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

Characteristics of a Corporation

Financial Accounting

12. Stockholders' Equity

Characteristics of a Corporation

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Multiple Choice

In the context of corporations, what does the phrase 'limited liability' mean?

Shareholders are guaranteed a fixed return on their investment.

The corporation cannot be sued in a court of law.

Shareholders are only responsible for the corporation's debts up to the amount they invested.

Shareholders are personally responsible for all of the corporation's debts.

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Verified step by step guidance

Understand the concept of 'limited liability' in the context of corporations. Limited liability means that shareholders are not personally responsible for the debts or obligations of the corporation beyond the amount they have invested in the company.

Compare the provided options to the definition of limited liability. Eliminate options that contradict the concept. For example, 'Shareholders are personally responsible for all of the corporation's debts' is incorrect because it conflicts with the principle of limited liability.

Evaluate the option 'Shareholders are guaranteed a fixed return on their investment.' This is unrelated to limited liability, as limited liability pertains to financial responsibility for debts, not returns on investment.

Assess the option 'The corporation cannot be sued in a court of law.' This is incorrect because corporations can be sued; limited liability refers to the shareholders' financial exposure, not the corporation's legal status.

Select the correct option: 'Shareholders are only responsible for the corporation's debts up to the amount they invested.' This aligns with the definition of limited liability, as it limits shareholders' financial risk to their investment in the corporation.