Equity

Question 1

Preferred Stock

Answer 1

Shares of ownership that attract investors due to usually a fixed dividend. Preferred stockholders rank higher than common stockholders in claims to the business’s assets.

Question 2

Common Stock

Answer 2

Shares of ownership with voting rights. In liquidation, claims of creditors and preferred stockholders rank higher, hence called ‘Residual Equity.’

Question 3

Retained Earnings

Answer 3

Earnings retained within the business, accumulated net income less accumulated dividends paid since the business started.

Question 4

Dividends

Answer 4

Portion of assets returned to the owners of the business; dividends reduce equity.

Question 5

Income Summary

Answer 5

Temporary account used to summarize revenues and expenses to close down accounts.

Question 6

Owner’s Capital

Answer 6

Represents amounts owed to the owner (Proprietorship/Partnership).

Question 7

Withdrawals

Answer 7

Portion of assets returned to owners of the business; withdrawals reduce equity (Proprietorship/Partnership).