finance 34

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34. The retained earnings of the firm belong to

A. creditors
B. preferred stockholders
C. common stockholders
D. bondholders

I chose (C) common stockholders, because the equity section is divided into two accounts 1. common stock and 2. retained earnings.

The common stock account contains the capital raised by the company when it issues new stock.

The retained earnings is the account that contains the amount of earnings saved by the company rather than paying dividends.

The two account combined are called common equity (net worth), so if I understood the definitions correctly the common stock and retained earnings accounts are company captial = company asset. The retained earings belong to the perfered and common stockholders, but I chose common stockholders as my answer is this correct?

  • finance 34 -

    Yes, the answer is C.

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