Which of the following accounts is a stockholders’ equity account?
Cash
Paid-in-Captial in Excess of Par
Cash Dividends Payable
Accounts Payable
The Correct Answer and Explanation is :
The correct answer is:
Paid-in Capital in Excess of Par
Explanation:
Stockholders’ equity represents the ownership interest of shareholders in a company. It consists of different components, including paid-in capital, retained earnings, and treasury stock. Let’s analyze the given options to determine which is a stockholders’ equity account:
- Cash – This is an asset account. Cash represents money held by the company in the form of currency, bank balances, or cash equivalents. It is recorded under the assets section of the balance sheet, not stockholders’ equity.
- Paid-in Capital in Excess of Par – This is a stockholders’ equity account. It represents the amount shareholders have paid for stock that exceeds its par value. For example, if a company issues shares with a par value of $1 but investors pay $5 per share, the extra $4 is recorded as Paid-in Capital in Excess of Par under stockholders’ equity.
- Cash Dividends Payable – This is a liability account. It represents the amount of dividends that the company has declared but not yet paid to shareholders. It is classified as a current liability on the balance sheet.
- Accounts Payable – This is a liability account. It represents the amount a company owes to suppliers or vendors for goods and services purchased on credit. It is recorded under current liabilities, not stockholders’ equity.
Conclusion:
Paid-in Capital in Excess of Par is the only account among the options that belongs to stockholders’ equity. It shows additional money invested by shareholders beyond the nominal par value of shares, contributing to the company’s overall equity.
Now, I’ll generate an image illustrating the concept of stockholders’ equity and its components.
Here is the infographic illustrating the components of stockholders’ equity, including “Paid-in Capital in Excess of Par” and its distinction from assets and liabilities. Let me know if you need any modifications or explanations!
