Why are retained earnings considered equity?
a) Because they are effectively additional investment in the company by existing owners
b) Because they are effectively an investment in the company by new owners
c) Because they come about when a bank agrees to exchange its loan for equity in the firm
d) Because they come about when new owners buy ownership stakes from existing owners
Answer: a) Because they are effectively additional investment in the company by existing owners
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Which of the following statements is true when creating a corporation in the United States?
A) Each of the 50 states has a general incorporation statute that stipulates the articles of incorporation to be used in that state. B) Incorporation is a federal matter and requires the recording of articles of incorporation with the U.S. Secretary of State. C) Corporations cannot be created without the enactment of a local ordinance in the city or county where the corporate headquarters is to be located. D) Corporations are created by private agreement and do not require the filing of any documents with a government official.
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Indicate whether the statement is true or false