Shareholders' equity is usually comprised of
A)common shares and dividends.
B)common shares and retained earnings.
C)dividends and retained earnings.
D)profit and retained earnings.

Question

Quizplus · Accepted Answer

Shareholders' equity represents the owners' claim on the assets of the company. It is usually comprised of common shares, which represent the owners' investment in the company, and retained earnings, which are the profits that have been kept in the company rather than paid out as dividends to shareholders. Therefore, the best choice for the composition of shareholders' equity is common shares and retained earnings (choice B). Dividends are payments made to shareholders out of the profits of the company, so they are not typically included in the shareholders' equity calculation. Profit is a component of retained earnings, so it is not a separate component of shareholders' equity.

Shareholders' Equity Is Usually Comprised of