Multiple Choice
Which of the following represents the number of shares currently owned by investors?
12. Stockholders' Equity
Shares Authorized, Issued, and Outstanding
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Authorized common stock refers to the total number of shares:
A
that have been issued and are currently held by shareholders
B
that a corporation is legally permitted to issue as specified in its corporate charter
C
that have been sold to investors during the current accounting period
D
that have been repurchased by the corporation and are held as treasury stock
Verified step by step guidance1
Understand the concept of 'Authorized Common Stock': It refers to the maximum number of shares a corporation is legally allowed to issue, as outlined in its corporate charter.
Differentiate 'Authorized Common Stock' from other terms: Issued stock refers to shares that have been sold to investors, while treasury stock refers to shares repurchased by the corporation.
Review the corporate charter: The corporate charter specifies the number of shares the corporation is authorized to issue, which is determined during the incorporation process.
Recognize that authorized stock does not necessarily mean issued stock: A corporation may authorize more shares than it actually issues to investors.
Apply this understanding to the problem: The correct answer is the option that aligns with the definition of authorized common stock, which is 'that a corporation is legally permitted to issue as specified in its corporate charter.'
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