Which of the following statements is true with regard to equity capital?

Question

Quizplus · Accepted Answer

a. The number of shares actually in the hands of stockholders are called outstanding shares.
This statement is true because outstanding shares refer to the number of shares of a corporation that have been issued and are held by investors, including both public shareholders and company insiders. These shares are the ones that are actively traded in the market and have voting rights and potential to earn dividends, depending on the company's profitability and dividend policy.
The other statements are incorrect for the following reasons:
b. It is not unusual for corporations to have more than one class of stock outstanding at any point in time. Many corporations issue multiple classes of stock, such as common and preferred stock, which may have different voting rights, dividend policies, and priority in the event of liquidation.
c. Preferred stock represents the shares of stock that have been permanently retired. This statement is incorrect because preferred stock is a class of stock that typically has a fixed dividend and priority over common stock in the event of liquidation. It does not refer to retired shares. Retired shares are those that the company has bought back and removed from the market, reducing the number of outstanding shares.
d. Outstanding shares represent the maximum number of shares that can be issued by a corporation. This statement is incorrect because the maximum number of shares that can be issued by a corporation is defined by its authorized shares, which is a larger number set forth in the company's articles of incorporation. Outstanding shares are only a portion of the authorized shares that have been issued and are currently held by shareholders.

Which of the Following Statements Is True with Regard to Equity