominal or face value assigned to a stock.
#4
What is the primary purpose of the Statement of Retained Earnings?
To reconcile the beginning and ending balances of retained earnings
ExplanationThe Statement of Retained Earnings reconciles the changes in retained earnings from the beginning to the end of a period.
#5
What does the term 'book value per share' represent in stockholders' equity?
The value of common equity per outstanding share
Explanation'Book value per share' is the common equity divided by the number of outstanding shares, representing the per-share value.
#6
In stockholders' equity, what is the primary purpose of the Common Stock account?
To represent the ownership interest of common shareholders
ExplanationThe Common Stock account reflects the ownership interest of common shareholders in the company.
#7
Which financial statement would you find the total comprehensive income for a corporation?
Statement of Comprehensive Income
ExplanationThe Statement of Comprehensive Income reports the total comprehensive income, including net income and other comprehensive income.
#8
What is the significance of the 'authorized shares' in stockholders' equity?
Maximum number of shares a corporation can issue
Explanation'Authorized shares' represent the maximum number of shares a corporation is permitted to issue.
#9
What is the significance of a stock split for existing shareholders?
It has no impact on their ownership interest
ExplanationA stock split does not affect the total ownership interest of existing shareholders; it merely adjusts the number of shares.
#10
What is the formula for calculating Return on Equity (ROE)?
Net Income / Average Shareholders' Equity
ExplanationROE is calculated by dividing net income by the average shareholders' equity, indicating the profitability relative to equity.
#11
What is the purpose of the Additional Paid-In Capital account in stockholders' equity?
To show the amount received from issuing stock above its par value
ExplanationAdditional Paid-In Capital records the excess amount received from issuing stock above its par value.
#12
What impact does the declaration of a cash dividend have on stockholders' equity?
Decreases total equity
ExplanationCash dividends reduce the total equity of a company as they are distributions of profits to shareholders.
#13
In the context of stock splits, what is a 'reverse stock split'?
Decreasing the number of shares outstanding, typically with an increase in share price
ExplanationA 'reverse stock split' involves reducing the number of shares outstanding, often accompanied by an increase in share price.
#14
How does the issuance of dividends impact the retained earnings of a corporation?
Decreases retained earnings
ExplanationDividend payments reduce retained earnings, representing the portion of profits distributed to shareholders.