Question

Which of the following statements regarding equity is false? Par value represents the legal capital that...

Which of the following statements regarding equity is false?

Par value represents the legal capital that must be retained when a stock is issued.

Dividends declared reduce earned capital.

Preferred shareholders are paid a dividend every year.

Paid in capital in excess of par value is an example of contributed capital.
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Answer #1

The False statement :- Paid in capital in excess of par value is an example of contributed capital.

Reason :-

Legal capital is the capital which cannot be moved out of company. It is represented by par value of shares. So the first statement is true.

Dividend declares is apportioned from earned capital. So second statement is true.

Preference shares holders has right to get dividend every year. So third Statement is true.

Contributed capital is the amount paid by the shareholder and it is not the excess paid over par value. So the fourth statement is false.

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