which of the following statements is false. A) stockholders equity is financing provided by the owners and by the operations of the business. B) An increase or decrease in income will ultimately affect the balance sheet. C) The securities and exchange commission is the governmental agency that regulates the stock market and enforces reporting standards for publicly traded corporations.
The correct answer and explanation is:
The correct answer is A) “Stockholders’ equity is financing provided by the owners and by the operations of the business.”
Explanation:
- A) Stockholders’ equity is financing provided by the owners and by the operations of the business.
This statement is false because stockholders’ equity is primarily financing provided by the owners (shareholders) through the purchase of stock in the company. However, it does not directly include financing from the operations of the business. Operations, such as revenues and profits, contribute to retained earnings, which is part of stockholders’ equity, but operations themselves do not provide financing. The financing primarily comes from the initial investment made by stockholders (share capital) and profits accumulated over time (retained earnings). So, this statement is inaccurate in suggesting that operations provide financing in the same way that stockholders do. - B) An increase or decrease in income will ultimately affect the balance sheet.
This statement is true. Income, which flows through the income statement, has an impact on the balance sheet. For instance, a net profit increases retained earnings in stockholders’ equity, while a net loss decreases it. Changes in income affect the overall financial position of the company, which is reflected in the balance sheet. - C) The Securities and Exchange Commission (SEC) is the governmental agency that regulates the stock market and enforces reporting standards for publicly traded corporations.
This statement is true. The SEC is the U.S. government agency responsible for regulating the securities industry, including stock markets, and enforcing compliance with financial reporting standards for publicly traded companies. The SEC ensures transparency, fairness, and protection for investors by overseeing the adherence to proper accounting principles and disclosures.
In conclusion, A is the false statement because stockholders’ equity does not directly include financing from the operations of the business.