Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

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Multiple Choice

Which of the following are the two main components of stockholders' equity?

Common stock and retained earnings

Retained earnings and accounts payable

Dividends and cash

Preferred stock and notes payable

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Verified step by step guidance

Understand the concept of stockholders' equity: Stockholders' equity represents the owners' claim to the assets of a corporation after all liabilities have been deducted. It is a key section of the balance sheet.

Identify the main components of stockholders' equity: The two primary components are common stock (or preferred stock) and retained earnings. Common stock represents the initial investment by shareholders, while retained earnings are the accumulated profits that have been reinvested in the business rather than distributed as dividends.

Eliminate incorrect options: Accounts payable and notes payable are liabilities, not components of stockholders' equity. Dividends and cash are not part of stockholders' equity; dividends are distributions of retained earnings, and cash is an asset.

Focus on the correct answer: Common stock and retained earnings are the two main components of stockholders' equity. Preferred stock can also be part of stockholders' equity, but it is not mentioned in the correct pairing here.

Review the balance sheet structure: Stockholders' equity is typically divided into contributed capital (e.g., common stock) and earned capital (e.g., retained earnings). This reinforces why common stock and retained earnings are the correct components.