Practice | Compare and Contrast Owners’ Equity versus Retained Earnings

Q1 | Stockholders’ equity consists of which of the following?

bonds payable

retained earnings and accounts receivable

retained earnings and paid-in capital

discounts and premiums on bond payable

Q2 | Retained earnings is accurately described by all except which of the following statements?

Retained earnings is the primary component of a company’s earned capital.

Dividends declared are added to retained earnings.

Net income is added to retained earnings.

Net losses are accumulated in the retained earnings account.

Q3 | If a company’s board of directors designates a portion of earnings for a particular purpose due to legal or contractual obligations, they are designated as ________.

retained earnings payable

appropriated retained earnings

cumulative retained earnings

restricted retained earnings

Q4 | Corrections of errors that occurred on a previous period’s financial statements are called ________.

restrictions

deficits

prior period adjustments

restatements

Q5 | Owner’s equity represents which of the following?

the amount of funding the company has from issuing bonds

the sum of the retained earnings and accounts receivable account balances

the total of retained earnings plus paid-in capital

the business owner’s/owners’ share of the company, also known as net worth or net assets

Principles of Accounting Volume 1: Financial Accounting

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