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Shareholders' equity: a) is referred to as a firm’s financial leverage. b) is equal to total...

Shareholders' equity:

a) is referred to as a firm’s financial leverage.

b) is equal to total assets plus total liabilities.

c) decreases whenever new shares of stock are issued.

d) includes patents, preferred stock, and common stock.

e) represents the residual value of a firm.

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Answer #1

Answer: e) represents the residual value of a firm. it is the owner's residual claim on company's asset after settling its liabilities

Let's look at other options-

a) is referred to as a firm’s financial leverage - Financial leverage refers to the debt portoion in the capital structure. Since shareholder's are the owners, their contribution can not be said to be debt.

b) is equal to total assets plus total liabilities - Shareholders' equity can be calculated either as 1)Total Assets – Total Liabilities or 2)Share Capital + Retained Earnings – Treasury Shares

c) decreases whenever new shares of stock are issued - In actual sense, Shareholders' equity increases whenever new shares of stock are issued.

d) includes patents, preferred stock, and common stock - Shareholders' equity includes preferred stock, and common stock but not patents,

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