Multiple Choice
If a company has previously authorized 50,000 shares of common stock and sells 10,000 of these shares to investors, which of the following statements is correct?
12. Stockholders' Equity
Shares Authorized, Issued, and Outstanding
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The total number of shares that a company may sell is referred to as:
A
Treasury shares
B
Outstanding shares
C
Issued shares
D
Authorized shares
Verified step by step guidance1
Understand the concept of 'Authorized shares': These are the maximum number of shares that a company is legally allowed to issue as specified in its corporate charter.
Differentiate 'Authorized shares' from other types of shares: Treasury shares are shares that the company has repurchased and holds, Outstanding shares are shares currently held by shareholders, and Issued shares are shares that have been sold to investors.
Recognize that 'Authorized shares' represent the upper limit of shares a company can issue, but not all authorized shares are necessarily issued or outstanding.
Review the corporate charter or legal documentation to confirm the number of authorized shares for a specific company.
Understand the importance of authorized shares in financial accounting: They provide a framework for the company's equity structure and potential for raising capital.
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