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

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

Which of the following is a disadvantage of equity capital?

It requires regular interest payments.

It must be repaid at a fixed maturity date.

It dilutes ownership and control of the company.

It increases the company's financial leverage.

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Verified step by step guidance

Understand the concept of equity capital: Equity capital refers to funds raised by a company through the issuance of shares to investors. Shareholders become part-owners of the company and have voting rights, but the company is not obligated to repay the funds or pay regular interest like debt financing.

Analyze the options provided in the question: Each option describes a potential characteristic or disadvantage of equity capital. Evaluate each one to determine its accuracy.

Option 1: 'It requires regular interest payments.' This is incorrect because equity capital does not involve interest payments. Interest payments are associated with debt financing, not equity.

Option 2: 'It must be repaid at a fixed maturity date.' This is also incorrect because equity capital does not have a maturity date. Unlike debt, equity does not need to be repaid.

Option 3: 'It dilutes ownership and control of the company.' This is correct because issuing new shares to raise equity capital reduces the ownership percentage of existing shareholders, thereby diluting their control over the company. This is a key disadvantage of equity financing.