1.)You and Frank are studying for an upcoming accounting exam. Frank says, “Contributed capital is basically the stockholders’ equity of the company. It includes things like the common stock, paid-in capital in excess of par, preferred stock, and retained earnings.” Do you agree with Frank? Why or why not? Explain.
No, we don’t agree with Frank.
Contributed capital refers to the money (money equivalent) received by the company from Investor when stock/share is sold to investor by the company for example public issue of shares whereas retained are the profits earned by the company which are not distributed in form of dividend (rather reinvested in the company)
Contributed capital includes common stock, paid-in capital in excess of par and preferred stock but not the retained earning.
Hence the statement made by Frank is incorrect.
2.)Another student in your accounting class says that, as she understands it, most current liabilities appearing on the balance sheet arise from transactions involving operating activities. Do you agree? Why or why not? List three current liabilities that might appear on the balance sheet. For each one, explain the underlying transaction that must have occurred for that specific liability to arise. Indicate, for each liability, whether it is the result of an operating, financing, or investing activity.
Yes we agree that most of the current liabilities appearing on balance sheet arise from transactions involving operating Activities. Operating activities are the normal daily activities undertaken by the firm for running the business such as purchase/production of good/service, payment of salary/wages etcetera. So the operating activities have a direct effect on the current liabilities of the firm.
Examples:
Accounts Payable: Account Payable is the amount owed by the company to its creditors for the purchase of Goods or services on credit during the normal course of business. It is a result of operating Activity.
Income Tax Payable: Its amount due to Government Authorities on the profit earned by the business. It is a result of operating Activity.
Salaries/Wages Payable: It’s the amount owed by the company to its employees/worker for the services rendered by the employees. It is a result of operating Activity.
Current maturities of long-term debt: It is the amount owed by the company which is payable during the current year for the amount money borrowed (Issue of Bonds/Debenture) earlier for its financing needs such as expansion etcetera. It is a result of Financing Activity