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Questions and Answers
What are the two major components of contributed capital?
What are the two major components of contributed capital?
- Legal capital and additional paid in capital (correct)
- Legal capital and common stock
- Additional paid in capital and retained earnings
- Legal capital and retained earnings
Which component of contributed capital represents the par value of the stock?
Which component of contributed capital represents the par value of the stock?
- Additional paid in capital
- Retained earnings
- Common stock
- Legal capital (correct)
What is the purpose of additional paid in capital?
What is the purpose of additional paid in capital?
- To represent the common stock issued by the company
- To represent the amount received from shareholders in excess of the par value (correct)
- To represent the legal capital of the company
- To represent the retained earnings of the company
Study Notes
Contributed Capital
- Contributed capital has two major components:
- One component represents the par value of the stock, known as common stock or stated capital
- The second component is additional paid-in capital, which represents the amount paid by investors in excess of the par value
Purpose of Additional Paid-in Capital
- The purpose of additional paid-in capital is to record the excess amount received from investors when they buy shares at a price higher than the par value
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Description
Test your knowledge of contributed capital and paid in capital with this quiz. Learn about the two major components - legal capital and additional paid in capital.
