001 Owner's Equity Basics

Question 1

List the two main Owners’ Equity categories.

Answer 1

1. Earned and

2. Contributed

Question 2

List the major Owners’ Equity accounts for a corporation.

Answer 2

1. Preferred Stock 2. Common Stock 3. APIC - Preferred 4. APIC - Common 5. Retained Earnings 6. Treasury Stock

Question 3

What is the primary measurement basis for contributed capital?

Answer 3

The historical value of direct investments made in the firm by investors.

Question 4

What does Owner’s Equity represent.

Answer 4

Represents the residual interest in the net assets of an entity that remains after deducting its liabilities.

Question 5

Define “legal capital.”

Answer 5

The par value of the stock or the stated value of the stock issued.

Question 6

What purpose does legal capital serve?

Answer 6

1. Establishes minimum investment; 2. Provides protection for creditors (dividends may not be paid from legal capital).

Question 7

Define “dividends in arrears.”

Answer 7

Unpaid dividends for a particular year on cumulative preferred stock.

Question 8

How is the number of shares in the Treasury determined?

Answer 8

The number of shares purchased by the issuing firm and not yet reissued.

Question 9

How is the number of shares outstanding determined?

Answer 9

The number of shares currently held by stockholders.

Question 10

What is the number of common shares issued?

Answer 10

The number of shares ever issued by the firm but not retired = # of outstanding shares + # treasury shares.

Question 11

Define “authorized shares.”

Answer 11

The total number of shares that may be issued.

Question 12

List the types of preferred stock rights.

Answer 12

1. Nonvoting;
2. Dividends Preferences;
   3 Liquidation Preferences

Question 13

List the types of common stock rights.

Answer 13

1. Voting
2. Dividend
3. Preemtive